HL Deb 16 January 1996 vol 568 cc44-5WA
Baroness Hollis of Heigham

asked Her Majesty's Government:

How (including the assumptions made) the figure given by the Lord Mackay of Ardbrecknish during the Report Stage of the Pensions Bill of £300 million for increased tax relief if pensions could be split after divorce was calculated (H.L. Deb., 14 March 1995, col. 746); and how the cost is distributed on a yearly basis up to 2020; and

  1. (a) Whether they would expect there to be a loss in tax revenue if pensions could be split after divorce;
  2. (b) If so, what that loss would be on a yearly basis up to the year 2020; and
  3. (c) At what rate the pensions of divorced persons would require to be taxed to make the splitting of pensions after divorce cost-neutral in income tax terms.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)

The most recent estimate of the long-term revenue cost of allowing pensions to be split on divorce, which was in the reply given by the Parliamentary Under-Secretary of State for Social Security (Mr. Heald) to the honourable Member for East Kilbride (Mr. Ingram), Official Report, 14 July 1995, col. 851, is around £200 million per year by 2037 at 1994 prices. The annual revenue cost is expected to be small in the early years, building up to some £80 million by 2020.

These estimates are based on data from the Survey of Personal Incomes, and the 1991 Government Actuary's Department survey of occupational pension schemes, and use the assumption that pensions will be split in up to three-quarters of divorces of first time marriages in which one spouse has substantial pension rights and the other has no non-state pension entitlement, and that the whole of the accrued pension is split. It is also assumed that two-thirds of those who are subject to a pension split on divorce will choose at least partially to rebuild their pension by making additional contributions.

It is not possible to say what rate of income tax would need to be applied to the pensions of divorced persons to make splitting of pensions on divorce cost-neutral as this will depend on the circumstances of each divorced couple when their pensions come into payment.