Pension Splitting on Divorce: Proposal (Hansard, 22 February 1996)

§ Lord Mackay of Ardbrecknish

The Government have considered the matter very carefully. The noble Baroness, Lady Hollis, herself has acknowledged her amendments leave a number of important issues unresolved. Earlier reports on the issue (by the Pensions Management Institute, Law Society, Goode Committee) acknowledged the complexity.

Pension splitting raises many matters both in principle and as to how it might he achieved in practice. It raises serious questions concerning equity, complexity and cost which have to he balanced against any perceived advantages. These are not simply matters of detail.

The Government believe that to act hastily now could result in an unworkable and impractical scheme which may have as yet unforeseen and undesirable results. We have thus concluded that legislating in the Family Law Bill would he premature.

The Government are fully prepared to consider all the issues and options, in an open minded way, with all parties. We therefore intend to start work immediately on a Green Paper with a view to publish in the Summer.

Consideration needs to he given to matters like the status an ex-spouse would have within the scheme compared to existing categories of member and beneficiaries; the types of benefit rights that could he given to ex-spouses of scheme members; the way in which an ex-spouse would he accommodated within the rules governing the tax approval status of pension schemes. There are also wider questions as to the implications for taxation, pensions, trust, inheritance and intestacy law and the potential consequences for second families.

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Then there is the need to explore and consult on the costs to all involved—schemes (particularly unfunded schemes, if ex-spouses of members could transfer out their share of the members' pension), employers, employees and their families. Additionally there is the need to consider the potentially very significant Exchequer implications from tax losses if divorced couples were to offset the split pension against two personal tax allowances, and the implications for married couples who, without an extension of similar tax treatment, might consider their position to he inequitable.

Any consideration of pension splitting must acknowledge the practical implications for all who Would he affected. For example questions arise as to how to handle the unfunded State Earnings Related Pension Scheme (SERPS) and its contracted out equivalent, the Guaranteed Minimum Pension (GMP). The PMI report admitted this was an extremely difficult issue.

Consideration also needs to he given as to how any move to introduce pension splitting would fit in with the arrangements being put in place following last year's Pensions Act. Those measures will have an impact on the treatment of pensions when people divorce and will he of substantial benefit to divorcing couples.