APPENDIX 5
Memorandum submitted by FAIRSHARES (PS
7)
SUMMARY
1. CETVs. (Clause 22) Money Purchase
Schemes. Defined Benefit Schemes "Surrender value".
Assumption Problems. The importance of Survivors' benefits. The
need for clear communication of information.
2. Payments of charges. (Clause 33) The
need for protection for the non scheme member.
3. AVCs. Selling of FSAVCs. (Clause 29:101F)
Access for all and the protection of the non scheme member.
4. Redundancy/Early retirement. (Clause 38)
The potential disadvantage to the non scheme member.
5. Bereavement payment. (Clause 44) The
loss of this entitlement on divorce should be recognised.
6. Pension Credit Benefit. (Clause 29:101P)
The position of the transferee needs to be clearly defined.
7. Self-employed and disclosure. (Clause
66) This is the area that pushes up costs and caused the most
animosity. The new regulations for the CSA need to be extended
to matrimonial proceedings.
8. Commencement date of Pensions Sharing.
9. Implementation of FLA.
10. Omissions.
11. Conclusion.
We are very pleased to have been invited to
make a further submission to the House of Commons Social Security
Select Committee, as we feel that there are still some areas that
need to be addressed further.
We cannot accept that those individual members
who leave early from an occupational or personal pension scheme
can be equated with the non-scheme member in a divorce. This is
a comparison of apples and oranges. The former are volunteers
in control of their own financial destiny who are considering
this balance of personal benefits in employment packages; the
latter are without any such control of their future finances.
We believe that Eversheds Pensions Law Handbook 1999 summarises
our position precisely.
1. CETVS
1.1 According to Eversheds Pensions Law Handbook
1999 page 30 "Where the parties have been married for some
time, or the earnings are higher, such a valuation (CETV) can
be misleading, sometimes by a factor of four or five. In such
cases it is crucial and prudent to use a different system, perhaps
the past service reserve approach, which may be more appropriate.
It certainly enables the solicitor to give proper advice on which
method of settlement should be employed. In many cases the simple
CETV does not provide sufficient information to the client to
decide whether to try to achieve either set-off or earmarkingand
whichever method, what the amounts should be".
1.2 Money Purchase Schemes. The "surrender"
value which the Bill calls for to be used as the default value
is often disadvantageous to the spouse. It would be fairer to
use a valuation of the Fund value, where the funds are left with
insurer or investment manager.
1.3 Defined Benefit Schemes. If the CETV is
used then the rights under the past service reserves are lost.
This would appear to benefit the scheme to the detriment of the
non-scheme member spouse.
2. PAYMENT OF
CHARGES
2.1 This provides a loophole for the unscrupulous
to exploit allowing the scheme member can have control over the
timing of the procedure. If the order does not make clear the
proportion of costs to be met by each party to the divorce it
falls to the scheme member, if he/she does not want the divorce
they can simply delay payment. It is important that the scheme
is empowered to deduct these charges from both the member's pension
rights or the spouse's pension credit, whichever is applicable.
3. AVCS
3.1 Members of Public Sector Unfunded Schemes
are able to buy Additional Voluntary Contributions (AVCs), therefore
this right should be extended to new members who have pension
credits through divorce.
3.2 This would go some way to calming the misgivings
we have over the selling of Free Standing Additional Voluntary
Contributions (FSAVCs). Access to AVCs would protect the financial
position of some ex-spouses.
3.3 This is a straight money purchase and we
propose that where a member of a public sector service unfunded
scheme has acquired additional rights through money purchase,
this should be recognised. The same provisions as attach to funded
occupational schemes should apply equally to that "money
purchased" element.
4. REDUNDANCY/EARLY
RETIREMENT
4.1 If a scheme member opts to take an early
retirement package, or becomes the recipient of a redundancy package,
this capital sum can be a considerable amount of money. The earlier
this retirement is taken the less likely it is to be true retirement,
more likely a "career change". The scheme member can
go forward with the cushion of a guaranteed income that can be
topped up with earnings. We believe that the preclusion of access
to a share of such a capital sum will cause disadvantage to the
pension credit member and we propose that provision should be
made for this payment to be shared.
5. BEREAVEMENT PAYMENT
5.1 Given the good news that Bereavement Payments
are to increase and become gender neutral would it not now make
sense for the party with inadequate pension provision to be entitled
to compensation of £2,000 for the future loss of widow/er's
pension. We propose that this should apply to all cases.
6. PENSION CREDIT
BENEFIT
6.1 The rights of the party who is a pension
credit member are undefined. This does not enable the party with
the pension credit benefit to make an informed decision about
the rest of their life.
7. DISCLOSURE AND
SELF-EMPLOYMENT
7.1 There is provision in the Act for a new
procedure to obtain information about the self-employed for the
CSA. FAIRSHARES believes that given the number of our members
who are being disadvantaged financially by lack of full disclosure
by self-employed spouses that the procedure should be extended
to cover matrimonial proceedings.
7.2 Self-Employment. The employment trend that
is prevalent is to sub-contract on a self employed basis. This
can lead to huge problems where periodical payments are concerned.
Refusal to pay leads to continuous court re-appearances as an
attachment order cannot be made.
7.3 For example we have a case of a man who
works, on a contract basis for the London Underground, earning
£80,000+ per annum and refuses to make regular maintenance
payments; an attachment of earnings order cannot be made as he
is "self-employed", but he only has the one employer
and his poor ex-wife must spend what little money she has on solicitors
and court hearings. This problem is becoming more typical and
will increase given the trends in employment. It needs to be addressed.
8. COMMENCEMENT DATE
OF PENSION
SHARING
8.1 We feel that the date of April 2000 as given
by Harriet Harman should be adhered to.
8.2 Further this must mean that every petition
filed after that date (be it the 1st or the 5th) shall come under
the Pension Sharing regulations. The orders that are made by the
courts do not need to be implemented until the necessary adjustments
have been made by the Pensions Industry, Companies and the Government.
They just run from the date of the order. This will give some
protection to those who otherwise will not be able to hold on
until the later Pension Sharing date.
8.3 Remember you cannot stay married in this
country for more than five years if the other spouse wants a divorce.
We feel that this would be a practicable compromise.
9. FAMILY LAW
ACT
9.1 We are concerned that some sections of the
Family Law Act may be introduced before the Pension Sharing regulations
are in place and could raise anomalies that may disadvantage those
planning a divorce.
9.2 We would hope that serious examination be
given to the timing of the introduction of all sections of the
Family Law Act and the ramifications they may have, with special
regard to the Welfare Reform and Pensions Bill.
9.3 The change of time from five years to three
and from two years to one for the equivalent of decrees absolute
to be given is one example. This could seriously damage the prospects
of those faced with divorce.
10. OMISSIONS
10.1 We are concerned that there is no mention
of the accreditation of the practitioners of the law at all levels.
10.2 We believe that anyone faced with divorce
has the right to be able to identify a solicitor who has achieved
a standard of expertise that has been proven with certification.
This can be shown by a logo that can be easily recognised. They
should be able to have the same confidence in any barrister or
Judge involved in their case by the identification of the same
logo.
10.3 There should be "refresher courses"
every two years to make sure that the expertise of these practitioners
is up to date, with updated certification.
10.4 This would bring the legal profession in
line with the new proposals for teachers and doctors in search
of higher standards, which we propose is reasonable and fair.
11. CONCLUSION
11.1 It has been suggested that in the interests
of simplicity over fairness that since not all pension funds offer
dependents' benefits that none of them should be taken into account.
Not all divorcing couples own matrimonial homes but it has not
been suggested that no matrimonial homes should be taken into
consideration. We are very disappointed that the basis for the
sharing of pensions on divorce should still appear to be undervaluing
the share of the non-scheme member. This is short-sighted given
our ageing population and the longevity of women. Further this
basis of pension sharing perpetuates the existing financial superiority
of the higher earner in a divorce situation. It is not equitable.
11.2 The disregard of the importance of survivor's
benefits and other discretionary benefits in pension sharing will
leave those who have been disadvantaged with the impression that
they have been badly treated.
11.3 Unless our concerns above are incorporated
we believe that the take-up rate for pension sharing in its current
form will be even less than for earmarking.
11.4 As the Bill stands at present, it would
appear to be putting simplicity above fairness. FAIRSHARES is
very concerned that the outcome of this Bill will not be the fair
share for both parties to a divorce that we hoped to achieve.
5 March 1999
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