Over the last 25 years the number of divorces has doubled and more people are building up personal pensions. These trends produce difficulties which we must resolve and I believe government proposals to improve the treatment of pensions in divorce settlements through pension sharing are a major step towards doing so.
The Government's recently published draft legislation setting out Department of Social Security (DSS) proposals for pension sharing for divorced couples will allow pension rights to be split as part of the financial settlement on divorce. This will create a clean break and allow a fairer settlement of assets.
The move is an important step towards modernising the pensions system to offer former spouses security in retirement and close the pensions gap between men and women.
In a divorce, the occupational pension rights of either party may be valuable and the way these rights are currently handled in divorce settlements is unsatisfactory. And with occupational or personal pension funds now totalling over £800bn, this is clearly a serious issue the Government must address.
Family lawyers and courts already take pension rights into account in reaching divorce settlements but the problem is what can be done with these rights.
The current rules allow pension schemes to make maintenance payments or a lump sum to their members' spouses only once the pension holder has retired. Many people, including family lawyers, have pointed out that this does not allow a clean break because the former spouse continues to dependent on their ex. And if payments take the form of periodical maintenance they stop when the pension holder dies.
Because of these limitations, the DSS aims to introduce by April 2000 pension sharing as an option for divorcing couples.
However, pension sharing will not be retrospective and divorce petitions filed before the law is passed will not be affected; there is no question of unpicking the details of agreements already settled.
Clearly, pension sharing will not happen in every case. Offsetting and earmarking will still be options and the department is currently researching how earmarking is working in practice to evaluate how it might work better.
Even when pension sharing does happen, pension rights will not be divided 50-50 in every case. The ratio of division will depend on the value of the couple's other assets and will be decided as part of a fair divorce settlement.
In developing the proposals the Government worked closely with family lawyers and legal groups – including the Solicitors' Family Law Association, the Law Society and the Lord Chancellor's Ancillary Relief Advisory Group – and representatives of the pensions industry and their experience and assistance has proved invaluable. They reminded ministers of the need to minimise the complexity of pension sharing in pensions schemes and the draft legislation largely follows existing pension law and processes.
The need now is to focus on the details of the draft legislation and all views on it are welcome.
But at the same time, family lawyers should start thinking about the implementation and operation of the final law.
Working together the profession and the department can ensure the pensions proposals will work. And this partnership will help the department achieve its goal of modernising pension arrangements for people going through divorce as part of overall plans for the updating pensions and the legal system.
This is a large-scale objective but it is also an achievable one and the department's proposals on pension sharing are a significant move towards achieving it.