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Divorce benefits in retirement funds. Naleen Jeram: Senior Legal Advisor – Momentum BenefitsAtWork. 18 March 2011. Types of Retirement Funds. Pension Fund (Occupational Fund) Provident Fund (Occupational Fund) Retirement Annuity Fund (Individual/Commercial Fund )

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divorce benefits in retirement funds

Divorce benefits in retirement funds

Naleen Jeram: Senior Legal Advisor – Momentum BenefitsAtWork

18 March 2011

types of retirement funds

Types of Retirement Funds

Pension Fund (Occupational Fund)

Provident Fund (Occupational Fund)

Retirement Annuity Fund (Individual/Commercial Fund )

Preservation Fund (Individual/Commercial Fund)

position prior to divorce amendment act 7 of 1979

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

meaning of pension interest

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.

example 1

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?

example 2

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?

problems with meaning of pension interest

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

accrual on date of divorce

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.

accrual on date of divorce9

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.

retirement annuity funds

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?

preservation funds

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.

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)

enforceable order 3 requirements

Enforceable order – 3 requirements

Fund must be named or identified

Fund must be ordered to pay benefit

Only pension interest may be transferred

joinder of fund

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.

disclosure of information

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.

transfer of pension interest

Transfer of Pension Interest

See Taljaard (PFA) – duties on section 14 transfer.

Section 37D(4)(a)(i) – transfer refund can now deduct pension interest.



GEPF and other government funds outside PFA.

Computation of Pension Interest (gross vsnett)

Taxation liability

Deferred members

Customary spouses/Civil Union partners