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Lord Astor of Hever moved Amendment No. 70:

Page 29, line 8, leave out (“2") and insert (“3").

The noble Lord said: My Lords, in moving Amendment No. 70, I shall speak also to consequential Amendment No. 71.

As presently drafted, the pension sharing order or agreement will be treated as ineffective in Scotland if the person responsible for a pension arrangement to which the order or agreement relates does not receive copies of, inter alia, the pension sharing order or agreement and the relevant decree of divorce or declarator of annulment within two months of the date of the extract of the decree or declarator. It is anticipated that the burden of sending the relevant documents to the person responsible for the pension arrangement will rest with the parties to the divorce or annulment. In practice this will normally be the person who will benefit from the pension sharing.

The effect of the amendment is to extend the period available in which the person responsible for the arrangement can receive the relevant documentation and information as may be prescribed. We on these Benches are of the view that a two-month time limit may not allow sufficient time in which to serve the appropriate documentation. While subsection (10) makes provision for the court in Scotland to extend the two month period, it will apply only in exceptional cases and an application must be made to a sheriff. Rather than burden the courts with unnecessary applications to extend the period, the time limit should simply be extended to three months. I beg to move.

Baroness Hollis of Heigham: My Lords, Amendments Nos. 70 and 71 relate to the process of pension sharing applying in Scotland. While in England and Wales it will be the courts that will send

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the relevant matrimonial documents to the person responsible for the pension arrangement--and so start the period during which the pension share must be implemented--in Scotland the process in an action for divorce is driven by the parties to that divorce. So in Scotland it would be for the parties to send the relevant documents to the person responsible for the pension arrangement.

When preparations for the Bill were first being made, the pensions industry suggested to officials in the DSS that it would be necessary to include in the Bill a provision that would encourage the parties in Scotland to submit the relevant documents with due speed. Noble Lords will understand that it could be possible for the submission of these documents to be delayed. It may be that one party to the divorce might see an advantage in delaying matters. The result would be that the pension share would be delayed, perhaps indefinitely, and that would undermine the intentions behind Part IV of the Bill.

Accordingly, when in June 1998 the draft Bill was published, the Government included the provision that is now Clause 25(7). This provides a two-month time limit for the pension arrangement to receive the relevant documents, otherwise the pension sharing is treated as ineffective. This was in direct response to the Government listening to and reacting to the views of the pensions industry. We believe that it allows sufficient time for the parties to submit the relevant documents.

However, the Government were prepared to consider this provision further when the Law Society of Scotland suggested that there might be genuine circumstances where it would not be possible for the parties to submit the relevant documents within the two-month period. The Law Society thought it would be invidious if this were to happen. It sought a provision that would allow judicial intervention in exceptional circumstances. Consequently the Bill includes a provision in Clause 25(10) to allow the sheriff to extend the two-month period in exceptional cases.

As there is already on the face of the Bill a provision that would allow the two-month period to be extended in exceptional circumstances, we do not need the amendments suggested by the noble Lord opposite. The effect of the amendments would be to provide a three-month period in all cases. This would extend the period during which the parties and the pension arrangement would have to wait before the pension arrangement could even begin to implement the pension sharing. This would lead to all-round frustration and would unduly delay the settlement of post-divorce arrangements.

I think the exceptional circumstances provision meets the need underlying this amendment without introducing unnecessary delay. I hope that the noble Lord will not press his amendments.

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Lord Astor of Hever: My Lords, I thank the Minister for that explanation. I am sorry that she has not gone the small distance and accepted three months rather than two months, but I do understand her reasons, particularly on the exceptional arrangements. In the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 71 not moved.]

Clause 26 [Creation of pension debits and credits]:

Lord Astor of Hever moved Amendment No. 72:

Page 29, line 43, leave out (“of the appropriate amount") and insert (“calculated in accordance with section 28").

The noble Lord said: My Lords, in speaking to Amendment No. 72, I shall speak also to Amendments Nos. 76 to 81, 85 and 86 in this group of rather technical amendments.

Clause 26 is pivotal to the pension sharing provisions in that it specifies that the relevant member's pension rights will be subject to a debit and the former spouse will become entitled to a pension credit equal to the amount of the debit. This clause is intrinsically linked to Clause 28 which provides a mechanism for calculating the reduction of the benefit. It is vital that the basis for quantifying the pension debit is clear. We feel that Amendment No. 72 is necessary to link the process of calculation to Clause 28.

Clause 28 provides for pension debits which reduce in certain circumstances the benefit or future benefits to which the member is entitled. We believe that a distinction should be drawn between pension arrangements which provide defined benefits and those whose members can qualify for money purchase benefits. Amendments Nos. 76 and 77 are designed to ensure that where there is a defined benefit it is the extent of that benefit which is reduced. However, where there are accrued rights to qualifying money purchase benefits, the debit will take the form of a reduction of the money in the member's pension pot. The current wording of the clause does not provide for a reduction in the money purchase pot as it focuses on the benefits ultimately payable from the scheme.

Amendment No. 78 is a consequential amendment necessary to take account of the distinction between accrued rights in qualifying money purchase schemes and other qualifying benefits or future benefits referred to in subsection (1)(b). Amendment No. 79 clarifies which benefits or future benefits are to be taken into account for the purpose of calculating the reduction of benefits or future benefits. It ensures that only those benefits or future benefits to which the person was entitled at the time of the transfer are taken into account. Accordingly, death in service benefit would not be reduced because a member would not be entitled to benefit from it at the time of transfer.

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Subsection (2) deals with the case of an active member of an occupational pension scheme who is in pensionable service on the day the order or agreement takes effect. The current drafting of the clause does not make it clear which benefits or future benefits are to be included for the purpose of calculating the extent of the pension debit. This amendment removes any ambiguity.

Amendment No. 80 ensures that a reduction in a qualifying benefit does not result in a reduction in a non-qualifying benefit. It is not intended that certain benefits such as a widow's death in service pension, for example, would be reduced as they are not qualifying benefits in terms of Clause 28(3). In the view of the Law Society of Scotland, such benefits will be reduced if they are a proportion of the member's pension. This amendment will highlight that the distinction between qualifying and non-qualifying benefits has to be made at an early stage so that the extent of the pension debit can be accurately determined and non-qualifying benefits not unjustifiably reduced.

Amendment No. 81 is a consequential amendment which extends the application of the definition of a qualifying benefit to include proposed Clause 28(2)(a). Finally, Amendments Nos. 85 and 86 insert definitions of the words “accrued rights" and “money purchase benefits" in the Bill. This will ensure that there is clarity in the terminology adopted in our proposed amendments to Clause 28. I beg to move.

1.45 a.m.

Baroness Hollis of Heigham: My Lords, I am deeply disappointed to see that there are not at least 15 speakers wishing to support the noble Lord and his amendments. They are important but extremely technical amendments. They are concerned essentially with the mechanics of the pension debit--the reduction in the pension rights of the member whose pension has been shared.

The amendments proposed reflect a concern, which I understand is shared by the Law Society of Scotland, that the provisions in the Bill relating to the pension debit would be clearer if the treatment of money purchase benefits was separated out from the treatment of other benefits. The main effect of the amendments would be that where money purchase benefits have been shared, then the pension debit should be calculated and deducted on the transfer day--that is the day on which the relevant pension sharing order or provision takes effect. By contrast, if the benefits concerned are salary-related, then the pension debit should be calculated at an appropriate date in the future; for example, when the member retires and draws his pension.

In creating this distinction between money purchase and salary-related benefits, the amendments seem intended to tie the reduction under Clause 28(1) to a particular date, depending on the type of benefits to be shared. We do not believe that that is either

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desirable or necessary. As drafted, we believe that the provisions in the Bill will provide the flexibility to deal not only with the vast range of pension schemes that exist but also with contingencies such as early ill-health and deferred retirements.

A further implication of the amendment is that Clause 28(2) as drafted could be interpreted as requiring two deductions in members' pension rights in the money purchase case. However, the Government's view is that this is not the case. As we have made clear in the Explanatory Notes to the Bill, the policy intention is that for a member of a money purchase scheme, the debit will take the form of a once and for all reduction of a percentage of the money in the pension “pot" at the time liability for the pension credit is discharged.

It is clear from the noble Lord's remarks that behind Amendments Nos. 79 and 80 lies a concern that death in service benefits will be reduced following a pension share. Again, we do not believe that that is the case. Subsection(3) of Clause 28 defines a benefit as a qualifying benefit only if the cash equivalent of the pension debit includes an amount in respect of that benefit. However, the cash equivalent will not include the value of a death in service benefit, which means that it would not be a qualifying benefit and therefore would not be reduced as a result of pension share. For completeness, I should add that essentially this group of amendments does not change the way in which the member's salary-related pension benefits are reduced following a pension share.

As I said at the outset, Clause 28 is a difficult provision on which much effort was expended when the pension sharing provisions were drawn up. We are not persuaded that the amendments tabled actually change the way in which the provisions work. Instead they introduce a degree of rigidity into the process which might of itself create difficulties; for example, in dealing with hybrid schemes where the member has a mixture of salary-related and money purchase benefits or where the scheme rules provide for an unusual package of benefits.

I do hope that the brief explanation that I have provided, on what is difficult territory for lay people such as myself, will be sufficient to persuade the noble Lord to withdraw the amendment. Again, I am more than happy to follow this up with any further correspondence that seems appropriate.

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