HL Deb 12 July 1995 vol 565 cc1734-41

164 Leave out Clause 85.

Lord Mackay of Ardbrecknish

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 164. I wish also to speak to Amendments Nos. 255 to 262, 264 and 265. We had lively and interesting debates on divorce when we considered the Bill earlier, both in Committee and on Report. There was also considerable debate in the other place. Your Lordships' House adopted amendments introduced by my noble friend Lady Young and by the noble Baroness, Lady Hollis, at Report stage. In the other place my right honourable friend the Secretary of State for Social Security, Mr. Peter Lilley, announced our acceptance of the intentions behind these amendments and gave an assurance that we would revise them to make them workable. The amendments now before your Lordships' House are the result.

We have built on the intentions set out in our debate. Our amendments will emphasise the courts' existing duty to take pension assets into account in divorce settlements. They will also allow a court to direct trustees or managers of an occupational or personal pension scheme to make a maintenance payment to a former spouse from a pension which is due to a scheme member. This could be by way of a lump sum or by periodic payments.

The courts will have the power to commute benefits to a lump sum. This will mean that a court may well be able to offset this against other assets in the settlement and remove the need for former spouses to maintain contact with their ex-partners.

The courts will be able to vary deferred lump sum orders. The amount of payment which the trustees or managers of the scheme must pay cannot be more than 100 per cent. of the scheme member's pension. The trustees or managers will be protected from claims from the scheme member in respect of the amount the court has asked them to pay. And the scheme member's income tax position will not be affected.

One concern which has arisen in debate has been that an ex-wife could lose access to payments from her ex-husband's scheme should he die. Our amendments give extra powers to the courts so that they will in future be able to order the scheme member to exercise any right of nomination so as to give his ex-wife all or part of any lump sum payment due from a scheme on his death. The court will be able to direct the trustees or managers to pay that sum direct to the ex-wife rather than leave her having to make a claim from the estate or dependants.

We have also addressed concerns about what happens when a scheme member transfers benefit rights from one scheme to another. Where a court order requiring a scheme to pay is enforced, that requirement will transfer automatically to the new scheme if all the pension rights were transferred. If only part of the rights were transferred the court can be asked for further directions.

There are regulation-making powers to deal with who the payments should be made to and who should notify changes of circumstances. Regulations will also deal with valuing pension rights.

We have removed references in the Matrimonial Causes Act to "foreseeable future" so far as they deal with pensions. This term could be construed as putting undue restriction on the courts when considering pensions, which build up over a working life. Therefore, we have removed this restriction.

We have also taken steps to improve the position north of the Border. My right honourable friend the Secretary of State for Scotland has suggested amendments to the Family Law (Scotland) Act 1985 so that we can bring in similar provisions for Scotland so far as it is practicable to do so.

We have, of course, had to have regard to the very different nature of the legislative regimes and procedures in Scotland. But we believe that the measures we are introducing will pave the way for significant improvements in the consistency with which the courts approach the question of pension rights on divorce. They will align the relevant law of Scotland with that of England and Wales to a significant extent.

I hope that the amendments I have outlined will be seen as representing a much improved framework in dealing with pension rights in divorce cases. These amendments build on the existing powers of the courts and improve on the amendments which my noble friend Lady Young and the noble Baroness, Lady Hollis, introduced into the Bill. Needless to say, the significant difference between the amendments moved by the noble Baronesses and the ministerial amendments is in the length. My amendments seem to cover a great many more pages than did the original amendments. However, I can assure them, as I am sure they know, that the amendments make certain that the principles behind the amendments accepted by the Government from my noble friend Lady Young and won by the noble Baroness, Lady Hollis, in the Division Lobbies can be enforced.

The effect should be to increase the number of settlements which include pension rights. It would be only right to pay tribute to both my noble friend and the noble Baroness, Lady Hollis, for the tenacity with which they pursued me and this particular objective. I beg to move.

Moved, That the House do agree with the Commons in their Amendment No. 164.—(Lord Mackay of Ardbrecknish.)

5.30 p.m.

Baroness Seear

My Lords, perhaps I may ask one question for clarification. The Minister mentioned the lump sum payment. That can be important. He said that the husband paying for the pension may nominate the person to receive the share. Can he be required by the court to nominate his divorced wife to receive a share? It is very important that she should receive that share. If it is left to him he could decide not to do that. I was not sure from what the Minister said whether the court could say that he had to allocate so much to his previous wife or whether he was at liberty to do so.

Lord Mackay of Ardbrecknish

My Lords, our amendments give extra powers to the courts so that they will in future be able to order the scheme member to exercise any right of nomination so as to give his ex-wife all or part of any lump sum payment due from a scheme on his death. He must so nominate if the court orders him to do so.

Baroness Hollis of Heigham

My Lords, the Minister would not expect the amendment to be agreed without some comment from this side of the House.

We very much welcome the fact that, in this House and in another place, the Government have accepted the spirit of the amendments agreed by your Lordships and turned them into what I hope will be a workable scheme. That means that in addition to offsetting at the point of divorce the parties also have the option of earmarking assets managed by the pension scheme.

All of us accept that the third option of splitting the pension must follow shortly. We cannot leave the law as it is. We have broken the ice. We have helped a large number of women. That is desirable and useful. However, it is clear that the desirable situation would be that the courts, in conjunction with the partners concerned, should be able to choose between offsetting, earmarking or splitting, according to the resources within the marriage, the age of the parties and their own inclination. If the parties are fairly young they will wish to have a clean break, which can only be achieved by splitting, whereas where the parties are perhaps in their late 50s and retirement is fairly near, earmarking may make better sense.

I do not accept the figures that the Government offered first here and then again in the other place about the putative cost of splitting the pension. I accept that there may be a modest loss to the Inland Revenue because of the loss of associated revenue when there are two small pensions rather than one larger pension. As to the Government's figure of the cost to public funds of splitting pensions in the case of unfunded or pay-as-you-go public authority schemes, £300 million represented 20 years of divorces all rolled up into one year with in all cases the parties taking the money out of the scheme. That is an absurd method of calculation. Heavyweight firms of actuaries have reduced that figure of £300 million to under £50 million as the realistic cost likely to be faced by the Government. Even then it simply marks a transfer flow and not an actual cash sum. Therefore, the Government's objections on grounds of cost are widely regarded as dubious at best and probably spurious.

However, we all expect that the Queen's Speech may include a matrimonial causes Bill promoted by the Lord Chancellor's Department or the Home Office in association with reform of divorce law. As by that time the Government will have the full research findings that they made much of during the course of debate, we can expect, and have every reason to hope, that we shall see a further progression in the tidying up of pension arrangements on divorce so that in those marriage break-ups where it is appropriate splitting the pension—the clean break situation—will be an option. That must happen. We all know that it must happen.

Finally, I should like to press further the point rightly made by the noble Baroness, Lady Seear, about the lump sum. The problem with earmarking, welcome and highly suitable though it is for women in their late 50s—the former husband is fairly close to drawing a pension—is that her money depends on his outliving her. If he dies before she reaches pension age, she receives no flow of money. If he dies before her, say, in his late 70s or early 80s, between the ages of 60, or 65, and 75 she may have enjoyed an appropriate share of his pension. He may be three or four years older than her and may not have the life expectancy that she has. If he then dies, it means that at the age of 75 or 78 she suddenly, from having an income of perhaps £150 or £200 from the pension, plunges to income support level benefits—the state pension plus a top up. Suddenly her pension will go because he has died. In her declining years, when she is most likely to need money to afford residential care and fees, she will receive no pension. That is the consequence of earmarking.

We have had informal discussions. There is absolutely no reason why in another place the Government should not have added an amendment which allowed that fraction of the pension which went to the first wife at the time of their divorce, say, 25 per cent. or 30 per cent. of the total pension, to continue as a fraction of the widow's pension after the husband's death. The sums may be exactly the same. They may need minor adjustment. That could be a matter for the courts to resolve. There was no reason on earth why the Government should not have made that modest addendum. I had hoped that they would do so in good faith. I know that there was informal pressure asking the Government to do so. Perhaps it is now too late. But the Government really should take up that last area of problem associated with earmarking until they, I hope, can bring back to the House the option of splitting.

Otherwise, we have to say to elderly women, "Yes, we fought for you. We have now conceded that you may have your due portion of your former husband's pension, but the moment he dies your money stops and down you plummet into income support at just the time when possibly your expenses will increase because you will need nursing care". That problem could have been overcome quite simply within the framework of an earmarking scheme by allowing the ex-wife's portion to continue. Perhaps the Government will comment on that point.

Secondly, do I understand that we are talking only about the lump sum that is paid if the ex-husband dies before he reaches pension age? Let me cite a scheme where the pension is 40/80ths, and 3/80ths of it becomes a lump sum. Such a scheme is not uncommon. One receives 40/80ths as a pension and 2.5 times one's annual salary as a lump sum. That is a fairly standard scheme. The husband then dies. I presume that the former wife would now lose the earmarked flow of money from the 40/80ths. But would she have a right to the 2.5 times the annual salary which would be part of his lump sum at retirement? Will the Minister explain what happens to that lump sum element, not when the former husband dies in service, but when it is part of his subsequent pension entitlement? Is that a claim of the ex-wife on his estate?

Can the Minister help us? We have some real problems which the Government could easily have overcome within the framework of their own scheme so as to ensure that the first wife continues to have a modest pension which is not dependent on the ex-husband outliving her. The Government have chosen not to do so, even though there is quite a lot of pressure on them to make that move. Perhaps we could have the Minister's response to some of those questions.

5.45 p.m.

Lord Mackay of Ardbrecknish

My Lords, perhaps I may try to address the question of the lump sum payment. It is certainly true that we listened to and have responded to concerns in the debate that if the ex-husband dies then the ex-wife could lose access to any payments from her ex-husband's scheme. In future the court will be able to order the scheme member to exercise any right of nomination in order to give his ex-wife all or part of any lump sum payment due from a scheme on his death. The court will have a power to direct the trustees or managers to pay this sum to the ex-wife so that she does not have to claim from his estate or other dependants. The new section also protects the trustees or managers from claims from scheme members with regard to the payments that they have been ordered to make.

It is difficult to decide on my feet; I am trying to read at the same time as answering the noble Baroness. I think that it does not matter when a lump sum is made. The situation will apply if a lump sum is made after retirement as opposed to before retirement. However the question posed in debate was: if the member of a pension fund should die before he retired, what would happen? That is certainly the matter that I understood we addressed. I suspect that there will be no difference in the situation between pre-retirement and post-retirement. I shall confirm that to the noble Baroness as quickly as I am given the opportunity to read what the document says.

Having had my attention drawn to the right place, I am now considering the question of post-retirement death, which is the question the noble Baroness asked. The scheme, of course, will stop paying the ex-husband's pension. The noble Baroness makes the fair point that, therefore, there will be no income to pay continued maintenance. Therefore, as now, any ongoing maintenance will cease.

We have considered the issue carefully and have concluded that we can offer something of a solution. We have introduced a provision that could require a scheme member to nominate his ex-spouse to receive any lump sum that is payable to his estate following his death either in service or after retirement. As I suspected, the answer to the noble Baroness's question is, yes. Where necessary our legislation will override any scheme rules that would limit nomination. There could be limits to nomination in a scheme which might make what we seek to do impossible, but the legislation will overrule that.

I know that this is not a perfect answer. I hope that I have answered the point about the lump sum. Either before or after, the same rule applies: if there is a lump sum the court can order that the scheme member has to exercise the right of nomination either for the whole or part of the amount to the ex-wife.

Baroness Seear

My Lords, in the case of the USS scheme, with which I am most directly familiar because I am a beneficiary, the lump sum is part of your pension. When one retires one receives a pension and a very convenient lump sum. What I ask is this. When the ex-husband retires—he does not have to die for my interest in him—he receives his pension and a very convenient lump sum. Does the ex-wife receive her share of the lump sum as well as her share of the annual pension? That is what I want to know.

Baroness Turner of Camden

My Lords, before the Minister responds, perhaps I may ask another question. We are talking about a situation where there is power to commute. In many schemes there is power to take a half pay pension when you are entitled to two-thirds and one has the remaining part as a lump sum. It is called commutation. It applies in public service schemes as a matter of course. However, it also applies in a good many private schemes where one can agree to commute part of one's pension and receive a lump sum as well as one's pension.

Lord Mackay of Ardbrecknish

My Lords, the trouble with bringing forward amendments to which you think everyone agrees is that one gets into this kind of question. I believe that the noble Baroness, Lady Seear, has neatly changed the question she asked. Her original question related to death. I hope that I have answered the question about death before retirement and death after retirement; namely, if there are lump sums due there is no difference.

I am now asked about lump sums that are paid as what is called commutation at the time of retirement when the member of the scheme is still alive. The answer to the question about splitting that lump sum is yes, she can get some or indeed all of the lump sum on commutation. It is for the courts to decide on that matter. The courts could order the ex-husband to take the commutation and to arrange for an amount specified by the court to be paid to the ex-wife. I hope that that answers the three questions about the lump sum.

I turn to the more general point on the case for splitting, to which the noble Baroness returned. As she knows, it is rather like the amendments which we accepted from both her and my noble friend Lady Young which begin as a few lines. However, when we start ensuring that we write in something which will work in law, the few lines expand considerably. I have never given much thought to the issue, but obviously I have had to do so since the turn of the year and the problem is more complicated than the noble Baroness suggests it is in broad principle.

I believe that at some stage of the Bill I conceded that it was not an issue which we could lay to rest through what we propose in the Bill. As I explained, we have commissioned research and look forward to receiving the results. My honourable friend Mr. James Arbuthnot, who has now moved to the Ministry of Defence, said in the other place that we would be prepared to return to the subject once we had received the results of the research which had been commissioned. Therefore, we are prepared to revisit the issue in the future when the research becomes available.

Baroness Hollis of Heigham

My Lords, I thank the Minister. However, he has not so far responded to our third question, if he can. It relates to the flow of earmarked income which ceases when the spouse, the husband, dies. The wife may then find herself in her last 10 years of life living on a pension down to income support level. We hoped that Ministers in the other place would take up the point and remedy the problem.

Given what the Minister said, the courts may require the husband to write into his pension that his first spouse should be the beneficiary of a lump sum, whenever that may be paid. There is no reason why the courts should not require exactly the same procedure to follow that portion of the widow's pension—let us say 50 per cent. of what would fall to the widow—which should be apportioned fairly between the first and the second wife, or however many wives there may be. The matter could be judged in terms of years of marriage, transfer value or whatever, by regulation or whatever the Minister chooses to lay down. That is simple.

Even at this late stage, why should the Minister not extend the principle of the court ordering the husband to have a defined nominee to inherit the lump sum? Why should that principle not apply to a defined nominee who would share in the widow's pension? Then the biggest single problem left with earmarking would be overcome.

Lord Mackay of Ardbrecknish

My Lords, perhaps I was rather more brief than I intended. I indicated that that difficulty would remain, and I accept the point. However, one of the purposes of conferring the power on the courts to order the scheme member to nominate the former spouse as the beneficiary of a lump sum payable on his death is to try—perhaps not as well as the noble Baroness would like—to provide the former spouse with compensation for the loss of the widow's pension. So that possibility exists. However, I am afraid that it is one difficulty more than we felt we could deal with.

As the noble Baroness rightly said, the issue would be dealt with if one went down the road of pension splitting. I believe that I have gone as far as I can at this late stage of the Bill. I suggest that she should accept the benefits that have come in the wake of her amendment and that of my noble friend Lady Young and not try to push me further and further.

On Question, Motion agreed to.