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Lord Mackay of Ardbrecknish: My Lords, our amendments give extra powers to the courts so that they will in future be able to order the scheme member to exercise any right of nomination so as to give his ex-wife all or part of any lump sum payment due from a scheme on his death. He must so nominate if the court orders him to do so.
We very much welcome the fact that, in this House and in another place, the Government have accepted the spirit of the amendments agreed by your Lordships and turned them into what I hope will be a workable scheme. That means that in addition to offsetting at the point of divorce the parties also have the option of earmarking assets managed by the pension scheme.
All of us accept that the third option of splitting the pension must follow shortly. We cannot leave the law as it is. We have broken the ice. We have helped a large number of women. That is desirable and useful. However, it is clear that the desirable situation would be that the courts, in conjunction with the partners concerned, should be able to choose between offsetting, earmarking or splitting, according to the resources within the marriage, the age of the parties and their own inclination. If the parties are fairly young they will wish to have a clean break, which can only be achieved by
I do not accept the figures that the Government offered first here and then again in the other place about the putative cost of splitting the pension. I accept that there may be a modest loss to the Inland Revenue because of the loss of associated revenue when there are two small pensions rather than one larger pension. As to the Government's figure of the cost to public funds of splitting pensions in the case of unfunded or pay-as-you-go public authority schemes, £300 million represented 20 years of divorces all rolled up into one year with in all cases the parties taking the money out of the scheme. That is an absurd method of calculation. Heavyweight firms of actuaries have reduced that figure of £300 million to under £50 million as the realistic cost likely to be faced by the Government. Even then it simply marks a transfer flow and not an actual cash sum. Therefore, the Government's objections on grounds of cost are widely regarded as dubious at best and probably spurious.
However, we all expect that the Queen's Speech may include a matrimonial causes Bill promoted by the Lord Chancellor's Department or the Home Office in association with reform of divorce law. As by that time the Government will have the full research findings that they made much of during the course of debate, we can expect, and have every reason to hope, that we shall see a further progression in the tidying up of pension arrangements on divorce so that in those marriage break-ups where it is appropriate splitting the pensionthe clean break situationwill be an option. That must happen. We all know that it must happen.
Finally, I should like to press further the point rightly made by the noble Baroness, Lady Seear, about the lump sum. The problem with earmarking, welcome and highly suitable though it is for women in their late 50sthe former husband is fairly close to drawing a pensionis that her money depends on his outliving her. If he dies before she reaches pension age, she receives no flow of money. If he dies before her, say, in his late 70s or early 80s, between the ages of 60, or 65, and 75 she may have enjoyed an appropriate share of his pension. He may be three or four years older than her and may not have the life expectancy that she has. If he then dies, it means that at the age of 75 or 78 she suddenly, from having an income of perhaps £150 or £200 from the pension, plunges to income support level benefitsthe state pension plus a top up. Suddenly her pension will go because he has died. In her declining years, when she is most likely to need money to afford residential care and fees, she will receive no pension. That is the consequence of earmarking.
We have had informal discussions. There is absolutely no reason why in another place the Government should not have added an amendment which allowed that fraction of the pension which went to the first wife at the time of their divorce, say, 25 per cent. or 30 per cent. of the total pension, to continue as a fraction of the widow's pension after the husband's death. The sums may be exactly the same. They may need minor adjustment. That could be a matter for the
Otherwise, we have to say to elderly women, "Yes, we fought for you. We have now conceded that you may have your due portion of your former husband's pension, but the moment he dies your money stops and down you plummet into income support at just the time when possibly your expenses will increase because you will need nursing care". That problem could have been overcome quite simply within the framework of an earmarking scheme by allowing the ex-wife's portion to continue. Perhaps the Government will comment on that point.
Secondly, do I understand that we are talking only about the lump sum that is paid if the ex-husband dies before he reaches pension age? Let me cite a scheme where the pension is 40/80ths, and 3/80ths of it becomes a lump sum. Such a scheme is not uncommon. One receives 40/80ths as a pension and 2.5 times one's annual salary as a lump sum. That is a fairly standard scheme. The husband then dies. I presume that the former wife would now lose the earmarked flow of money from the 40/80ths. But would she have a right to the 2.5 times the annual salary which would be part of his lump sum at retirement? Will the Minister explain what happens to that lump sum element, not when the former husband dies in service, but when it is part of his subsequent pension entitlement? Is that a claim of the ex-wife on his estate?
Can the Minister help us? We have some real problems which the Government could easily have overcome within the framework of their own scheme so as to ensure that the first wife continues to have a modest pension which is not dependent on the ex-husband outliving her. The Government have chosen not to do so, even though there is quite a lot of pressure on them to make that move. Perhaps we could have the Minister's response to some of those questions.
Lord Mackay of Ardbrecknish: My Lords, perhaps I may try to address the question of the lump sum payment. It is certainly true that we listened to and have responded to concerns in the debate that if the ex-husband dies then the ex-wife could lose access to any payments from her ex-husband's scheme. In future the court will be able to order the scheme member to exercise any right of nomination in order to give his ex-wife all or part of any lump sum payment due from a scheme on his death. The court will have a power to direct the trustees or managers to pay this sum to the ex-wife so that she does not have to claim from his estate or other dependants. The new section also protects the trustees or managers from claims from scheme members with regard to the payments that they have been ordered to make.
It is difficult to decide on my feet; I am trying to read at the same time as answering the noble Baroness. I think that it does not matter when a lump sum is made. The situation will apply if a lump sum is made after retirement as opposed to before retirement. However the question posed in debate was: if the member of a pension fund should die before he retired, what would happen? That is certainly the matter that I understood we addressed. I suspect that there will be no difference in the situation between pre-retirement and post-retirement. I shall confirm that to the noble Baroness as quickly as I am given the opportunity to read what the document says.
Having had my attention drawn to the right place, I am now considering the question of post-retirement death, which is the question the noble Baroness asked. The scheme, of course, will stop paying the ex-husband's pension. The noble Baroness makes the fair point that, therefore, there will be no income to pay continued maintenance. Therefore, as now, any ongoing maintenance will cease.
We have considered the issue carefully and have concluded that we can offer something of a solution. We have introduced a provision that could require a scheme member to nominate his ex-spouse to receive any lump sum that is payable to his estate following his death either in service or after retirement. As I suspected, the answer to the noble Baroness's question is, yes. Where necessary our legislation will override any scheme rules that would limit nomination. There could be limits to nomination in a scheme which might make what we seek to do impossible, but the legislation will overrule that.
I know that this is not a perfect answer. I hope that I have answered the point about the lump sum. Either before or after, the same rule applies: if there is a lump sum the court can order that the scheme member has to exercise the right of nomination either for the whole or part of the amount to the ex-wife.
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