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DISCUSSION PAPER PI-9812

Pension Sharing on Divorce: Comments on Consultation Document and Draft Bill

Heather Joshi and Hugh Davies

ABSTRACT

The British Government has recently (in June 1998) published a
consultation document and draft legislation to enable pension sharing on divorce:

Pension Sharing on divorce: reforming pensions for a fairer future.
Part 1: consultation
. London, Department of Social Security, 1998.

Pension Sharing on divorce: reforming pensions for a fairer future.
Part 2: draft legislation
. London, Department of Social Security, 1998.

Both of these documents are available from the DSS web site:
http://www.dss.gov.uk/hq/index.htm

The DSS has invited comments on these proposals, and the House of
Commons Select Committee on Social Security will be considering them
and has also invited comments. This paper is our submission to both
these bodies.

The proposed legislation would allow couples to agree, at the time of a
divorce, on how to share their pension assets. In principle this is a welcome
addition to the range of instruments available for reaching a financial settlemen
t on divorce. The draft legislation lacks crucial details, which remain to be
specified in regulations. There is a danger that the legislation will lead to long
and costly negotiations and to legal uncertainty. The paper discusses the
valuation of pension rights, and suggests that the legislation should specify
the use of expected present value as a unifying principle for valuing all types
of pension rights. Suggestions are made about the treatment of the survivor's
pension component of pension rights. Pension sharing will not be compulsory,
and pension shares may be traded off against other assets. This flexibility is
desirable in some respects, but implies that the pension sharing option will not
necessarily improve the income of divorced women in old age. For this and other
reasons, the proposals will not eliminate the prospect that large numbers of elderly
divorced women may be reliant on mean-tested benefits.

ISSN 1367-580x.