Steve Webb has said that when it comes to pensions, divorce has become the elephant in the room, and people must take advice to protect their financial futures.
At a Resolution Foundation event in London, the pensions minister said the government could no longer assume someone would have a partner on whom to depend for an income in retirement.
He said: “We are moving to a state pension system based on the individual, but the problem with that is people’s private pension situation depends on their family life. In theory we have pension sharing on divorce and pension splitting, but the reality is that it doesn’t work terribly well. Your average divorce lawyer is focused on the house, and if you have still got kids, are you really going to haggle hard over a share of the pension?”
Office for National Statistics figures show that 42 per cent of marriages now end in divorce, and Mr Webb pointed out that many people – particularly women – take breaks in their careers and miss out on making pension contributions.
He speculated on which reforms would be needed beyond the next general election, such as increasing auto-enrolment contributions beyond 8 per cent and tackling tax relief.
He also suggested creating a simpler flat tax relief rate of 33 per cent, so the government could claim it would be giving £1 for every £2 contribution.
Mr Webb said: “Rather than just float around the edges of tax relief, let’s do it properly. You could abolish the lifetime limit.”
The Lib Dem MP also advocated creating an entire department to handle pensions and the ageing population, claiming reform has been hampered by “silo-isation”.
Stephen Timms, Labour MP for East Ham and former pensions minister, said: “I believe that pensions fits reasonably well within the DWP.
“The pensions topic is a very political issue and part of the reason that politics exists is to solve problems with pensions.”
Peter Chadborn, director of Essex-based Plan Money, said: “From an adviser’s point of view these areas are all intrinsically linked, so why shouldn’t they be from a government basis as well?”