Government 'risks pounds 500m pension bill'

NIC CICUTTI

A legal judgment allowing divorced couples to take half their partners' pensions could cost the Government up to pounds 500m, it was claimed yesterday.

The extra bill to the Treasury would come in the event of Government pension schemes having to give up a portion of public sector employees' pensions rather than wait until their staff reach retirement age.

Graham Christy, a leading pensions expert and partner at the law firm Jeffrey Green Russell, said the cost of meeting these claims would initially stand at pounds 100m a year.

This would rise within the next two years as more divorcing couples make use of the Law Lords' judgment earlier this week in the case of Brooks v Brooks. Anne Brooks, a divorcee in her late 50s, was granted the right to a share of her ex-husband's pension scheme. The judgment allows up to 150,000 couples who divorce each year to benefit if their spouses are members of a wide variety of pension schemes.

At present, the law allows a partner's pension to be taken into account as part of the divorce settlement. But because a pension cannot be divided, unless there are other assets in the marriage that can be handed over in lieu of the pension, many women have been left with little or no provision for their retirement.

The Government's Pensions Bill amends the law by allowing the wife a share of her former husband's pension when he retires. This has been criticised by pensions experts as flying in the face of a "clean break" between couples. It also means that if the husband dies before retirement, the woman may still receive no pension.

The Brooks judgment gives women the potential of an immediate share in her husband's pension when she retires. While the Lords said their decision did not constitute a test case, they named a wide variety of pension schemes as being affected.

Mr Christy said: "Because Government schemes operate on the basis of a pay-as-you-go system, they will have to pay out the money immediately rather than wait for up to 20 years as they had expected until now.

"What the Government may have to do is to plug the loophole by introducing an emergency amendment to the pensions Bill. But that would nullify many of its provisions."

A Department of Social Security spokesman said DSS officials were studying implications of the Brooks judgment. He confirmed, however, that ministers had said the cost of a Brooks-style amendment to their own Bill could be about pounds 500m, but pointed out many women would want to keep pension entitlements in the government scheme because it was regarded as generous.