Law: Our Learned Friend - Pension sharing for a fairer future

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The Independent Online
CAN DIVORCE legislation provide for social change? Last week the House of Commons Select Committee on Social Security examined the Government's consultation paper and draft legislation on the reform of family and pensions law, to provide for pension-sharing on divorce.

Although the courts currently have an obligation to consider pensions at the time of divorce, they have no power to share or split the pension between the parties. However, since July 1996 they have had power to earmark by ordering the pension-provider to pay part of the death-in-service benefit, lump sum or pension direct to the spouse.

But those new rights have not been used very frequently and have the obvious disadvantage that they die with the pension-holder. The Pension Sharing Bill will enable the court to divide the pension rights (including Serps) between the parties on divorce. This will add another power to the courts' existing armoury, but it will not mean that in every case a pension-sharing order is made, or that the proportion will be 50/50; it may be any proportion, or none.

It will apply only to divorce proceedings begun after the implementation of the Act, which will be in April 2000 at the earliest. It is a complex area of the law, and the draft Bill reflects that, but the intention is to provide an easily workable system to be operated by the pension- providers.

The real challenge will be to provide clear information so that the divorcing couple can understand whether it is better for them to share a pension, or to apportion their other assets and income in a different way.

For example, a mother of two children may prefer to take the whole of the home straightaway and have none of the pension share for the future. Alternatively, a husband may prefer to make a clean break, dismissing all claims, on the basis that his former wife takes a share of his pension. They will each need to know what the comparative merits of those courses are and, in particular, the recipient of the new pension share will need to have reliable advice as to where to invest his or her newly acquired share of the pension. The implementation of the Bill will throw up serious challenges to the pensions industry, and to judges and family lawyers.

Just as important, the public must be protected from another pension mis-selling scandal, and the pensions industry and the new Financial Services Authority must provide reliable sources of information, including properly regulated pension-providers and independent finance advisers who will ensure that a suitable investment vehicle or benefit structure is available to receive the new share.

Charges should be reviewable by the Pensions Ombudsman. And judges and solicitors must receive adequate training in order to give informed advice and appropriate judgments.

Clearly, there will be a fear that those who divorce more than once will have no pension left for themselves, and also a fear that those faced with a choice of assets now or a share of the pension on retirement will not face a fairer future. The current lack of income for divorced women in retirement will remain. That is always the challenge of divorce legislation providing for social change. The Social Security Select Committee even flagged the need to consider pension provision on the break-up of cohabitation. The Bill does not provide for that.

The Bill does allow the recipient of a pension share to transfer that share to another scheme or policy, except where it is an unfunded scheme such as those enjoyed by civil servants, teachers, the police, nurses, soldiers and fire fighters, who must stay in. The committee challenges this as unfair to those groups, while the Treasury resists the expense. Finally, there is a need to ensure that all pensions have the same protection against bankruptcy.

The Pension Sharing Act will serve to provide greater fairness for those divorcing wives whose husbands have built up major pension provision during a long marriage, and who have inadequate resources to replace it. It will help some men to achieve the clean break on divorce that they wish. Whether it will lead to social change is much more doubtful. The Select Committee's recommendation that the Government should monitor the operation of pension- sharing may well provide some answers, in due course.

The writer is a partner in the family law department at Manches & Co and a former chairman of the Solicitors Family Law Association