PENSION INTEREST ASSIGNED IN TERMS OF A DECREE OF DIVORCE: A PROBLEM DEFERRED?

Wednesday, August 06, 2014
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The Divorce Act defines the term "pension interest" to mean the benefit which a member would have been entitled to in terms of the rules of that fund if his or her membership of the fund had been terminated on the date of the divorce on account of his resignation from employment.

In terms of section 37D(4) of the PFA, for the purpose of section 7(8)(a) of the Divorce Act, the portion of the "pension interest" assigned to the non-member spouse in terms of a decree of divorce or a decree for the dissolution of a customary marriage is deemed to "accrue" to the member of the fund on the date the decree of divorce or decree for the dissolution of a customary marriage is granted. A divorce court is only able to assign a portion of a member’s pension interest and require payment thereof by the fund if the member has not already resigned or retired. This is because sections 7(7) and 7(8) of the Divorce Act, in terms of which such an order would be granted, has no application if a benefit has already accrued to the member.

Thus, if by the date the divorce order becomes final, the member has already retired, or terminated employment, and a benefit had already accrued to the member whether by lump sum or pension there would be no "pension interest" for the purposes of the Divorce Act because the member could not have resigned on the date of divorce.

The fact that a member is a "deferred pensioner" - that is a member of a fund, who has not yet retired, but has left the employment of an employer and leaves the benefit in the fund until date of retirement as per the rules of the fund - does not change this. Thus it does not matter whether the benefit is still awaiting payment by the fund. What matters is the fact that the benefit has already accrued to the member.

The Financial Services Laws General Amendment Act 45 of 2013 (which came into effect on 28 February 2014) attempted to resolve the issues pertaining to the payment of a pension interest to a non-member spouse of a "deferred pensioner".

This was done by an amendment to section 37D(1)(d) of the PFA by providing that a fund may "deduct from a member’s or deferred pensioner’s benefit, member’s interest or minimum individual reserve, or the capital value of a pensioner’s pension after retirement" any amount assigned from such benefit or individual reserve to a non-member spouse in terms of a decree granted under section 7(8)(a) of the Divorce Act.

The inclusion of the term "deferred pensioner" does not alter the position that a divorce court is (still) only able to assign a portion of a member’s pension interest and require payment thereof by a fund if the member has not already resigned or retired. In light of the above, the amendments made to section 37D of the PFA have not effectively dealt with the position regarding members of funds who have deferred their pension, due to the fact that the provisions of section 37D must be read with sections 7(7) and 7(8) of the Divorce Act. How the legislature intends to deal with this gap should be very interesting. It is suggested that the term "pension interest" as defined in the Divorce Act be amended.