Actuaries support splitting pension funds on divorce

ACTUARIES have joined the Pensions Management Institute in recommending that divorced couples split their pension funds at the time they divorce, as part of a clean break, to give both parties full control of their shares.

Their recommendation puts them on collision course with the Government, which, under pressure from the House of Lords, proposes to "earmark" future pension payments. This involves keeping the actual pension fund intact until the pension is due to be paid, and sharing the payments between the couple.

Splitting would require the capital value of existing pension funds to be divided and transferred at the time of divorce, and it could cost the Government up to £500m a year to cover transfers from civil service and other public servants' pension funds that have no actual investment funds to back them.

Both proposals ensure both husband and wife get an income in retirement, and are an improvement on the current situation in England and Wales, which leaves one party with the pension and the other with the house or other assets - rough justice for whoever gets the smaller portion.

But there is no perfect solution. When a pension fund is split, the husband will get half the original pension (assuming the divorce court orders a 50-50 split). But the wife's share of the capital value of the fund will buy less than half the expected full pension, because women are usually younger than their retiring husbands and live longer in retirement.

If pensions were simply earmarked, however, the wife could lose her pension entitlement if her former husband died before she did, because his pension would die with him.

If he died before retirement, she would get no benefit at all. Obliging the man to buy life insurance to cover that event would hardly sweeten the bitter pill of divorce. But if the wife died after splitting the pension fund, the husband would not be able to reclaim the lost pension rights as he could if the pension was merely earmarked. The divorced couple would also be called on to share the adminstrative costs of splitting the funds.

A divorced couple already lose the right to a widow's or widower's pension after the former partner dies.

Both earmarking and splitting run the risk of leaving each party to the divorce with less than the sum of the original pensions, and could create the same sort of animosity provoked by the Child Support Agency.