Commentary
Parts III-IV: Pensions on Divorce and Nullity.Background
Since the 1970s, the courts have been required to have regard to the value of pension rights so that these can be offset against other assets. The Pensions Act 1995 allowed courts:
in England and Wales, to require pension arrangements to pay maintenance from a member’s pension directly to a former spouse;
throughout Great Britain, to order part or all of a lump sum payable on the death or retirement of a member to be directed to the former spouse.
These provisions, which are generally known as the earmarking or attachment provisions, have been little used. They do not allow a clean financial break in a divorce settlement or on nullity of marriage and they leave former spouses vulnerable in that they lose their intended or actual retirement income if their former spouse dies before them. Pension sharing will provide an additional option for couples ending their marriage, to ensure that assets can be divided fairly on divorce. It will make it easier for divorcing couples to achieve complete financial independence through a clean break settlement. It should provide many former spouses, most of whom are likely to be women, with greater security of income throughout retirement.
The Government published a public consultation paper in June 1998 that included a draft Pension Sharing Bill and complementary draft legislation containing the necessary changes to tax law. The draft legislation was also scrutinised by the Social Security Select Committee as part of the pre-legislative scrutiny of Bills recommended by the Select Committee on Modernisation.
The Social Security Select Committee published its report on 28 October 1998. Many of the issues raised by the Committee echoed those raised by the 82 respondents to the consultation exercise. The Government responded to the report on 12 January 1999. Copies of the response and the non-confidential replies to the public consultation are available in the Library of the House of Commons and the Record Office of the House of Lords. Although the Committee and the great majority of respondents were firmly in support of the principle of pension sharing, some points of concern were expressed and the provisions of the Bill as introduced contained changes made in response to Committee’s recommendations and the concerns expressed by other commentators about some aspects of the draft legislation.
In particular, the provisions in the Bill were amended to put beyond doubt that pension sharing would be available only to those who began proceedings for divorce or annulment after the legislation had been brought into force. The Government also agreed that pension earmarking should be retained as an alternative to pension sharing. The Act includes changes designed to improve the working of the earmarking legislation. The Act also includes provisions extending sections 25B to 25D of the Matrimonial Causes Act 1973 to overseas divorces etc under the Matrimonial and Family Proceedings Act 1984.
The Government also made a number of technical amendments in the light of recommendations by the Committee and/or responses to the consultation exercise. To enable schemes to simplify the administration of a pension in payment to a former spouse, schemes were to have the discretion to impose a single “indexation” requirement on the whole of the pension to protect its value against inflation during retirement. Similarly, to simplify administration and reduce the costs to pension schemes, the Government dispensed with the requirement for pension schemes contracted-out of the state scheme to obtain separate certificates to hold “safeguarded rights” (that is contracted-out rights which form part of a pension share).
The Government noted the views of the Committee that former spouses of members of unfunded public service schemes should be allowed to choose to transfer out of such a scheme, a point that was also mentioned in some consultation responses. However, former spouses will enjoy the same levels of security and inflation-proofing as other scheme members of a public service scheme and, without this restriction, public expenditure would be brought forward. So, the provisions in the Act continue to prevent former spouses from transferring out of such schemes.