The Divorce Act states, that when determining the patrimonial benefits to which the parties to a divorce action are entitled, the pension interest of a party shall be deemed to form part of his/her assets. The normal result of a divorce between parties married in community of property is a division of their joint estate, which consists of all the assets and liabilities of the estate. This does not apply to marriages entered into out of community of property and without the application of the accrual system where the parties have no right to any portion of the other’s pension benefit.
When a party to a divorce is a member of a pension fund (excluding a retirement annuity fund), his/her “pension interest” is the benefit to which he/she would have been entitled to had he/she resigned from office on the date of divorce. This in effect amounts to a determination of the benefit that would have been payable to the member on early withdrawal from the pension fund as if the person was terminating his/her employment.
Where a party to a divorce is a member of a retirement annuity fund, his/her pension interest would be all the contributions to the retirement annuity fund up to date of divorce, together with a total amount of the annual simple interest on those contributions up to date of divorce.
The Pension Funds Amendment Act in 2007 determined that a benefit is deemed to accrue to the principle member of a fund on the date of divorce, thus allowing the non-member spouse the right to claim his/her share of the pension interest. Initially the Government Employees Pension Fund (GEPF) was not subject to the Pension Funds Act with the result that former spouses of members of this fund could only gain access to benefits due to them when the member withdrew from the fund (eg. on retirement or termination of service). In December 2011, the GEPF was amended to incorporate the same ‘clean break’ principle as contained in the Pension Funds Act with the consequence that the GEPF is now also obligated to allow a non-member spouse access to his/her benefit on divorce. The GEPF is still in the process of implementing the changes and some delay may be expected in the short-term.
After a divorce order is granted and a portion of the pension interest is awarded to a non-member spouse the non-member must submit the divorce order to the relevant fund so that the fund can make the necessary endorsement on its records. After submission, the fund will request the non-member to elect if the amount to be deducted by the fund must be paid directly to him/her, or if it must be transferred to another fund on his/her behalf. If the non-member spouse fails to make an election the fund will pay the amount directly to the non-member. If the non-member informs the fund where the benefit must be paid to, payment or transfer must be affected within 60 days of such notice.
The non-member spouse is liable for the tax on the benefit if he/she elects to take payment as a lump sum. If the non-member spouse however elects to have the benefit transferred to another approved fund, including a preservation fund, no tax will be payable on the transfer.
Lastly, it should be noted that the wording of the divorce order is critical as payment of the pension interest is not automatically effected and must be specifically provided for in the court order, or else it will not be enforceable. The court order or settlement agreement must accordingly contain the following:
- The name of the pension fund or retirement annuity fund.
- The membership number of the member spouse.
- The portion of the pension interest the non-member spouse is awarded.
The court must further order the pension fund to make the necessary endorsements in its records to reflect the portion of the benefit that must be paid to the non-member and that such benefit must be paid out to the non-member.
Parties married in community of property, or out of community of property with the accrual system should consult a divorce practitioner regarding any intended divorce to assist them with the necessary steps to be taken to ensure that their right to a portion of their spouse’s pension fund interest is properly secured following divorce.