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Lord Higgins moved Amendment No. 73:

Page 51, line 17, leave out subsection (1)

The noble Lord said: We have already had an extensive debate on the various arrangements for pension sharing, to which my noble friend Lord Astor of Hever has given a considerable amount of intensive study. We now turn to a part of the Bill dealing with a particular aspect of pension sharing; namely, the sharing of state scheme rights.

One well understands that in regard to divorce and pension sharing the accumulated rights of individuals in, for example, a particular occupational scheme or a personal pension scheme may be allocated in the ways that we have discussed. But even more complex considerations arise in regard to the sharing of state scheme benefits.

We could appropriately have tabled amendments to leave out Clause 43 or Clause 44. However, it seemed to us that Clause 46 might be an appropriate one on which to have a rather general debate on the way in which a married couple's assets in the state scheme might reasonably be divided between them in the event of divorce. This is effectively a paving amendment so far as discussion of Schedule 6 is concerned.

Schedule 6 contains a series of provisions on the effect of so-called state scheme pension debits and credits. That appears to be a method that the Government have in mind to allocate the various entitlements that either member of a married couple may have. Having studied Clause 46 and Schedule 6, I am far from clear how the arrangement will proceed.

It would seem that, so far as category A retirement pensions are concerned, there will be reductions in the additional pension and, similarly, between the two parties involved there will be a reduction in the shared additional pension. I am not clear why there is an additional pension. Perhaps the Minister will explain, first, why that is the case and, secondly, why the pension should be reduced so far as pension sharing is concerned.

The considerations which arise in the case of the state scheme are different from those which arise otherwise. Both individuals concerned may have contributed towards the state pension scheme, although in a number of cases that may not be true. Perhaps the man will have

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a scheme and his wife may have a related pension, particularly with, for example, widow's benefits, although that is not relevant in the present context. Since this is a complex area, it would be helpful if the noble Baroness could spell out the way in which she foresees the rights in the state scheme being divided and why there should be additional pensions on the one hand and reductions in them on the other.

One could have raised the matter on the earlier clauses in this part, but it seemed to us an appropriate point at which to raise these important issues. I beg to move.

Baroness Fookes: Can the Minister say what happens with the spouse who has been divorced and has the credit in the pension sharing arrangements? What happens if she dies either before retirement age or soon after? Is the credit then lost for ever to the spouse who gave the credit in the first place? Presumably his pension, whether it is state or occupational, will be less than it would have been by virtue of the pension sharing arrangement. I should be grateful if the Minister could deal with that. It may be in the document somewhere, but I have not been able to find it.

Baroness Hollis of Heigham: Amendment No. 73 removes subsection (1) of Clause 46 which gives effect to Schedule 6--an essential component of our pension sharing proposals which provide for the sharing of SERPS rights. Schedule 6 inserts four new sections into the Contributions and Benefits Act 1992.

Lord Higgins: Did I understand the noble Baroness to mention SERPS rights?

Baroness Hollis of Heigham: Yes. In particular, paragraph 2 covers how and when an additional pension should be reduced when a person's SERPS rights become subject to a pension debit. That is what we are talking about, SERPS and the additional pension. Paragraph 3 of Schedule 3 covers how and when a person will become entitled to a shared additional pension and whether a shared additional pension can subsequently become subject to a pension sharing order or provision.

The effect of Amendment No. 73 would be to prevent pension sharing of SERPS. Yet the Government believe it is both right and fair that SERPS rights, just like other second pension rights built up in occupational and personal pension schemes, should fall within the scope of pension sharing.

Perhaps I may widen the subject. When we were debating pension sharing on divorce during the passage of the 1995 Act, and then subsequently when the Green Paper came through from the previous Government, I remember the noble Lord, Lord Mackay, the predecessor of the noble Lord, Lord Higgins, being emphatic. He was determined not to go ahead with any scheme which denied the capacity to pension share SERPS. We always expected that the sharing of SERPS would be that much more complicated than a funded scheme where there is a CETP and a straightforward package.

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We believe it is right to apply it to SERPS. It is a basic right underpinning pension sharing that there should be no built-in bias for or against any one type of scheme. The decision whether or not it is appropriate for any particular pension to be shared will depend on the individual circumstances of that case and must rest with the courts.

The noble Lord, Lord Higgins, pressed us on why SERPS should be shared when the wife might have her own pension rights. The courts or the divorcing parties will take account of all the assets, including any pension rights that she might have, whether state or private.

The noble Baroness, Lady Fookes, asked what would happen if the former spouse acquired a pension share as part of a divorce settlement and then died. She asked whether that pension share would revert back to the spouse. I will write to the noble Baroness if I have got it wrong, but my understanding of the policy is that that pension share would be part of her assets which would have been taken by her, for example, in lieu of part of the matrimonial home. Just as if she died but the matrimonial home or part of it or some savings had been made over to her, it would not revert to the former spouse unless she so willed it. It would go to her next of kin or her dependants in the usual way. Unless I have been misinformed, in which case I shall write to the noble Baroness, it would be perverse to hold that something that had been traded in lieu of other more tangible assets should revert back to a former spouse. With those points, I hope that the noble Lord, Lord Higgins, will feel able to withdraw his amendment.

Lord Higgins: I had somewhat misunderstood the scope of this particular schedule. As the noble Baroness has rightly pointed out--now I understand it rather better--the schedule is concerned with SERPS. The sidenote, which is not part of the Bill, refers to "Reduction of additional pension". Effectively, that is a reference to SERPS, if I understand it correctly. If that is so, I am not entirely clear why that is being reduced. I had thought initially that this schedule referred to the basic state pension, but the noble Baroness indicated that that is not so. However, one would have thought that the basic state pension was among the various pensions that might reasonably be shared.

Baroness Hollis of Heigham: At the moment, a widow acquires rights to the basic state pension through her husband's national insurance. That pension is acquired through his rights rather than any of her own. It is not an additional pension in the same way as SERPS.

Lord Higgins: I well understand that it is not an additional pension, but the point I make--which may reflect my lack of comprehension in this particular matter--is that, according to my understanding, among the pensions that may be shared is an entitlement to the basic state pension. As the noble Baroness rightly points out, it may be that the wife is entitled to a form of pension as a result of the husband having contributed. Therefore, if there is a divorce it seems appropriate for that to be shared in some sense.

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One curious feature of the state pension scheme is that a husband may get a wife's pension although he has not contributed any more than a single individual. That was a basic curiosity in the original Beveridge scheme. If, as the Minister has explained, this schedule is concerned solely with SERPS, I am not clear where the provisions in regard to the basic state pension appear in the Bill. If one is to include SERPS, surely one includes the basic state pension as well.

Baroness Hollis of Heigham: I am slightly baffled by the noble Lord's remarks. Pension sharing applies to those pensions other than the basic state pension, whether it is SERPS, occupational pensions, private pensions and, in due course, stakeholder pensions. Those pensions are part of the matrimonial assets that go into the pot to be shared in the divorce. The state basic pension is not available in the same way. If the husband died the widow would inherit those pension rights and they would continue. The same applies to pension sharing. The widow will keep her own rights irrespective of what happens to her after the divorce. The state pension is secure in her own right, whether she is widowed or divorced, and is not subject to pension sharing; in other words, she reverts essentially to being a single person.

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