Pensions (Divorce) (Hansard, 1 November 1994)

§ Mr. Harry Cohen (Leyton)

I beg to move, That leave be given to bring in a Bill to amend the law so as to provide for the equitable division of pensions in the event of divorce. I do not expect this to be a popular Bill here, as the House is full of powerful, rich men, and a few women, who have benefited enormously from their long-term relationships with their spouses but, if anything goes wrong, they might want the matrimonial assets, such as pension rights, to be theirs alone rather than being divided equally. In place of that selfish and potentially nasty attitude, my Bill would insert fairness, justice and common sense into the distribution of assets—especially pension assets—in the event of divorce.

At the moment, the system is unfair. After the matrimonial home, pension rights are the single most valuable asset in a marriage. Indeed, the pension rights are often more valuable than the matrimonial home. On divorce, it is usually the wife who loses all right to a claim on those assets. That is manifestly unfair. There is equal input in a marriage but, after divorce, there is inequality. One party goes on to a prosperous future, with the help of the pension assets, while the other—usually the wife—lives in hardship. There is a rising divorce rate–171,000 divorces in 1991—so a growing number of women find themselves in that position. They become reliant on the state for financial support. That is wholly unnecessary and could be avoided by a fairer division of assets, including pension rights. It is a waste of public money to have to support the woman while the man walks away with all the assets.

In Scotland, under the Family Law (Scotland) Act 1985, pension assets are considered part of the matrimonial property. Their value is determined and they can be divided, but in England and Wales it is left to the discretion of the courts, which usually ignore pension rights because they say that they cannot overrule the pension fund trustees or the trust fund rules. That is not right, and the law should be changed in England and Wales.

In Germany and other countries, there are different laws. German law explicitly incorporates the idea of community of property within marriage. Assets acquired by either partner during a marriage are regarded as assets of the partnership, and are split down the middle on divorce, when the pension rights accumulated during the marriage by both partners are summed and compared. Half the difference is transferred from the account of the spouse with the greater record to the account of the other spouse. Apportionment of pensions, as that splitting is sometimes called, is also in operation in the state of California, in Canada and some other places. We should introduce it in this country.

Certain court cases, such as Brooks v. Brooks, offered hope that the situation would be changed, but that was a false hope, because they were specific cases with highly specific circumstances, and the principles could not be applied across the board. The law needs to be changed, and that must be done by Parliament.

The Government's initial attitude was to await the important reports being produced on pensions, such as that of the Pensions Management Institute, and the Goode report. But those reports have now appeared. The PMI 1354 reported in May 1993 and the Goode committee in September the same year. Now the Government's attitude has changed. They now seem to regard the matter as too difficult to legislate on, and are quietly dropping any prospect of legislative change.

The White Paper published in June said: There is at present no clear evidence of the extent of the problem. A detailed research programme will be undertaken to ascertain the extent of the problem before the issue is considered further". But there have already been two major reports on the problem, and they have made it absolutely clear that the law must be changed. The inequality is manifest. Indeed, I have been told of surveys revealing that nine out of 10 women in this country die in poverty. Pension inequality must be at least a small factor behind that, and it should be altered.

My Bill would include a number of measures, and would allow all pensions to be regarded as the assets of a marriage, which should be divided equitably in the event of divorce. It works on the principle that a settlement between the two parties should take place in the first instance, but that, if that cannot be agreed, the court should have the flexibility to settle the distribution of the matrimonial assets on a equitable basis. That could still provide for a trade-off of such assets. For example, the pension rights could go to one party and the other could have the matrimonial home in exchange.

My Bill also provides for the pension assets and rights to be divided, if the court deems it appropriate. After a long period of marriage, each partner would have an automatic claim to the equivalent of half of all the pension assets and rights built up over the period of their relationship. The court would have the power to reallocate occupational and personal pension rights between divorcing parties, and it could decide to take into account all matrimonial assets, including pension fund assets and rights, and apportion them on the basis of a clean-break, once-and-for-all settlement.

The court would also have the power to require the trustees of pension schemes to reduce the value of a member's pension rights by a specified amount, and to provide the same amount as a transfer payment for the benefit of the divorced spouse. Any reasonable expenses incurred in doing so would be recoverable, and that is also provided for in the Bill.

If a pension were already in payment, the court would have the power to balance non-pension assets against pension rights, or to earmark a stated part of a member's pension for the benefit of a divorced spouse. The court could also order the pension scheme authorities to give full consideration to a divorced spouse as the possible recipient of a dependant's pension, if that would lie within their discretion.

The court could also order a scheme member to take out appropriate term or whole-life insurance in favour of a divorced spouse. If that individual did not keep up the payments, the spouse would have the right to be notified, and to bring the case back to the court.

If the court decides to divide pension rights, it should be calculated on a cash-equivalent basis unless otherwise agreed by the parties or ordered by the court. The court, under my provision, can direct the transfer of payments to another pension arrangement entered into by the spouse. In respect of a deferred lump sum due to be received in the future, the allocation of the proportion to 1355 the ex-spouse can also be ordered by the court to be paid at that future date. Under my proposals, a minimum of 20 years' marriage would have to be guaranteed before the rights were automatic. By doing that, I was looking to protect older women who find themselves divorced and in unfair hardship.

Those are the main provisions of my Bill. I do not say that it is perfect, because it is a complex subject. But I think that a lot of the imperfections in it could be ironed out by the Government if they brought forward their own legislation, or in Committee if the Bill got there.

I have received representations that 20 years is too long. Ian Aitken, the Pensions Management Institute president, said that 20 years is a very long time in the current climate. Under UK pension legislation, pension rights must be preserved if a member remains in a pension scheme for 2 or more years. In the circumstances, there is much to commend pension splitting after 2 years of marriage… this would be in line with the current divorce legislation that says a divorce can take place after 2 years if both parties consent. If you feel that 2 years is too short a period, then may I suggest that you insert a period of 5 years for pension splitting—this would be in line with the period of separation if the parties do not consent to the divorce. The case for a shorter period could also be put.

The Bill is not a panacea, and neither is it an excuse for not substantially increasing the basic state pension. That needs to be done, but the Bill is a small righting of a current injustice. It is supported in principle by the organisation Fairshares, and its name is what the Bill is all about—fair shares.