Select Committee on Social Security Fifth Report


Memorandum submitted by FAIRSHARES (PS 7)


  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.


  1.1 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 earmarking—and 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.


  2.1 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.


  3.1 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.


  4.1 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.


  5.1 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.


  6.1 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.


  7.1 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.


  8.1 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.


  9.1 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.


  10.1 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.


  11.1 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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