Divorced wives set for share of pension funds

PATRICIA WYNN DAVIES

Political Correspondent

Divorced women will be entitled to their own share of their ex-husbands' pensions under a radical change to the law signalled last night by Lord Mackay, the Lord Chancellor.

Lord Mackay pledged he would "consider sympathetically" amendments to the Family Law Bill from Labour's Baroness Hollis to introduce so-called "pension splitting".

Following strong support from all sides during yesterday's Lords' committee stage discussion, most peers believe amendments to implement the reform will be brought back at the report stage.

The change would enable couples to split the capital represented by the pension at the time they divorce instead of their financial affairs being "entangled for years", Baroness Hollis said.

The signal from Lord Mackay represents a climbdown from earlier government resistance.

Under a limited change forced on the Government by opposition peers and rebel Tories during last year's Pensions Bill, a divorcee receiving a share of her former husband's pension gets only an order for "deferred maintenance" payable while he is alive. That left ex-wives at risk of receiving nothing from a pension fund if their former husbands died before retirement age. Where ex-husbands died later, former wives could be forced on to income support when in their seventies.

Under the expected amendments, divorced spouses will be able to start their own new pensions or add to their entitlements with additional voluntary contributions, ending the uncertainty of waiting until their former spouses chose to retire.

In the case of unfunded Civil Service pensions, the divorced spouses would have to build on their entitlement within the scheme to prevent a dramatic outflow of capital.

Despite support from the National Association of Pension Funds, the Institute of Actuaries, the Law Society and the Mothers' Union, the Government had opposed the change on financial grounds, insisting that there would be a pounds 300m tax loss because each former spouse would claim a personal allowance.

But parliamentary answers from the Treasury to Lady Hollis and the Labour MP Harry Cohen showed that in 2020 the tax loss would be pounds 80m, and that would be offset by pounds 70m worth of savings on income support and pounds 10m in court costs.

Lady Hollis told peers that the current system was a "gamble" that still left former wives "traded in for a younger model" dependent on their husbands. "If he retires early she has less income. If he retires later she has to wait longer for it. If he dies early she may get nothing and when eventually after retirement he does die, she will get nothing," she said.

Baroness O'Cathain, a Tory peer, backed Lady Hollis and said that splitting the pension at the time of divorce would reduce the problem of keeping track of the pension beneficiary and his or her spouse for anything up to 35 years.

The former Law Lord Lord Simon of Glaisdale, despite being an ardent opponent of both divorce and the current Bill, none the less said division of the pension at divorce would be a "simple act of justice".

Lord Mackay warned that the change could be viewed as an incentive to divorce because of separate taxation. But he told peers: "I certainly wish to consider sympathetically this series of amendments with the proviso that I consider there are a great number of very difficult questions associated with this which we have to consider and try to resolve."

Lady Hollis's amendments were withdrawn without a vote.