Your Money: Wives look to fair pensions

MARRIED couples are different from people who wrap their lives around each other without using matrimonial bonds.

Whether they intend it or not, their financial affairs become entangled. They need not get as tangled as was once the case, since the Inland Revenue has recognised married women have an independent existence. But when it comes to sorting out the mess at a divorce, pensions are still a knotty problem.

While all other assets can be divided or sold and the cash split up, pensions lie beyond the reach even of the courts.

In a recent case, a judge ordered that a portion of a man's pension that came from the family business should be handed over to his ex-wife. However, this ruling will not open the door to pensions flexibility for the vast majority of couples.

Last week, the working party of lawyers and pensions experts set up by the Pensions Management Institute delivered its paper on splitting pensions at divorce.

The report refers throughout to the scenario of a wealthy husband with a handsome pension, and a poorer wife being given part of it on divorce. Most of the organisations and individuals who made submissions to the committee were careful to refer to 'the scheme member' and 'the spouse', to make their points gender-neutral.

But the committee, which included Lorraine Fletcher of the Equal Opportunities Commission, decided that the problem was gender-based and opted to use the common husband-wife set-up.

If both partners usually amassed pensions of comparable size, pensions splitting would not be an issue. But when women marry, they usually take the main responsibility for family care and their career takes second place, if it does not disappear altogether - hence their lower earning capacity and poorer pensions.

The solution the committee puts forward is, in essence, simple. First, value the pensions in cash terms - an easy process for savings- based schemes, and now a routine one for company schemes based on fractions of final salary since people gained the freedom to transport pensions. Then weigh this in the balance with the other matrimonial assets.

If the pension looms large in the pile, fairness may dictate that some of the pension is transferred from the husband to the wife.

This would be in the form of a transfer value that she could take into her own company or personal pension scheme. It would not be money for spending, but a real pension to provide for old age - a substitute for sharing in her husband's pension or receiving a widow's pension.

There are still complications, such as the fact that money building up in the Government's earnings-related scheme, Serps, would be outside the court's jurisdiction, while those who opted out of Serps would have all their pension subject to splitting.

Couples who divorce in retirement after a pension has begun paying out would have to be treated differently, with part of the income diverted to the wife.

The report must now wait while the committee chaired by Professor Roy Goode examines all corners of pensions. But it seems almost inevitable that this welcome reform will eventually arrive on the statute books.

THE market in second-hand endowment policies has grown up because life companies deliver poor value if a policy is not held until the bitter end.

According to the May issue of Money Management, Scottish Widows paid nearly pounds 52,000 on a 25-year policy after 20 years, compared with pounds 98,185 on maturity - over pounds 46,000 more for another pounds 3,000 in premiums and a five-year wait.

More policies are cashed in than run their full course. Some 10 per cent of discontinued policies are sold on to others who continue paying the premiums and can collect if the original policyholder dies. They are willing to pay a large enough premium over the cash-in terms to give a profit to the market-maker or auctioneer and, they hope, a decent return for themselves.

But last week, Standard Life wrote to second-hand holders of its policies warning that they may have paid too much, and would therefore be discontented with the eventual return.

Bonus rates are still falling and it believes that it offers fair value, so any premium over the surrender payment is too much.

The second-hand endowment market would never have developed if all investors were given fair value, not just the long-stayers. Let's hope it is a dying market.