Divorce benefits in retirement funds

1. Divorce benefits in retirement funds Naleen Jeram: Senior Legal Advisor – Momentum BenefitsAtWork 18 March 2011

2. Types of Retirement Funds Pension Fund (Occupational Fund) Provident Fund (Occupational Fund) Retirement Annuity Fund (Individual/Commercial Fund ) Preservation Fund (Individual/Commercial Fund)

3. Accrual of Benefit – Married in Community of Property De Kock v Jacobson & Another 1999 (4) SA 346 (W) Elesang v PPC Lime Ltd & Others [2007] JOL 18998 (NC) Position prior to Divorce Amendment Act 7 of 1979

4. Meaning of Pension Interest Pension and Provident Fund Notional benefit the member would have received in terms of the rules of the fund, if his/her membership of the fund would have been terminated on the date of divorce on account of him/her resigning from service. Resignation benefit as at date of divorce.

5. Example 1 January 1980 - Mr X and Mrs Y married 1983 Mr X – member of fund 20 May 1994 divorced Mrs Y – entitled to 50% of pension interest 1 February 2010 – member left service Mr X – retirement benefit of R2 million Mrs Y – what is her pension interest entitlement?

6. Example 2 Van der Berg v Oranje Vrystaatse Gemeenskaplike MunisipalePensioenFonds(PFA) 1 November 1962- Mr VDB becomes member of fund 22 April 1981 – Married in COP 18 October 1994 - divorce Mrs VDB entitled to ⅓ of pension interest 30 September 1995 – MrVDB retires Entitled to R1.1 million What was Mrs VDB pension interest entitlement?

7. Problems with meaning of pension interest Definition of pension interest (db vs dc funds) No interest or fund growth added to benefit Had to wait until member left service Death of non-member spouse before payment

8. Accrual on Date of Divorce Prior to 13 September 2007 – pension interest only became payable when the pension benefit accrued to the member spouse (usually upon termination of the employment contract). From 13 September 2007, pension interest due to the non-members spouse become due on the date of divorce. The above provision applied to all divorces concluded on or after 13 September 2007. Cockroft(PFA) – held that the above position applied retrospectively including all divorces concluded prior to 13 September 2007.

9. Accrual on Date of Divorce This view was not widely accepted in the industry and rejected by the High Court in Kirchner. From 1 November 2008 – the Act was amended to remove the uncertainty and it was specifically stated that the pension interest accrues to such a spouse on 13 September 2007 in respect of divorce orders issued prior to 13 September 2007. Thus, regardless of when the divorce order is issued, the non-member spouse is now entitled to receive his/her pension interest benefit in accordance to the court order.

10. Retirement Annuity Funds Pension interest is the total contributions made to the fund up until the date of divorce plus simple interest thereon up to that date at the prescribed rate of interest. From 1 November 2008, the total amount of simple interest payable may not exceed the fund return achieved on the pension interest. Problem – how is the withdrawal treated?

11. Preservation Funds Previously, the Divorce Act made no provision for pension interest. From 1 November 2008, pension interest means the benefit the member would have been entitled to in terms of the rules of the fund had his/her membership been terminated on the date of divorce.

12. Time-Frames Retirement Fund – 45 days to inform NMS NMS –has 120 days to elect Fund – 45 days to effect election Fail to elect – cash option deemed No interest entitlement (until expiry of period)

13. Enforceable order – 3 requirements Fund must be named or identified Fund must be ordered to pay benefit Only pension interest may be transferred

14. Joinder of Fund Must the fund be joined as a party to the proceedings? The Supreme Court of Appeal in Swemmerheld as follows: “This case cogently illustrates the importance of deeds of settlement and divorce orders relating to pension interests being formulated very carefully indeed in order to ensure that they fall within the ambit of subsections 7(7) and 7(8) of the Act… If this is done, then all that would be required of the pension fund in question is to perform administrative functions to give effect to the order, without the rights of the fund or the relationship between the fund and the member spouse being affected in any way, and it would not be necessary to join the fund as a party to the divorce proceedings.” Thus, not necessary to join fund as a party to the divorce proceedings.

15. Disclosure of Information Majority of fund rules include confidentiality clauses for the protection of a member’s right to privacy. See Noordien (PFA) and Smith (High Court). Funds are obliged to disclose to non-member spouses information as is reasonable for the exercise and protection of any right. Funds are obliged to provide the non-member spouses information regarding the pension interest assigned to him/her in terms of the divorce order including the computation thereof, terms and conditions governing payment of the benefit.

16. Ranking of Claims

17. Transfer of Pension Interest See Taljaard (PFA) – duties on section 14 transfer. Section 37D(4)(a)(i) – transfer refund can now deduct pension interest.

18. Divorce orders granted from 1 March 2009

19. Problems? GEPF and other government funds outside PFA. Computation of Pension Interest (gross vsnett) Taxation liability Deferred members Customary spouses/Civil Union partners