In a typical divorce a wife gets the family home while the husband keeps his pension. But the days of the inviolate pension look numbered.
The Pensions Management Institute has been working on a way of freeing the pension so that some of the benefits can be shared on divorce. In its report published yesterday it advanced a scheme to give the courts powers to split pensions when a marriage breaks up.
The key to unlocking pensions is the practice of establishing a transfer value to allow early leavers - employees who leave their job and their pension scheme when they go to another job - to take a portion of the scheme with them. The idea is that this transfer value could be divided so that the overall financial settlement is fair.
The wife - in the overwhelming number of cases it is the wife who has the worse pension - could leave her entitlement in her husband's scheme or use the transfer value to start up her own pension with a company or personal scheme.
There would be no element of backdating about the proposed change. This means divorced people would have no need to fear that ex- partners would return in the hope of benefiting from outperformance of the fund after the divorce.
The working party contemplated excluding the guaranteed minimum pension rights built up by those who have opted out of the state earnings- related scheme from its proposals. (The GMP element is meant to compensate for Serps.) But it decided that for so many people this represented the bulk of their pension, so it would not make sense to exclude it. But, as part of the state pension scheme, the Serps element would remain beyond the grab of the divorce courts.
This means the cad contemplating divorce would still be well advised to opt into Serps to ring-fence his pension cash.
This proposal stands a reasonable chance of gaining Government backing in that it would not cost much money. While probably leading to lower tax revenues as pensions are shifted from wealthier partners to poorer ones, it should also reduce social security payments as elderly divorced women would be lifted above income support levels.
But the subject of pensions and divorce is just a part of the wider Goode Committee review of pensions, launched in the wake of the Maxwell affair. And there is a danger that this welcome reform will get lost in the morass of other proposals.Reuse content