APPENDIX 14
Memorandum submitted by PAPRI Pension
and Population Research Institute (PS 11)
1. DETERIORATION
IN BRITISH
PENSION PROVISION
AS A
RESULT OF
DIVORCE WITH
PENSION SHARING
1.1 Lack of Awareness by Government
The Committee seems well aware that they have
another potential disappointment on their hands with this subject.
The impression is being given, when the government presents the
new legislation, that a satisfactory treatment of pension rights
on divorce is possible that will allow both parties to ultimately
achieve satisfactory pensions.
But there is a loss of total pension provision
inherent in divorce that will leave many divorcees with the impression
that they have been badly treated by the British pension system.
The government seems not to recognise that what
is proposed will lead to a further deterioration is pension provision.
Page vii section 16 of their response[60]
says "estimates assume that pension sharing will take place
in about a third of divorces. Where it does take place, it is
more likely to involve a transfer of pension rights from men to
women". It is assumed that this will achieve "fairer
settlements" and "facilitate a clean break" which
will achieve"more secure financial arrangements for the former
spouse in retirement".
In reality the aggregate value of pension benefits
is reduced by the divorce. There is also an inefficiency and loss
in the division of pension annuities for which British pension
schemes are ill designed.
1.2 Widows Pensions Important in the UK
In the UK survivors' benefit in occupational
schemes are important. But survivors benefits that might have
been paid had there been no divorce will not be paid on death
of a divorced person scheme member.
Widows' benefit that would be payable if marriage
had continued without divorce that are especially valuable in
the UK pension schemes are being lost on divorce.
1.3 Small Pensions are an Administrative Problem
in the UK
There is also a division of accrued member's
pensions to be facilitated by the new legislation, that results
in smaller pensions for both parties. Already British pensions
are affected by reductions in pension for early leavers and many
now receive "nuisance pensions". Now that divorce is
affecting millions of pension scheme members, their spouses and
families there will be more fractional pensions in future that
include the new "share additional pensions" announced
in the new Bill.
The Government also seems unaware of the aggravation
of the nuisance pensions that result from a period of short service
in British occupational schemes. Trivial pensions less than £260
per year can be commuted under Inland Revenue rules. But many
of the new split pensions, shared on divorce under the new legislation,
will be more than £260 per year but less than a useful benefit.
Several of the new Government initiatives are
to make greater use of means-testing in the state pension system
and for the delivery of other benefits. Means testing will operate
in conjunction with the New Second State Pension that is to be
flat rate so as to provide a Guaranteed Minimum Pension. Some
women who accept the new shared pension split by a Pension Sharing
order will discover at a later date that they would have done
better to offset pensions with a share in the house at the time
of divorce, if this could have allowed them to plead poverty and
qualify for a means tested state second pension at a later date.
From the government's point of view, at the
same time, it is unreaslistic to think that fractional pensions,
arranged at the time of divorce, will lift many out of claiming
means-tested benefits in old age.
Patrick Carroll
Director of Research
4 March 1999
60 HC 146. Back
|