Select Committee on Delegated Powers and Deregulation Seventeenth Report


Parts III and IV - Pensions on Divorce and Nullity of Marriage

107. Parts III (clauses 19-22) and IV (clauses 23-47) of the Bill contain the main provisions about pensions on divorce and nullity of marriage. Part III amends existing matrimonial and family law to enable the court to make pension sharing orders on divorce and nullity of marriage. It also amends the provisions to earmark pensions that were inserted into the Matrimonial Causes Act 1973 by section 166 of the Pensions Act 1995.

108. Chapter I of Part IV sets out how, in relation to a pension arrangement, a pension share is effected and the result. Chapter II of this part makes similar provision in relation to the sharing of SERPS rights.

109. Paragraphs 20 to 22 of the introduction to this memorandum explain the Government's approach to the legislation for pension sharing provisions, and why it proposes to use secondary legislation for technical matters and matters where flexibility is needed.

SCHEDULE 3 - PENSION SHARING ORDERS: ENGLAND AND WALES

110. Clause 19 gives effect to the amendments to the Matrimonial Causes Act 1973 set out in Schedule 3 to the Bill. This Schedule amends the Matrimonial Causes Act 1973 for the purpose of enabling the court to make pension sharing orders in connection with proceedings in England and Wales for divorce or nullity of marriage.

111. Paragraph 3 of Schedule 3 inserts new sections 24B to 24G into the Matrimonial Causes Act. New section 24F contains a power for the Lord Chancellor to prescribe by regulations a period during which a pension sharing order may not take effect. The intention is that this 'prescribed stay period' will prevent the order taking effect until the end of the period allowed for an appeal 'in time'. This device will mean that the persons responsible for the pension arrangement or the Benefits Agency (as the case may be) will not start to implement an order unless the time for appeal has expired. If notice of appeal is given within that period, the order will be further stayed pending the outcome of the appeal. It is intended that the length of the prescribed stay period will be no less than the period in which an appeal is permitted. This period varies from court to court. It is usually specified in rules of court.

112. The Department believes that this matter is best dealt with in delegated legislation as several different periods may have to be specified and those periods may require adjustment in the light of experience or if the periods of appeal specified in other legislation, which may be delegated legislation, such as rules of court, change.

113. Paragraph 6 extends the court's power under section 31 of the Matrimonial Causes Act 1973 so that, where the provision applies, the court can vary or discharge pension sharing orders as well as financial provision and property adjustment orders.

114. If an order to vary a pension sharing order is made under section 31, for example in a County Court, it too may be subject to an appeal. As is the case for original pension sharing orders, it is therefore necessary to provide for a prescribed stay period in relation to varying order. The prescribed stay period will be equal to or exceed the length of time permitted by rules of court for an appeal. The time allowed for appeal depends on the level of the court (the maximum period is 35 days for cases in the High Court). The new section 31(4D) inserted by paragraph 6(4) contains a rule making power for the Lord Chancellor to enable the prescribed stay period to be defined. These matters have been dealt with this way for the same reasons as are set out in relation to the power in the new section 24F above. Because of procedural differences in Scotland, there are no equivalent Scottish provisions.

SCHEDULE 4 - AMENDMENTS OF SECTIONS 25B TO 25D OF THE MATRIMONIAL CAUSES ACT 1973

115. Clause 21 gives effect to the amendments to the Matrimonial Causes Act 1973 set out in Schedule 4 to the Bill. Schedule 4 amends the current earmarking arrangements to ensure that they are consistent with the system proposed for pension sharing and to make certain provision relating to pension sharing.

116. Paragraphs 1 to 3 contain mainly technical amendments to sections 25B to 25D of the Act which are consequential on the pension sharing provisions. Paragraph 3(2) substitutes a new section 25D(1) for the existing provision. Section 25D(1)(b), as amended, includes a regulation-making power. It is intended to use this power to ensure that, when a transfer of pension rights takes place, and the whole of the rights transferred are the subject of a financial provision order on divorce or nullity of marriage, then the receiving pension arrangement must have been appropriately notified in accordance with the Lord Chancellor's regulations. This repeats the substance of the existing section 25D(1)(b).

117. It is intended to use the regulation-making power to require the original pension arrangement to notify the new pension arrangement of the earmarking order. A copy of the court order and details of the name, contact address of the party without pension rights and their account details will be sent. It is intended that the original pension arrangement will also be required to notify the party without pension rights of the transfer. The notification will be sent to their last recorded address, indicating that a transfer of pension rights has taken place, giving details of the receiving pension arrangement and stating that the earmarking order remains in force. The intention is to specify these items of information in regulations. The Department believes that these matters are best dealt with in delegated legislation to ensure that the requirements can be readily adapted in the light of experience.

118. Paragraph 3(3) amends section 25D(2). As amended this subsection enables regulations to be made by the Lord Chancellor in relation to the following:

  1. payment of sums due under pension earmarking orders;
  2. rights and liabilities of the parties affected in cases where a payment had been made under a mistaken belief that an earmarking order was valid;
  3. notification of changes of circumstance;
  4. discharge of the liability under an earmarking order of person responsible for a pension arrangement;
  5. calculation and verification in relation to the valuation of benefits under a pension arrangement or shareable state scheme rights for the purposes of enabling the court to exercise its powers to make financial provision orders, property adjustment orders, or pension sharing orders in cases of divorce or nullity, under sections 22A to 24D of the 1973 Act (in this respect the regulations may include provision by reference to regulations to be made under clauses 26 and 45(4) of the Bill and for calculation and verification to be made in accordance with guidance prepared by a person prescribed in the regulations - new sections 25D(2A) and (2D) which are inserted by paragraph 3(4) of Schedule 4). As with the calculation of cash equivalents for early leavers from occupational pension schemes, it is intended that where the calculation involves making estimates of the value of benefits (eg salary-related schemes), then the regulations should refer to guidance published by the Institute and Faculty of Actuaries. It is expected that it will largely be possible to deal with earmarking and pension sharing in the same regulations.

119. Of these regulation-making powers, the provisions as to mistaken belief and discharge from liability are new. The intention is to use them to provide better protection for pension providers who may make a payment in the belief that an order is valid, when it is not. Experience gained from the working of the earmarking provisions suggests that such additional protection is needed. The provisions relating to calculation and verification of the cash equivalent of pension rights have been expanded to take into account pension sharing. Consequential amendments have also been made. The end result is that, although wider in scope to take account of pension sharing, the provisions re-enact the substance of the existing provisions.

120. The regulations under subsection (2) may make different provision for different cases - new section 25D(2B), which is also inserted by paragraph 3(4) of Schedule 4. This provision is necessary to provide flexibility to cater for the different circumstances which arise from the unique nature of each case of divorce or nullity as well as to provide for earmarking and pension sharing.

121. In taking these regulation making powers the Lord Chancellor is following the precedent for the division between primary and secondary legislation established by the Matrimonial Causes Act 1973 as amended by the Pensions Act 1995.

122. Paragraph 3(4) inserts new subsections into section 25D. The Government intends to use the powers taken to make regulations concerning:

  1. the provision of information by private pension arrangements, and the provision of information by the Secretary of State in respect of state pension rights, relevant to any of the court's powers under this Part of this Act (subsection (2C)(a));
  2. valuations of pension rights to be provided by pension arrangements (subsection (2C)(b)); and
  3. the charges that may be levied by pension administrators (subsection (2C)(c)).

123. Some functions previously exercisable by the Lord Chancellor are in future to be exercised by the Secretary of the State as the latter has overall responsibility for the regulation of pension schemes.

124. There is a general regulation-making power in the new subsection (2B) to enable regulations under the new subsection (2) of section 25D described above to make different provisions for different cases. All regulation-making powers should as far as possible be uniform as between the earmarking and the pensions sharing systems and the ideal solution would have been a single list of powers for the purposes of both types of order. However, the Department was concerned that such an approach might, in the light of experience and given the individual nature of each divorce settlement, prove to be too impractical. The general power in subsection (2B) is intended to provide some flexibility, should it prove to be needed.

125. The overall effect of paragraph 3(3) and (4) is to extend the current regulation-making powers to require schemes to provide valuations to include other information relevant for pension sharing purposes, and to enable them to charge for it. It also extends those powers, and the provision for valuation by the court, to all cases where the effect of pension rights on financial relief is being considered, whether or not a pension attachment order is in contemplation.

CLAUSE 22 - EXTENSION TO OVERSEAS DIVORCES ETC

126. This clause amends Part III of the Matrimonial and Family Proceedings Act 1984 to extend the pension earmarking provisions (introduced into the Matrimonial Causes Act 1973 by the Pensions Act 1995) in relation to divorces and annulments in England and Wales, to applications for financial relief after an overseas divorce or annulment.

127. These matters are dealt with in delegated legislation under the 1973 Act. The new provisions to be added to the 1984 Act follow that scheme. Therefore, the Department believes that it is appropriate to make this provision under secondary legislation.

128. Subsection (5) inserts new subsections (2) to (6) into section 21 of the Matrimonial and Family Proceedings Act 1984. Of these new subsections, two provide for the making of delegated legislation. The Lord Chancellor intends to use the first of these powers in section 21(4) to make regulations equivalent to those which may be made under section 25D(2) to (2B) and (2D) of the Matrimonial Causes Act (MCA) 1973. Section 25D(2) (as amended by the Bill) provides that the regulations may make provision as to:

  1. payment of sums due under pension earmarking orders;
  2. rights and liabilities of the parties affected in cases where a payment had been made under a mistaken belief that an earmarking order was valid;
  3. notification of changes of circumstance;
  4. discharge of the liability under an earmarking order of person responsible for a pension arrangement;
  5. calculating and verifying in relation to the valuation of benefits under a pension arrangement or shareable state scheme rights for the purposes of enabling the court to exercise its powers to make orders under the 1984 Act (in this respect the regulations may include provision by reference to regulations to be made under clauses 18 and 37(4) of the Bill and for calculation and verification to be made in accordance with guidance prepared by a person prescribed in the regulations - new sections 25D(2A) and (2D)).

129. The regulations may make different provision for different cases - new section 25D(2B). The provisions of section 25D as amended by the Bill are described in greater detail below.

130. The Secretary of State intends to use the second delegated power in section 21(5) to make regulations equivalent to those which may be made by him under section 25D(2C) to (2E) of the 1973 Act. These regulation-making powers are concerned with the supply of information from pension arrangements, calculation and verification in relation to the value of pension rights and the recovery of charges incurred by pension arrangements. It would have been inappropriate to deal with every aspect of such requirements, and for every circumstance, in primary legislation.


 
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