Clause 82

Pensions Bill – in a Public Bill Committee am ar 19 Chwefror 2008.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Scope of mechanism

Question proposed, That the clause stand part of the Bill.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

Given that we are starting this chapter of the Bill, it would be useful if I set out what it will do. It has a substantial importance in relation to how divorce and pension settlements are arrived at. If I explain the broad background to that, we may be able to proceed fairly briskly through the other clauses.

In 1999, when the Government legislated to allow divorcing couples to share pensions, we made it clear that we were committed to ensuring that divorcing couples reach fair and equitable settlements. Those provisions were extended to civil partnerships under the Civil Partnership Act 2004. Although I shall refer mainly in my speech to divorce, the provisions that we are introducing apply equally to divorce or the dissolution of a civil partnership. We have ensured that, when couples divorce, they have the choice to share their pensions like other assets in a way that ensures a clean break, independence and income in later life.

However, the Pension Protection Fund compensation is not a pension and the existing pension-sharing law does not apply to it. The PPF was created in 2004 to pay compensation to people whose sponsoring employer has experienced an insolvency event and whose defined benefit pension scheme cannot pay a pension at a level that is at least equivalent to the pension paid by the PPF. The fund compensation can be taken into account when reaching financial settlements, but unlike cash, property or pensions, compensation cannot be shared when the couple or a court decide that that would be the best way in which to divide their assets.

When a member of a divorcing couple has pension rights, the court can transfer the value of some or all of those rights to the other member of the couple. That person can then buy a pension of their own to ensure their independence and security. The courts can also do that while a pension scheme is being assessed for transfer to the PPF. However, when a pension scheme has actually been transferred to the PPF, it is not possible to make an order to divide the compensation payments to which people are entitled. That means that PPF compensation could not be shared even if that compensation were the only significant asset belonging to a divorcing couple.

While there is no evidence that up to now a person has lost out, clauses 82 to 95 will ensure that sharing compensation is an option. The provisions allow the courts to treat PPF compensation in a similar way to pensions on divorce or dissolution of a civil partnership. A group of amendments that we shall discuss shortly would extend the provisions to Scotland.

Clause 82 describes the scope of the compensation-sharing provisions. It sets out the key principle for what follows and explains that PPF compensation is shareable—a principle that is fundamental to the compensation-sharing provisions—unless regulations make an exception such as when compensation is being paid to a survivor in respect of a previous marriage.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

I am grateful to the Minister for setting out the thinking behind the clause. When he talks about PPF compensation, will he confirm whether the provisions will apply also to the financial assistance scheme?

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

No. We shall have to look at the way in which the financial assistance scheme applies and the provisions under which it will operate.

Clause 82, like the rest of the chapter, has been drafted so that, as far as possible, compensation sharing follows the same principles and uses the same mechanics that currently apply to pension sharing. In that way, we have sought to capitalise on familiarity and avoid unnecessary additional complexity.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

As I have said, I am grateful to the Minister for setting out the thinking behind this set of clauses. It is useful to make a few general comments on clause 82 before we discuss some of the detail. It was Lord Nicholls in the case of Brooks v Brooks, to which I referred earlier, who said:

“For many married people their two single assets of greatest value are the house in which they live and, as time passes, the accumulating pension of the money-earner.”

In a previous debate about safeguarded rights, we looked at how the law has developed on pensions and their treatment in matrimonial proceedings. There was a time when they could be taken into account, but there was no power to make an order in respect of pensions specifically, and what happened is what currently happens for PPF payments—the court could, in certain circumstances, broadly take into account the entitlement in dividing up other assets of the marriage. The 1995 legislation first gave the power to attach or earmark pensions. As the Minister has said, the Welfare Reform and Pensions Act 1999 amended the Matrimonial Causes Act 1973 such that what could happen from then on was the sharing of pensions. That was based on a consultation carried out under the previous Conservative Government, so clearly there was an element of consensus.

The 1999 Act made it clear that from then on, pensions sharing could take place. As I understand it, it is not compulsory and will always remain a matter of discretion for the courts at any given time and applies to occupational pensions, personal pensions, SERPS and the state pension. It is something that has come to be applied a great deal in our courts. There are some 200,000 divorce cases a year, at least, and it would be  worth knowing in how many cases pension sharing takes place already. In 2000 it was thought that earmarking only took place in 300 of the then 150,000 cases per year, but I suspect that the figure for pension sharing is now a great deal higher.

It is puzzling how this anomaly came to be. It is perhaps the fault of all of us, but perhaps the Government more than us, that nobody spotted it during the passage of what became the 2004 legislation. It is clear that in certain circumstances a husband who has accumulated a significant pension in a company that then has an insolvency event could, if the timing was right, by receiving compensation payments under the PPF, avoid giving his wife a fair share of that substantial asset in the divorce proceedings. I give considerable credit to the Baroness Hollis, who, in her usual indefatigable way, raised this issue during the passage of the most recent pensions Bill—what became the 2007 Act. She tabled an amendment to deal with the issue, making the point in the House of Lords that, although it is perfectly possible to make pension-sharing orders based on the 1999 legislation, the courts cannot make any kind of order relating to PPF compensation. It strikes me as bizarre that that was not spotted at the time, but there we are. She said:

“Technically this was done because moneys from the PPF or FAS”—

I will come back to that in a minute, if I may—

“were compensation or a contribution to loss rather than the original pension.”—[Official Report, House of Lords, 6 June 2007; Vol. 692, c. 1121.]

To pause there, I suppose that they were treated legally as if the husband had had a road traffic accident, for example, and received damages by way of compensation, which I assume would not normally be taken into account in a matrimonial proceeding. As the Baroness went on to point out, that may represent a significant asset; she gave the example of a PPF pension of £20,000, requiring a pension pot of nearly £300,000. She said:

“The spouse’s access to a share of the pension, which may be more valuable than the home, is determined not by the circumstances of the divorce, not by the size of the assets involved, and not by any offsetting that may have taken place, but by the timing of the company’s fortunes. I do not think that that is fair.”—[Official Report, House of Lords, 6 June 2007; Vol. 692, c. 1121.]

Responding for the Government, Baroness Morgan of Drefelin said that the Government would give the matter further consideration, hence clause 82 and following. She made the point, which the Minister touched on, that the legislation already allows that the value of any PPF compensation may be taken into account as an asset. That is a throwback to what used to be the case prior to pension splitting and pension sharing being placed on a statutory footing. In passing, I also mention that my hon. Friend the Member for South-West Bedfordshire has tabled a new clause dealing with the sharing of personal accounts. We will no doubt debate that later on.

The Minister’s response to my intervention about the relevance or otherwise of the financial assistance scheme is very interesting. Yet again there has been an oversight. From the Minister’s response it seems clear that the clauses do not apply to the financial assistance scheme. However, it is statistically likely that of the 150,000 people potentially affected by the FAS, some may sadly  go through matrimonial proceedings. As a result of the lacunae in clauses 82 and following, compensation—or perhaps we should call it assistance—could be disregarded from the point of view of any matrimonial settlement.

The Minister will no doubt say that the holding position on that is what used to happen before pension splitting and pension sharing came in: when dividing up the matrimonial assets, the courts could take some account of any entitlement to assistance under the FAS. However, with the greatest of respect, that is not good enough. I would like to tease out from the Minister a bit more of his current thinking on how to deal with that issue. On our first morning back after a pleasant break, I hope that it will not sound too churlish to say that this problem is entirely of the Government’s own making. It was a political decision to set up the FAS as a wholly separate organisation at the other end of the country, so as not to underline too heavily the fact that it was paying out to claimants at a much lower level across the board than the PPF was paying to claimants under the scheme. Purely because of an accident of timing, it has always been the case that FAS claimants have been treated more shabbily in all sorts of ways than PPF claimants. I am sure that we will debate the matter in more detail later on.

The Government have always been at pains to say that under PPF, people receive compensation—100 per cent., 90 per cent., depending on the situation—whereas the FAS merely provides assistance. As we said when I was growing up in Yorkshire, “As cold as charity”. That is why we have a problem with the clause. Therefore, I press the Minister to say a little more about to what extent he and his officials have addressed that obvious gap in the legislation, and what he thinks are the options to deal with the need to bring the financial assistance scheme into the fold, not only in terms of compensation, which we will debate in more detail, but about how entitlement to those payments will be dealt with during the course of matrimonial proceedings.

Photo of Danny Alexander Danny Alexander Democratiaid Rhyddfrydol, Inverness, Nairn, Badenoch and Strathspey

It is a pleasure to be back once again under your chairmanship, Mrs Anderson, after our short recess. I am grateful for the opportunity to make a few general comments about this chapter of the Bill. Clearly, the idea of extending pension-sharing provisions to people receiving benefits under the pension protection fund seems to be absolutely right. As the hon. Member for Eastbourne observed, pension sharing generally on divorce has been common practice for a number of years. Plainly, there was an oversight at some stage that led to it not being included in the initial PPF legislation.

I would like to know whether the solving of this problem has been prompted mainly by the comments made in the Lords under the last Pension Bill—and I pay tribute to Baroness Hollis—or whether particular cases have come up. Is the Minister aware of people who are currently receiving compensation under the PPF, who have been in that situation and have not been able to have the pension sharing that they wished in the unfortunate event of a divorce or separation? If so, how is he prepared to deal with such cases? It may be that no such thing has arisen, in which case it is perhaps fortunate that this is being dealt with now.

I would want to echo, at least as strongly, the comments made by the hon. Member for Eastbourne about the financial assistance scheme. Surely, given the recent changes made to the financial assistance scheme, which have finally brought it onto a more level footing with the pension protection fund, the provisions to allow sharing of benefits under the financial assistance scheme on divorce should be extended to the financial assistance scheme. Given the way in which the Government have at long last, and rightly, moved away from the concept of a core pension under the financial assistance scheme to allow wider benefits to be paid, all the rules and regulations that apply to pensions more generally and which we are seeking to extend under these clauses to the pension protection fund should apply to the financial assistance scheme. I note in passing that I have been one of those who have advocated that the administration of the financial assistance scheme should be handed over to the pension protection fund for reasons of efficiency. It is clear that the management of the pension protection fund has a good track record in getting things done quickly with cases so far. The rules that it has enables things to be done quickly, and it seems to make sense that it should take responsibility for this.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions 10:45, 19 Chwefror 2008

There is a saying that failure is an orphan and success has many fathers, but I remind the hon. Gentleman that in the passage of the 2004 pensions legislation, I argued for an amendment that would have set up a mini PPF within the PPF that would have dealt with the claims that arose prior to the cut-off date for the PPF. I have always felt, from then onwards, that it would have made far more sense to have one single administration, and I am delighted that the hon. Gentleman takes the same view.

Photo of Danny Alexander Danny Alexander Democratiaid Rhyddfrydol, Inverness, Nairn, Badenoch and Strathspey

The hon. Gentleman has the advantage over me in respect of legislation passed in 2004, as I was not a member of the House then, but I am very happy to take his word for that and to commend him for his foresight in 2004. That seems to be quite right. I am sure that we will not always proceed in this spirit of consensus between the Conservatives and the Liberal Democrats, but on that point, we are in agreement. I hope that the Minister can explain a bit more of the background as to why so far in the Bill the Government have chosen not to extend this to the financial assistance scheme, and at what stage he intends to bring that measure forward, o that the benefit can be shared more widely.

Photo of John Greenway John Greenway Ceidwadwyr, Ryedale

I want to intervene briefly to correct my hon. Friend the Member for Eastbourne: the financial assistance scheme office is at Monks Cross in York in my constituency and it does not regard itself as being at the wrong end of the country. In fact, but for an accident of history, we would be at the wrong end of the country and our Parliament would be based in York.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

I think that the record will show that I said “the other end” of the country, and as someone who was born and brought up in Leeds, nor could I possibly be thought of as someone who thinks that Yorkshire is the “wrong” end of the country—quite the reverse.

Photo of John Greenway John Greenway Ceidwadwyr, Ryedale

I stand corrected, but I plead in aid of myself the fact that I have a very dodgy right ear. As you can see, Mrs. Anderson, I have had a good week away, and I am afraid that I got too much water in my ear, so I did not quite hear my hon. Friend correctly. However, there is an important issue here. I have listened to what my hon. Friend, the Minister, and the spokesman for the Liberal Democrats have said, and I think without question that the financial assistance scheme entitlements should be included in divorce settlements. However, for that to happen, the courts need certainty, because when marriages break up—and as many hon. Members know, I have been through that experience, although I am now gladly remarried—there has to be fairness between both sides. For there to be fairness, there has to be certainty, so I think that we can conclude in this debate that it is right that financial assistance scheme entitlements should be part of divorce settlements. For that to happen, we need to see these new arrangements clearly bedded down, and we need that degree of certainty as to what individuals are entitled to and therefore what they can reasonably be expected to award to their spouse.

In a sense, I am making two pleas to the Minister. First, it would represent progress if a provision covering the FAS were included in this part of the Bill. More generally, there is still much to be done to ensure that the FAS is the effective system of support for people who have lost their pension and that it can be shared between couples when their marriages have broken down.

I hope that our exchange has been useful to the Committee. The issue goes slightly beyond the measures under the Bill and you have been extremely generous, Mrs. Anderson, in allowing us to have a more general debate so I shall not trespass on your courtesy even further. However, given his reaction to what I and other members of the Committee have said, the Minister seems to have grasped our point.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

I wish first to deal with a couple of extraneous points and then move to the FAS division of payments on divorce. I was asked for the number of cases of pension sharing. That is difficult to identify due to the different jurisdictions involved and how details of judgments are recorded. We do not know the number of cases, but the hon. Member for Eastbourne is probably right that it is likely to be in excess of the figure he quoted, and that it is increasing year on year.

The hon. Member for Inverness, Nairn, Badenoch and Strathspey asked whether we had identified any cases. There is none that we are aware of, but that does not mean that there are not any because they could have been dealt with through the courts, between lawyers or in some other way. There may well be cases, but they have not come to the notice of the officials in my Department. In a sense, we are discussing unfinished business from 2004 but, as members of this Committee more than any other Committee will know, the financial assistance scheme has been undergoing a whole series of transitions in recent years, and it has not yet completed its current transition. Indeed, we shall be tabling amendments that we shall probably consider today or Thursday to deal with the financial assistance scheme.

The hon. Member for Ryedale is exactly right. The law, particularly in the area under discussion, requires certainty. What the financial assistance scheme does not have is certainty because we have not laid down its regulations, details and provisions as the scheme will stand within six months from now. We therefore need to get those provisions in place and then make reference to them by setting out the way in which we intend to bring forward pension-sharing arrangements for those who are affected by divorce and are part of the financial assistance scheme.

We want to bring forward similar provisions to those that apply to the PPF in due course for those affected by the financial assistance scheme. There is the possibility of a welfare reform Bill in the next Session, so we are looking for the ability to introduce such provisions in that Bill. If I were able now to put together the provisions in respect of the financial assistance scheme, I could draft amendments for discussion in the other place, but we cannot do that because we do not know the precise provisions of the financial assistance scheme when considering how to divide up the pension-sharing arrangements in due course. The matter is about certainty and we must make progress, first, by creating the provisions of the financial assistance scheme and, secondly, by setting out the circumstances under which we would allow the pension-sharing provisions that we want for the PPF. We cannot do that in regulations; we will have to do it in primary legislation because it will directly affect provisions in relation to divorce. That is how we intend to proceed, and I hope that that helps.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

I am grateful to the Minister for giving way and for his assurances. I take his point, and the point made by my hon. Friend the Member for Ryedale, about the current uncertainties in the FAS. Will he confirm whether, in bringing forward similar proposals on the FAS to the ones that he has introduced on the PPF, he might look at some element of retrospectivity—[Interruption.]—Retrospection. If so, people could look back and apply those measures to cases that arise now. Will he also confirm that a smart divorce lawyer could read our debates, particularly our debates on the changes to the FAS, and have a reasonable idea of the funds that might be made available, so that it is possible, even now, to take them into account, in a rough and ready way, in a matrimonial settlement or a court judgment?

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

Let me first defend the hon. Member for Eastbourne on whether it is retrospection or retrospectivity. I think that it is retrospectivity because retrospection means looking backwards and we are not looking for the legislation to look backwards, we want it to affect things going back with. That would be retrospective legislation, and therefore I think that the hon. Member for Eastbourne is right, it is retrospectivity. No doubt we will have Guardian editorials on that point in due course. In any event, we would obviously need the consent of law officers to look at this sort of issue. They are, quite rightly, reluctant to allow retrospective legislation for all sorts of reasons that people are aware of. Essentially, it is wrong in normal circumstances for people to be subject to laws that they were not aware would be in place at the time that they behaved in a particular way. None  the less, retrospectivity happens on occasion, particularly when people have been warned that legislation will be brought forward and they are on notice that it may affect them.

I hear what the hon. Gentleman says about the need to enable any retrospective legislative change to affect people from here on in. I will have to make enquiries about that and I will comment in due course on whether I can do that.

Question put and agreed to.

Clause 82 ordered to stand part of the Bill.