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Lord Simon of Glaisdale: My Lords, if the noble Lord will allow me to say so, that works all right so long as there are other means to balance against the loss of pension. The amendment poses the problem of where the pension is virtually the only matrimonial asset.
Lord Mackay of Ardbrecknish: My Lords, I cannot agree with the noble and learned Lord, Lord Simon of Glaisdale, which is unusual. If the pension is the only asset, the attachment can be made to it. When the pension comes into the payment, the former wife can receive whatever the court has laid down as her share of it. I do not believe that that is the problem made out by the noble and learned Lord.
Perhaps I may return to the issue before us. In the light of the debate in Committee and the commitment given by my noble and learned friend the Lord Chancellor to look sympathetically at the issue, I announced in answer to a Parliamentary Question last week that we would be consulting through a Green Paper. My noble friend Lord Brentford asked whether work had been started on that. I can tell him firmly that we have already started work on some of the detailed considerations which must go into that Green Paper. I hope that the work can be completed and the Green Paper produced in the summertime. That will enable all those involved in the issue to work with us in ensuring that we have a properly worked out plan on which we can make a measured and not an emotional judgment.
The amendment before us today is a simple one. It expresses the principle but it gives no indication to the courts, or indeed to anyone else, as to how that power is to be realised. I hope that my noble friend Lord Boardman accepts the point that it gives no indication to the courts as to how they can realise their desire to split a pension.
This is a wholly incomplete and unworkable way to deal with an extraordinarily complex and sensitive subject, affecting not only those divorcing but also employers, other employees in the pension scheme and the taxpayers. The amendment is silent on the necessary changes in pension, tax and trust legislation. No powers are given to Ministers and the courts do not have powers
Yet if your Lordships pass this enabling clause today, in logic you ought to be prepared to give me extremely wide-ranging Henry VIII powers if you want your wishes on this matter to be translated into feasible action. I would be surprised if your Lordships would be prepared to do that. You certainly did not do so last year when my four Bills were scrutinised most carefully by the Delegated Powers Scrutiny Committee and by the House for unnecessarily wide secondary powers. I believe that the courts and the pensions industry would want a lot more flesh on this skeleton before it would come into life.
Of course, work has been done on this issue by a number of groups. I can single out, for example, the National Association of Pension Funds for special mention. But much of the work has concentrated on the problems of special interest to the group concerned. What is needed is for all the issues to be brought together, looked at, worked upon and considered as a whole picture and not as individual sections.
Perhaps I may turn to a few of the many problems, some of which were raised by my noble friend Lord Wolfson, which must be addressed if the issue is to be treated properly and resolved in a serious and responsible manner. The noble and learned Lord, Lord Simon of Glaisdale, said that my letter looked like stonewalling. I must tell him that as my middle name is Jackson perhaps that was not too wide of the mark. Be that as it may, it was not stonewalling but a genuine attempt to lay before noble Lords who took part in Committee the problems which I believe must be resolved.
I admired the noble and learned Lord's courage in giving your Lordships an indication of the Whipping position on the House. I must tell him that I am expounding the Government's position on this matter and I expect my noble friends to support the Government. I suspect that the noble Baroness, with the numbers on her side, is expecting her noble friends to support her in the same way. The numbers have declined because several noble Lords have gone for tea, but I have been here before and I know that they will suddenly re-emerge. Perhaps I may tell the noble and
Lord Stallard: My Lords, I thank the Minister for giving way. I and many other noble Lords recall that at the end of the Second Reading debate we were given an assurance that there would be no Whip on any matters of conscience. Why does the Minister now say that he expects his noble friends to be Whipped in favour of the Government's position?
Lord Mackay of Ardbrecknish: My Lords, I knew that I should not tangle with the noble and learned Lord. I expect that in all votes the same rule applies on the opposite side of the House. Indeed, I look at the noble Lord, Lord Graham of Edmonton, and I expect that if any of his noble friends feel that they cannot follow his party's guidance on the matter, they will have to make their own decision. I hope that few of my noble friends will decide that they cannot follow the guidance that I am giving on behalf of Her Majesty's Government and follow me into the other Lobby.
The noble Lord, Lord Stoddart of Swindon, said the issue was gender-neutral. I hate such silly phrases; but, yes, I believe that it is gender-neutral. In other words, if the woman had a large pension and she and her husband were divorced, the man would get his share of the pension. Therefore it is, in the noble Lord's words, gender-neutral. In most cases, the argument has been put in terms of the man being a member of the scheme and the former wife wanting to have a share of the pension capital.
The man is a member of his employer's scheme, which is set up by the employer as a voluntary arrangement to benefit his employees. As I said in my letter, pension is essentially deferred pay and it is the employment relationship which governs the schemes, related tax reliefs and benefits. Your Lordships can see clearly that divorcing a part of the pension from the employee does not accord well with the basic principles on which schemes, their rules and tax arrangements, are based.
If the pension is split, the former wife becomes a scheme member on a basis entirely different from any other scheme members. She has no employment relationship with the employer, yet he suddenly acquires responsibilities for someone in the pension scheme which has no direct relationship with the firm. So what are the obligations to this new but not qualified member of the scheme? What are the obligations of the trustees or the managers, and what rights and responsibilities does she have in relation to other scheme members? Can she vote for member nominated trustees? Can she pay in AVCs? Does she have survivor's and dependant's
The amendment also allows for the former wife to transfer her share. But she may not have a suitable vehicle for such a transfer. She may not be in paid employment and may not be able to contribute to a pension scheme. So do we change the tax laws for such cases? That will be a particular issue in the case where the husband has a personal pension. The scheme will have to be wound up, the husband will have to start a new one and the wife will be confronted with what she can do if she is not entitled to start her own scheme. Or, rather, we are confronted with solving that issue because in all honesty we cannot shuffle our responsibilities on to the wife or the courts.
If we decide to allow a non-working divorced wife to pay into a new type of pension scheme with its inherent tax advantages, what do we say to the still married non-working wife who may rightly ask why she cannot have the same choice? Surely we must avoid appearing to treat more favourably those who divorce than those who remain married or are widowed.
Take my word for it, SERPS and GMPs are complicated, and splitting them will be even more complicated. They are based on earnings on which national insurance contributions are paid over one's working life. The national insurance records system used to do this is a huge operation with records for every employee in the country. Splitting SERPS and GMPs will be complex and it will also mean a considerable increase in the administrative burden.
We are currently setting out on a significant upgrading of the system to cope with the changes arising from the Pensions Act. Those changes have to be phased in over the next three years, and I must say to your Lordships in the straightest possible terms that it would be the turn of the century before we could contemplate phasing in the additional changes arising from pension splitting.
And just to complete the picture on the state pension, the amendment appears to include the state retirement pension, which is already dealt with very fairly for divorced people, and it would be a nonsense if the courts could dictate changes in the payments of these pensions.
At the heart of the amendment before us is an attempt to deal with one of the serious difficulties in pension splitting--that arising for unfunded schemes, especially those in the public sector. The schemes like that for the NHS, the teachers and the Civil Service are not funded; they, like the state scheme, work on a pay-as-you-go system. So there is no money in the kitty to draw on for transfers. If transfers out were allowed, the costs would fall directly on the taxpayer and could be up to £500 million a year. For unfunded schemes in the private sector, the costs would fall either on the employer or on the other scheme members.
The amendment tries to ensure that the ex-wife cannot take a transfer out unless her ex-husband is taking a transfer, which he might do if he is leaving that employment for another. We would thus be treating ex-wives of members of unfunded schemes differently from those of funded schemes. Is that equitable? And some advocates of change see this proposal as only temporary--to get round my road block, so to speak. I do not see any government accepting a change like this which could immediately add half a billion pounds a year to public spending.
Lastly, I turn to taxation. Pension splitting would give rise to three areas of extra costs to the Revenue. Some men, having seen their pension provision reduced, will take advantage of AVCs and free-standing AVCs to rebuild with costs to the Revenue. These extra invested funds will grow free of tax. Thirdly, when the pensions come into payment instead of being taxed as one against one allowance, a married couple's allowance, the 20 per cent. band and the 24 per cent. band they will be taxed as two, with two allowances--two 20 per cent. and two 24 per cent. bands. As I indicated in answers to parliamentary Questions, the long-term costs to the revenue are estimated to be in the region of £200 million per year, with only £20 million off-setting savings from those ex-wives no longer needing to claim income support, and, as I said in my intervention, not already covered by pension attachment. Many divorced couples will actually be paying less tax than those still married with the same pension. This would give a tax advantage to those who divorce. I wonder whether that is a message that some of my noble friends wish to give?
Now to be fair to those who remain married, still happily the majority, if the same tax treatment were extended to them in order to make the playing field level (as the expression goes) the immediate costs could be of the order of £600 million, rising to £1.3 billion in the longer term.
All these issues and more have to be addressed. They cannot be swept aside as of no consequence. It is important to face up to the additional costs to taxpayers, to employers, to pension schemes--and even to the divorcing couple themselves.
To add a footnote mentioned by other noble Lords--now I should emphasise that I have no personal interest--I am not certain that either of the amendments achieve the desired aim of introducing pension splitting into Scotland because this Bill does not refer to the position in Scotland.
This is an important and far-reaching issue. It deserves proper attention and proper legislation encompassing not just divorce law, but also pensions law and tax law, and probably trust law, inheritance and intestacy law. That is why I propose to your Lordships a Green Paper with proper consultation. As I have said already, my officials and I have started to discuss some of the problems which will need to be aired and some of the alternative solutions which will need to be addressed. As I said at the beginning, I very much hope and expect that that Green Paper can be published in the summer. To accept these amendments would ignore everything which a responsible Government and a responsible legislature cannot ignore.
This House prides itself in the care with which it deals with legislation, and the control it exercises over the Executive's powers of secondary legislation. I urge your Lordships not to let your hearts rule your heads, but to exercise sound judgment; reject these amendments; and accept the wiser path which I am laying before you.
Baroness Hollis of Heigham: My Lords, the Minister has repeated most of the arguments that were made by the noble Earl, Lord Clanwilliam, the noble Lord, Lord Elton, and others. Perhaps your Lordships will forgive me if I concentrate instead on what the Minister said in his remarks.
His basic argument is that he fears that this may be unworkable. I merely ask your Lordships to bear in mind that the pension industry, the lawyers, the professionals, those at the sharp end, have already discussed with the department every issue that the Minister has raised this afternoon, and they believe that they see ways forward. They welcome consultation; but, nevertheless, they believe that the amendment is workable and should be supported. They believe that within the framework of the principle, it is possible to deal with the remaining technical difficulties.
Secondly, the Minister said that the amendment is technically flawed. I am willing to accept that. On this side of the House, as Opposition Members, we do not have the same resources as the Minister--for example, the 90 civil servants who helped the Minister on the previous Pensions Act. I remind the Minister that when last spring the House accepted the amendments of the noble Baroness, Lady Young, in relation to earmarking, by the time the Bill finally returned here from the other place, the Government had totally redrafted every aspect of it. If the political will exists to secure the amendment, the Government can do so, do so and do so all the time.
Thirdly, the Minister went into a series of technical issues. Again, I do not wish to ask your Lordships to sit through a long debate about the minutiae, particularly when so many noble Lords, like the noble Lords, Lord Boardman and Lord Marsh, have much greater expertise in this matter than I do.
Nevertheless, the Minister made three broad points which I wish to address. First he said that there is the problem of the ex-wife who has no relationship with the scheme because she has never been an employee. I am advised by the NAPF and the PMI--the pensions people at the sharp end--that she need be in no different position from deferred pensioners or the widow who has never been employed or, indeed, someone who is temporarily unemployed and therefore cannot pay into the scheme. There are already many different categories of attachment to a pension scheme, and that category can be fitted in with the others.
Secondly, the Minister said that SERPS and GMPs are difficult and we cannot touch them. I agree; but the Minister is criticising us in relation to something that we did not ask for. Again, as the noble Lord, Lord Boardman, said, this amendment is restricted to occupational funded schemes where there is the largest asset and the greatest injustice occurs. The PMI has
Also on technical issues, the Minister said that this could not apply to unfunded schemes without creating a bill of £500 million. Again, we did not ask for that. We accept that for unfunded schemes like SERPS and GMPs both fractions remain within the same scheme and so there is no leakage out and no cost to public funds.
Therefore, of the three technical issues that the Government have offered us, the first can be resolved by approximating the position of the widow with that of the widow of the deferred pensioner. The other two technical objections of the Minister, we did not seek to cover. We therefore do not seek to include the categories of pensioner about whom the Minister is concerned. We do not seek to make the best the enemy of the good here: we seek to address where the largest injustice lies. These amendments restrict themselves to occupational funded schemes; and the issue of splitting the pension on divorce is no different at all from when a person moves from Boots to ICI and the transfer value has to be calculated so that he can either take the pension with him or leave it behind. It is exactly the same, and the Minister knows it.
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