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Pensions Split On Divorce: Cost Estimate

Volume 569: debated on Tuesday 27 February 1996

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asked Her Majesty's Government:What would he the loss in tax revenue if pensions could he split between husbands and wives.

The cost would depend on the proportion of the pension that was allocated to the husband or wife. On the assumption that all married couples elected to split their pension incomes equally between husbands and wives (where this would result in a more favourable tax position), it is estimated that the cost in the first year could be up to £600 million at current income levels. This tax cost could be expected to rise as the number of people retiring with private pensions grow and the level of these pensions increases in real terms.

asked Her Majesty's Government:Whether they will publish a table showing the build-up in (a) the estimated tax costs if pensions could he split on divorce; and (b) the savings in the payment of income related benefits that might he expected.

The tax costs and income related benefits savings would build up steadily over time as people whose pensions were split on divorce reached retirement age and benefits became payable. It is expected that the savings on income related benefits would level off at around the year 2020, while tax costs would continue to rise. An indication of the possible growth path is shown in the following table.

£ million
YearTax castsIncome related benefit savings
Notes:1. Estimates are full year costs/savings at constant prices.2. Tax costs include loss in lax revenue and increase in tax relief as a result of additional pension contributions.3. Savings are additional to those arising from changes under the Pensions Act 1995. For example, the savings on income related benefits under the measures in that Act would amount to about £50 million in the year 2020.4. Tax costs are rounded to the nearest £10 million: income related benefit savings are rounded to the nearest £5 million.