Practitioners will be aware that there has been considerable publicity about pensions and divorce in recent months.

The purpose of this article is to examine briefly the problems with the current law and then to look at two distinct approaches to reform -- pension earmarking and pension splitting.

It is assumed in this article that a former husband has a larger pension than a former wife, but it is recognised that the opposite can apply.Under s 25 of the Matrimonial Causes Act 1973 (as amended) (the 1973 Act), the court is under a duty to consider eight factors when making decisions about financial provision, including 'the value to each of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring'.

However, the court's powers to deal with pensions and divorce are limited for a number of reasons, for instance:-- s 25 refers to assets, liabilities or contributions which will accrue in the 'foreseeable future' -- the courts have tended to limit this to a maximum of ten years;-- limited guidance has been given on how and when to value a pension (for such guidance as exists see H v H [1993] 2 FLR 335);-- the court has no power to order a husband to take up life assurance or to make orders binding pension scheme trustees or assets, except in the case of small personal pension schemes which may be treated as post nuptial settlements variable under s 24 of the 1973 Act (see Brooks v Brooks [1995] 3 WLR 141 HL).During the passage of the Pensions Act 1995 (the 1995 Act) there was considerable pressure on the government to introduce amendments to provide for pension splitting on divorce.

This resulted not in pension splitting but in pension earmarking as provided for under ss 166 and 167 of th at Act.If a pension is earmarked on divorce this means that on retirement a proportion of the former husband's pension will be payable to the former wife.

The amount payable will be settled by the court at the time of divorce, as will the form of the payment -- a lump sum or deferred maintenance.

The court's powers include the power to make an order directing the husband to commute some or all of his pension on retirement.

Any lump sum can include one payable on the death of the husband.

S 166, which applies to England and Wales, introduces three new sections into the 1973 Act:-- S 25B -- this specifies more fully the court's duty to take into account pension rights when considering financial provision on divorce.

It omits the words 'in the foreseeable future' from s 25 of the 1973 Act when pensions are being considered.

It sets out the orders that can be made, provides that payments cannot exceed the pension that would be payable to a former husband, and deals with commutation of benefits.

It also enables the court to make orders directed against the pension provider;-- S 25C -- this deals with lump sums and provides that these can include a lump sum payable on death to a former wife through a nomination by a former husband.

Equally, where a pension provider has discretion, an order can be made that the pension provider should pay the whole or part of the lump sum to a specified person.

Any lump sum order made is variable in any way, including quantum;-- S25D -- this deals with transfers from one scheme to another, regulation making powers, definitions, variation of orders and provisions concerning the assignment of pensions.Under Scottish law, a system of pension splitting already exists.

S 167 of the 1995 Act will supplement this by providing for lump sum orders, but not deferred maintenance orders, to be made.The government intends to implement earmarking pensions on 1 July 1996.

In any case where a petition is issued on or after 1 July 1996, either party will be able to make an application for an order dealing with earmarking pensions.

However, if such an order is made, the earliest date on which periodical payments can start will be 6 April 1997.

The provisions will affect lump sums which fall due for payment after 1 July 1996.The timetable depends on the exact form of the regulations made.

In any case where a petition has been lodged in ignorance of the forthcoming reform, the petitioner can seek to apply to the court for that petition to be dismissed for the sole purpose of being able to issue a further petition after 1 July 1996.

However, it is doubtful whether the court would be prepared to do this if the application were opposed.

In order to implement ss 166 and 167, regulations need to be drawn up dealing with:-- How pension rights are to be valued.

(The government recommends that a standard method should be adopted based on the cash equivalent transfer value).-- What information pension schemes must provide to a scheme member of his or her legal adviser on the value of the pension for the purposes of divorce proceedings.

(A proforma questionnaire and letter of instruction to an actuary for use in this context have been prepared by the family law committee (see [1994] Gazette, 6 July, 25).-- What arrangements pension schemes should make in relation to providing information on the value of a pension, keeping records of and making payment under an order which directs the scheme to make payments from a pension directly to a former spouse once the pension is in payment and how schemes may recoup their cos ts.-- What information a former spouse must provide a pension scheme which is in receipt of an order directing it to make payments from a pension directly to that former spouse once the pension is in payment.What information a scheme, in receipt of an order directing it to make payments from a pension directly to a former spouse once the pension is in payment, must provide to another scheme and the former spouse who is to receive payments under such an order.-- When the new provisions under ss 166 and 167 are to come into force.The government has issued a consultation document dealing with proposals for the contents of regulations under s 166 entitled 'Proposed regulations under s 166 of the Pensions Act 1996'.

The closing date for responses to the consultation document was 5 April 1995.

Nevertheless, it does give some guidance on the government's approach to the issues addressed and copies of it can be obtained from Anne-Marie Harrington, Family Policy Division, Lord Chancellor's Department, Room 5.16, Selborne House, 54-60 Victoria Street, London SW1E 6QB.Earmarking is clearly a step forward in dealing with the difficult question of pensions and divorce.

However, it does have a number of disadvantages:-- By providing for deferred maintenance/lump sums it runs counter to the clean break.

This is inconsistent with the provisions of the 1973 Act and means that couples will be unable to disentangle their affairs even beyond retirement.-- Any deferred maintenance order ceases to have effect if the former wife remarries or the former husband dies;-- Former wives will have little control over the level of maintenance they receive and the date on which they receive it as entitlement to benefits will depend on the former husband's date of retirement and the level of contributions made to a scheme.

The government indicates in the consultation paper that former wives should be alerted to the complete transfer of a pension, partial transfer or any changes which will result in a significant reduction in the benefits payable under a scheme.

Where a full transfer of pension rights to another scheme takes place, any order will automatically affect the new pension scheme, providing the appropriate notices are given.

Where a partial transfer of pension rights takes place, or other circumstances lead to a significant reduction in the benefits payable under a scheme, the government suggests that notices should be given to the former wife to alert her to this.

Any former wife in this situation would then be able to apply to court for the order to be varied.-- It takes the form of an anticipatory order which can lead to unexpected events occurring between the date on which the order is made and when it comes into effect.

Guidance on this subject was given in Legrove v Legrove [1994] 2 FLR 119.The disadvantages of earmarking have led to continuing calls for a full-blown system of pension splitting to be introduced.

The advantages of pension splitting are that it is consistent with the clean break and it will lead to much greater certainty then pensions earmarking.During the Family Law Bill's passage through the House of Lords, an amendment designed to achieve pension splitting was introduced.

During second reading of the Family Law Bill in the House of Commons on 25 March 1996, the government stated that it accepted the principle of pension splitting and would not seek to delete the provision inserted by the House of Lords on this subject in the Family Law Bill.However, the government remains concerned at the cost and complexity of the reform.

It intends to produce a green paper on pension splitting in the summer, with the production of a white paper/introduction of legislation deferred until a later date.If pension splitting were introduced, this would mean that at the time of the divorce the court could make an order splitting the value of the pension at that stage.

The former spouses would then have two entirely separate pensions and could contribute to them in the normal way.

Pension splitting would be unlikely to mean that a former wife would receive 50% of the value of the former husband's pension at retirement for two reasons.

First, the pension would not necessarily be split in equal shares at the time of the divorce.

Secondly, the former wife would be unlikely to be able to make the same level of contributions to her share of the pension as her former husband because her earning capacity would be likely to be lower than his.