Split pensions are not possible before 2000

People who divorce will have to wait until the next century for legislation to allow pension- splitting to take effect, the Government said yesterday as it published a green paper outlining the issues to be tackled.

Allowing pension rights to be split "is the correct thing to do", Lord MacKay, the Minister of State for Social Security said yesterday. "I am sure it will happen," he said.

But the green paper warns that the proposal - forced on the Government during the passage of the Family Law Bill - is "far more complex than at first appears" and that it raises many "thorny" problems. While these are "not insurmountable", Lord MacKay said, they will require widespread and involved consultation and extensive legislation.

The degree to which the green paper underlined the difficulties led yesterday to Opposition fears that the Govern- ment will backslide on its commitment to the principle, despite Lord Mackay's promise to "move to legislation as soon as possible" after a white paper in the spring.

Even with that timetable, the change will not take place before at least 2000, given the Government's belief that rights in the State Earnings Related Pension Scheme (SERPS) should be included in pension splitting.

Modernisation of the national insurance computer, which runs SERPS, will not be completed for two to three years, Lord MacKay said, and imposing a further big change on top of that cannot be risked. Changes to the department's administrative systems to allow pension-splitting "cannot be commenced before April 2000," according to the green paper.

Some have argued that SERPS could be excluded, Lord MacKay said, but "that would be wrong. For many people, SERPS is a very big part of their pension 'pot'." To exclude them would be tantamount to telling many former spouses that they could not have their own pension rights.

"Until we can implement pension-splitting properly, it would be wrong to go at it in a half-baked way and introduce it for the non-SERPS component," Lord MacKay said. "If you're going to do it, it's best to do it properly."

The green paper warns that pension-splitting is likely to add around pounds 500 to the average cost of a divorce because of the need to value pension rights. It could also impose costs of around pounds 10m a year on private pension providers. And it would reduce the Treasury's tax take by between pounds 40m and pounds 80m a year - tax that will have to be raised in other ways.

There would, however, be smaller reductions in benefit payments, as fewer ex-spouses would have to fall back on to income support and housing benefit.

The green paper argues that those in funded private and occupational schemes, where a pot of money to pay pensions is built up, are likely to be treated differently from those in unfunded, pay-as-you-go schemes. The latter includes SERPS and many public service schemes, including the civil service pension.

Ex-spouses in funded schemes could be allowed to take a cash sum to invest in their own personal pension - or be allowed to remain in the scheme in a new category of membership with limited rights. Precisely what those rights should be is the subject of consultation.

Those in unfunded schemes, however, would be given no choice, having to stay in but with their rights identified separately. Allowing people to transfer out would involve large costs to the taxpayer, Lord MacKay said - around pounds 200m in the first year, a figure that could still be running at pounds 70m a year in 20 years' time.

The paper also makes clear the Government's view that pension-splitting should not cover those who have judicially separated; divorce settlements already reached; or pension rights built up overseas.

Treatment of Pension Rights on Divorce, Cmnd 3345, HMSO #14.80