Pensions Act may trigger off 'CSA-type disaster'
24 October 1995
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11 November 1997
24 September 2001
28 April 1998
29 April 2002
The pensions world may see a repeat of the Child Support Act scenario when certain sections of the Pensions Act 1995 has had time to bed down, a leading pensions lawyers has warned.
Speaking at this year's SIFA conference for solicitor independent financial advisers, Robert Ellison of Hammond Suddards said problems could arise where for example a spouse has given up pensions rights for ownership of the houses and then finds him or herself in financial difficulties.
He said that the main issue for many years in pensions was whether a pension was an asset which the courts could consider to be matrimonial property.
He said that the Pensions Act 1995 was not intended to deal with divorce. This was because it was inserted at a late stage after pressure from a special interest group and that the Lord Chancellor's Department had concluded that the simple solution on divorce was to allow the courts to award pension rights at retirement.
"It fits rather oddly, since it is the only part of the legislation which was drafted by the Lord Chancellor's Department, rather than the DSS. And the LCD never pretended to have a knowledge of pensions," he said.
The new system will encourage the parties to make provision for pensions by adjusting, as at present, the rest of the matrimonial property.
Only if this was not sensible would the parties be encouraged to apply for a pensions adjustment order, requiring the trustees or managers to pay part or all of the pensions (and perhaps the lump sum) on retirement, he added.
However, there were "significant practical problems involving keeping track of such rights, what happens in unfunded pension schemes (especially where the employer becomes insolvent), remarriage, tax and enforcement".
He added that there would shortly be regulations published to deal with this.
Under the new system, courts will be able to take pensions into account in respect of divorces after April 1996 and impose orders from April 1997.
Such orders would be able to direct trustees to take cash rather than a pension and pay part or all of the pension to a third party. Such rules do not apply to cohabitees.
However, Ellison pointed out that the new system had its share of problems. "Tax rules may have to be revised, and few are yet aware of the direction the Inland Revenue will move. There will be pressure from say husbands who marry again for tax relief to enable them to build up their pension rights again if they remarry, since their 'second widow' could be quite badly hit."
He said that many of the payments would have the effect of simply reducing social security payments as many former spouses found themselves drawing social security benefits at retirement. "There is bound to be, eventually, a repeat of the Child Support Act scenario when the system has had time to bed down, where for example a spouse has taken all of the house and surrendered pension benefits in lieu, and then finds him or herself on hard times," he said.
Also speaking at the conference, technology specialist Richard Arundel said that technology was the only way to prevent financial services departments services falling foul of the financial regulations.
Describing it as "not an option, it is a necessity," he said in a few years most business would be traded electronically.
The conference, attended by 150 delegates, included presentations from Bob Butler, head of the Law Society monitoring unit, and Nick Anderton of AKG.
Ian Muirhead, chair of the conference, said: "We were delighted that the numbers had risen significantly from last year (120 delegates).
"This is an indication that despite the fact that the number of law firms undertaking discrete investment business has dropped, the degree of involvement and the quality of business has increased and continues to increase."
He said the conference showed a widespread interest in technology for case management, compliance and information transmission purposes.
A technology exhibition centred on SIFA's Sifasoft fact-finding and case management system, which will also provide a platform for the referral of financial services business between law firms.
The exchange demonstrated the Common Trading Platform, which allows financial services business to be conducted electronically via a modem attached to the adviser's PC.
The Aequos Best Advice system was also demonstrated.
This lets advisers draw up shortlists of product providers based on a wide range of criteria including financial strength, past investment performance, charges and service standards.
Also on show was Moneyfacts' on-line version of its weekly fact sheet for mortgage information and fixed interest investment rates.