§ Mr. IngramTo ask the Secretary of State for Social Security what is his estimate of the cost of splitting pensions on divorce for the year 1997 assuming a long term inflation rate of 5 per cent. [32615]
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§ Mr. Heald[holding answer 4 July 1995]: Further to the reply given by the former Under-Secretary, my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot), the information is not available in the form requested.
Such information as is available is as follows. The Government Actuary has estimated that if pension splitting on divorce was introduced in 1997, the annual cost to unfunded public service schemes in the first full year would be approximately £500 million at 1994 prices. This estimate assumes that pensions will be split in all divorces relating to active public service scheme members, and that 50 per cent. of the accrued cash equivalent transfer valuation of each divorced member is transferred out of the scheme. No allowance is made for offsetting against other assets, and it is assumed that the current divorce rate continues. There would also be additional legal aid costs.
§ Mr. IngramTo ask the Secretary of State for Social Security what assumptions have been used to reach the figure for the cost of splitting pensions on divorce for the year 2037; and what is the figure. [32616]
§ Mr. Heald[holding answer 4 July 1995]: Further to the reply given by the former Under-Secretary, my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot), splitting pensions on divorce affects the public finances through its effects on tax revenue, the unfunded public service schemes, legal aid and income-related benefit expenditure. In 2037, the main cost arises from lost tax revenue and increased tax relief on pension contributions.
Using data from the survey of personal incomes and the 1991 Government Actuary's Department occupational pension survey, Inland Revenue has estimated that allowing pensions to be split on divorce would lead to a loss of tax revenue of around £200 million per year by 2037 in 1994 prices.
This estimate assumes that pensions will be split in up to three quarters of divorces of first time marriages in which the husband has substantial pension rights and the wife has no non-state pension entitlement, and that the whole of the pension earned up to the date of retirement is split. It is also assumed that two thirds of men who are subject to a pension split on divorce will choose to at least partially rebuild their pension by making additional contributions.
The assumptions used in estimates of the loss of tax revenue in 2037 are not the same as those used in estimates of the costs to unfunded public service schemes arising in 1997. Estimates have necessarily been based on different methods using data from different sources, which has not allowed for the use of consistent assumptions.