New Clause 21

Pensions Bill – in a Public Bill Committee at 1:30 pm on 21st February 2008.

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Personal account sharing on divorce

‘(1) Any sum may be transferred from one personal account into another personal account when—

(a) a divorce or dissolution of a civil partnership leads to a court order or agreement by mutual consent splitting the assets of the parties concerned;

(b) the court order or agreement by mutual consent instructs that a proportion of the value of the personal account of the transferor should be made the property of the transferee; and

(c) both the transferor and the transferee hold a personal account.

(2) In this section “the transferor” and “the transferee” shall be defined as in section 83 of this Act.’.—[Andrew Selous.]

Brought up, and read the First time.

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I beg to move, That the clause be read a Second time.

It is my duty to give my hon. Friend the Member for Eastbourne the odd rest during our proceedings as he has borne the brunt of our efforts for a while.

New clause 21 would ensure that there are provisions for the sharing of personal accounts on divorce or the ending of a civil partnership. It has been supported by the Equality and Human Rights Commission, and I am grateful for the brief that it provided.

The new clause is simple. I am well aware of the concerns expressed by both Ministers, and indeed by Tim Jones and Paul Myners of the Personal Accounts Delivery Authority in the evidence sessions, that we need to keep the administration of personal accounts simple. They do not want a mass of transfers in and out, which I believe are barred until 2017. If there is a criticism of new clause 21, it is probably that it is modest in scope, too restrictive and would not help enough people because it relates only to couples when they both have a personal account. The issue is not easy, and we are not talking about new money coming into the personal account scheme or money going outside in its entirety.

Paragraph (b) allows transfers by mutual consent, which I hope the Minister has noted. That is important because I learned from the Equality and Human Rights Commission briefing that although pension sharing rules on divorce were introduced in December 2000—since they were introduced there have, sadly, been more than 1 million petitions for divorce—figures from the Department for Constitutional Affairs reveal that in the year to September 2007, less than 8 per cent. of divorcing couples obtained pension-sharing orders. That tells me that there is a real problem in this area, and that an asset, which in many cases may be worth as much or perhaps more than the former matrimonial home, is not being fairly shared. A wife may have contributed greatly to a marriage over many years or may have taken time off to look after children or a sick  relative, and it is absolutely right and important that she should enjoy the proceeds of pension contributions to which she has a right, given her part in the marriage over many years. This is an area that couples often find contentious, and believe will be complicated, or perhaps they are not even aware that it is possible to have a claim on a former spouse’s pension.

I hope that the new clause commends itself to the Minister. I know that there is a bar on transfers before 2017, but I repeat that we are not talking about transfers out of or into the personal account scheme. We are talking only about changing the fair sharing of pension pots within the personal account scheme. I think that in 2017 it would probably be necessary to go beyond the provisions in new clause 21 and perhaps look at other cases. I hope that the Minister, perhaps when he replies, will give the Committee an indication of whether the review of transfers in and out, in 2017, will take into account that very important aspect.

I hope that I have set out where we are coming from in tabling new clause 21. I hope that the Minister realises the seriousness of the matter, given that, as I have just said, less than 8 per cent. of divorcing couples currently obtain pension sharing orders. If he cannot accept the new clause, as drafted, I hope very much that he will reassure us that the Government are aware of the importance of the matter and intend to do something about it.

Photo of John Greenway John Greenway Conservative, Ryedale

I think that my hon. Friend is on to something with this new clause. I want to make a brief point that he did not touch on in his otherwise excellent rÃ(c)sumÃ(c) of the new clause. He has said that it will apply only when a divorcing couple both hold personal accounts. One of the attractions of the personal account scheme will be its low cost. On Tuesday, in Committee, we discussed changes to provisions for pension splitting on divorce and the prospect of further work to be done by the Government. However, it is not clear whether someone could transfer their money into a personal account. I see nothing in the Bill that would allow for that.

Clause 100, which I have been rereading along with its explanatory note, deals with the exclusion of, rather than allowing, transfers. Such transfers would entail very little cost. In fact, there would probably be no cost at all, other than a charge that might be levied by the scheme for such a transfer. Given that we are probably dealing with relatively low-income earners, I find the prospect of the new clause particularly attractive. I am not sure whether it needs to be included in the Bill, or whether a power to deal with it in regulations is buried in the detail. However, on principle, I support my hon. Friend’s suggestion. I regret only that I did not spot the new clause earlier and add my name to it.

Photo of James Plaskitt James Plaskitt Parliamentary Under-Secretary, Department for Work and Pensions

This is indeed an important matter and I am grateful to the two hon. Members who have just spoken on it. As I said, the new clause would replicate for personal accounts the effect of provisions in the Welfare Reform and Pensions Act 1999. Pension sharing was a flagship policy of the Government’s first pensions reform and the arrangements in the 1999 Act will apply to the personal accounts scheme, as they do to all other occupational  pension schemes. Given that the Act provides already for pension sharing for occupational schemes, we have not duplicated the provisions in the Bill.

If a couple divorces and the court makes a pension sharing order, the trustees of a scheme will arrange for the former spouse or civil partner to be awarded a pension credit, which will be a share of the member’s pension rights. The trustees will then discharge the pension credit into a pension scheme in the former spouse’s name, who will then become a pension credit member of that scheme.

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I am reassured by the way in which the Minister started his remarks. For the sake of clarification, we heard a lot during the evidence sessions about no transfers at all before 2017, but is the Minister now saying that it will be possible in divorce cases to move money in and out before 2017?

Photo of James Plaskitt James Plaskitt Parliamentary Under-Secretary, Department for Work and Pensions

We covered that in previous debates on divorce and arrangements for it. The arrangement is that the pension credits, as they are called, that come out of a divorce settlement and are awarded by the courts can be transferred into such personal pension schemes—the point covered by the hon. Member for Ryedale—but there is a ban on them subsequently being transferred out.

Scheme rules determine whether a scheme will accept the pension credit members. Occupational pension schemes are not obliged to accept them, and very few do. Some existing schemes do not accept them if the former spouse has no connection with the sponsoring company. It is our intention that personal accounts will accept the discharge of a pension credit into personal accounts if that is what the former spouse wishes, provided that the pension credit has come from the personal account or the former spouse has a personal account in his or her own right as either an active or deferred member.

The former spouse may have the pension credit discharged into another pension arrangement, such as a personal pension, if that is what they prefer. There is no compulsion to use personal accounts. The Government’s detailed intention to pension sharing in personal accounts will be covered in the scheme order. I am grateful that the new clause has provided the opportunity for me to explain our intentions. I hope that I have offered assurances. Our proposals are wider in scope than the new clause would allow, and I hope that the hon. Gentleman will agree to withdraw it.

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I am indeed reassured by what the Minister. He will recall that, at the start of my remarks, I almost criticised the new clause by saying that it was more restrictive than I had wanted it to be. As always, I was fearful that the hon. Gentleman would say that we were overdoing it by putting forward a proposal that was too complicated. However, what he said about the scheme order is good news and, on that basis, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.