Select Committee on Social Security Fifth Report


Memorandum submitted by PAPRI Pension and Population Research Institute (PS 11)


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

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Prepared 15 March 1999