Pension interest at divorce

0
390

As has been explained before, pension funds are very strictly regulated. Section 37A of the Pension Funds Act, 1956 protects a member’s pension benefits and states that a fund may only make a deduction from such benefit if such a deduction is allowed in terms of the Pension Funds Act, the Income Tax Act and the Maintenance Act.

But section 37D(1)(d)(i) of the Pension Funds Act makes provision for divorce as an exception, and states that a registered fund may deduct any amount assigned to a non-member spouse in terms of a divorce order granted in terms of section 7(8)(a) of the Divorce Act (or any order made by a court in respect of the division of assets of a marriage under Islamic law).

Section 7(8)(a) of the Divorce Act, in turn, specifically enables the court granting a decree of divorce to order the fund in question to make payment of a portion of the member’s ‘pension interest’ (as defined) to the non-member spouse and make an endorsement in the member’s records.

Section 7(8) of the Divorce Act, read together with section 37D(4)(a) of the Pension Funds Act, sets out certain conditions with which a divorce order must comply in order for the fund concerned to be able to give effect to a non-member spouse’s claim.

What pension interest means

Section 7(7) of the Divorce Act is a deeming provision in as much as it provides that a pension interest as defined will be deemed to be a part of the assets at divorce which can be shared upon divorce.

Section 7(8) then goes on to state that a court may order that a portion of the pension interest of a member of a fund be awarded to the non-member spouse – it is thus only in respect of such a pension interest that a court may make an order in terms of section 7(8). 

The wording of both sections 7(7) and 7(8) of the Divorce Act makes it clear that the non-member spouse is only entitled to a portion of the member spouse’s notional benefit if it qualifies as pension interest as defined.

It is, therefore, vital to understand what is meant by that term when it comes to orders that may competently be made in terms of section 7(8) of the Divorce Act.

Pension interest is defined in section 1 of the Divorce Act as:

  1. In respect of a member of a pension fund (excluding a retirement annuity fund) – the benefits to which that party as such a member would have been entitled in terms of the rules of that fund if his membership of the fund would have been terminated on the date of the divorce on account of his resignation from his office;
  1. In respect of a member of a retirement annuity fund – the total amount of that party’s contributions to the fund up to the date of the divorce, together with a total amount of annual simple interest on those contributions up to that date, calculated at the same rate as the rate prescribed as at that date by the Minister of Justice in terms of section 1 (2) of the Prescribed Rate of Interest Act, 1975 (Act No. 55 of 1975). 

So what does all this mean?

In a nutshell: the term refers to the benefits to which such a member would have been entitled in terms of the rules of the fund if his membership of the fund had been terminated on the date of the divorce on account of his resignation from his office.

It is, therefore, clear from the wording of the definition that the duration of the marriage does not get factored in at all.

The problem

Let’s use a pension fund as an example. The divorce order in question states the following:

“the Fund is ordered to pay Mrs X 50% of Mr X’s pension interest calculated from the date of marriage up to and including the date of divorce”

We will not be able to give effect to the above – we will have to calculate 50% of pension interest as defined, which will have the effect that Mrs X will receive 50% of whatever the value of the pension interest is at date of divorce, which might add up to far more than what the parties had in mind.

Conclusion

It is important to keep in mind that the fund in question has no discretion in this regard, since it is strictly bound by the Pension Funds Act read together with the Divorce Act. In an instance such as the above example, it is best for the parties to settle on an amount and rather set out such amount in the order/settlement agreement.