Breaking up is hard to do when a pension is at stake

Attempts to legislate for a fair split of funds when couples divorce have become bogged down.

Divorce is by definition a very stressful experience, complicated by the financial worries modern break-up involves. Unfortunately the second reading of the Family Law Bill just before Easter will have increased stress levels still further. It should have tackled the thorny question of pension-splitting at the time of divorce. But the matter is still not at all clear and it seems likely that it will be at least a further two years before the result of a new round of consultations is known.

Pressure groups like "Fairshares" have campaigned for pension funds to be split at the time of divorce so that both partners have separate entitlements which they can then manage to suit their own requirements.

The Government has argued against the principle of splitting, mainly on the grounds of cost.

After a vote in the House of Lords last year, however, the Government appeared to have accepted the principle, only to cast fresh doubt on its intentions last week. Effectively it has delayed the introduction of the 1995 Pensions Act until July this year and postponed any decision on pension splitting for at least two years and maybe longer. In the meantime, divorce settlements will continue to try to trade off actual assets against future pension entitlements in order to reach a satisfactory settlement.

Until the situation is clarified Fairshares has advised anyone about to embark on divorce proceedings to wait until July before taking any action. After this date the group maintains that any new petition will be able to take advantage of the "earmarking" provisions, but this does not solve the problem of achieving fair and final financial settlements which include a proper treatment of the pension issue.

This has a long and complex history. The courts have been able since 1973 to order maintenance payments to an ex-spouse, payable from the former partner's income, including pension. However district judges have hitherto dealt with matrimonial pension rights only if the subject is raised before them in evidence. The new Pensions Act will oblige solicitors to bring the subject before the courts in all divorce cases where the pension is due to come into payment after April 5, 1997.

From July courts will also be able to "earmark" future pension rights and order a pension scheme to pay the relevant amount from the member's pension to the ex-spouse, including any lump sums associated with it. But only after he retires.

There are obvious drawbacks to this state of affairs, especially if the pension holder remarries or dies before retiring. It reintroduces the principle of delaying final settlements and reverses the thrust of the clean-break policy which has been the basis of legal guidance for the past decade. The adminstrative burden of keeping track of ex-spouses over a long period could also pose costly and difficult problems for pension fund trustees and administrators.

For example, pension schemes often provide an element of life assurance to cover the member if they die before retirement. Such a lump sum will often provide the difference between achieving a reasonable standard of living or struggling on a limited budget.

Once a spouse becomes an ex-spouse, however, the pension fund administrators could ignore them completely and any benefit payable under this heading will pass directly to the estate of the deceased former spouse.

Although there still seems to be agreement in principle to provide legislation to enable the basic theory of pension-splitting at the time of divorce, the Government has now decided to publish a Green Paper, hopefully by the summer, which will set out further options on how this can be done. The implementation of these could still be some years away.

The most important issue is fairness - whatever the power struggle within the marriage. Equally, the division of a pension or any other major asset, should be carried out as fairly as possible. This means giving as little chance as possible that either partner can do anything in the interim negotiation period to endanger the final "fair" outcome.

The longer this interim period and, more relevantly, the longer the delay to the Government's decision-making process, the bigger the chance of corruption - assets can all too easily be dissipated, especially by a bitter and stressed individual who is ready for a fight.

Many people are astonished to realise that the value of the pension is often greater than the equity of their property, but not many realise how easily the assets in the pension can disappear (in one individual's favour), unlike the bricks and mortar equivalent. The new Income Withdrawal Plans are a good example - giving a pension policyholder the opportunity to strip large chunks of income from their fund, as well as some tax-free cash before the splitting takes place.

In the meantime Seymour Smith an association of lawyers, pension experts and actuaries, has launched a personalised report service which provides a value for the pension of each partner which can be taken into account at the time of the divorce. These independent reports are based on sound legal and actuarial parameters and, importantly, they can form part of the crucial "court bundle" without any amendment. They draw attention to the financial assumptions as well as to potential pitfalls and shortcomings. Bearing in mind the number of people who also depend on legal aid, the report service also provides an alternative for cases where the amounts at issue are relatively modest. Not surprisingly, the reports have quickly been established as a standard in courts.

The reports may not be the definitive solution to solving the problems of complexity and legislation, but for many people who are suffering with the prospect of another two years of uncertainty, we think our efforts will go a long way towards reducing the stress and providing the essential guidance needed.

Ann Kosniowska is project director of Seymour Smith. Tel: 01203 697697.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
This year's models: buyers have plenty of options as they try to get the money together to drive away from the dealer in a new car

Car finance options: Best way to buy a 65 plate

Sales could find another gear as the '65' registration hits the forecourts next week. Rob Griffin looks at the finance options
In too deep? Travel cover is among the benefits offered by packaged bank accounts

Claims firms blamed as complaints soar over packaged bank accounts

Many customers complained they were switched to the accounts without their knowledge

Finger on the interest rate trigger: the Bank of England

The best deals on personal loans: Peer-to-peer providers are more competitive for smaller sums

Meanwhile, high-street lenders continue to cherry-pick and be more competitive on larger loans

China stock collapse: Five things you need to know about 'Black Monday'

The market plummeted this week, losing all the gains made for the year

Which? warns sports fans about Rugby World Cup ticket scams offers deals that may be too good to be true

Could it be the time to focus on Japan? Some believe the country has no choice but to boost consumption and the economy will get back on track

Investors told to travel the world in the search for higher returns

Assets have risen in value across the board and volatility isn't going away. Rob Griffin asks where we should put our cash
As rising house prices push up demand for renting, so tenants are having to dig deeper than ever

Starter home initiative is urgently needed as rents go through the roof

Rents in England and Wales rose by 1.9 per cent in July to an average of £804

Peer-to-peer lending rates put Nisas to shame

The returns from P2P providers look more attractive than ever

Questions of Cash: Log-in problems turned eDreams booking into one-way ticket to nowhere

The company failed to provide our reader's flight ticket - or a refund

Hot property: business has been booming in estate agents this month, even though it’s the height of the summer holiday season

Heat rises for mortgage deals as UK homeowners sense a rate hike coming

The housing market should go quiet in August but instead people have been acting like cheap loans won't last. Do we really have to rush, asks Simon Read
Phones have now overtaken personal computers as the most used way of accessing the internet

Who you gonna call? The Complaints Busters

Unhappy customers have been given their own Ombudsman to help fight for them.

Undergraduates are being tempted with freebies by banks

Students should give freebies a wide berth and focus instead on cheap borrowing

An interest-free loan far outweighs the value of any of the bank's incentives

The Spanish carrier changed a reader's flight from Madrid – to a time before she was due to land

Questions of Cash: 'A connecting Vueling flight was cancelled and all my travel costs were left hanging in the air'

Our reader encountered problems when flying from London to Ibiza in May to take part in a charity ride

Complacency about rising rates could prove to be costly

Interest rates stay at 0.5% for now - but don't wait to get a better deal on your savings and mortgage

The years of ultra-low rates are coming to an end

The elderly are being targeted by fraudsters with postal scams such as fake prize draws

Fraudsters are bombarding older people with dangerous pension scams: here we reveal the warning signs

Many people are being repeatedly targeted by crooked schemes

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones