What divorcees need to know about their pensions in South Africa
Divorcees in South Africa who are members of a retirement fund may lose all or part of their pension to their non-member spouse, but this is not always the case.
The Pension Funds Act, read together with the Divorce Act and Islamic Law (where applicable), dictate how pensions and divorce work together.
In terms of occupation funds, the Divorce Act defines “pension interest” as “the benefits to which the member would have been entitled in terms of the rules of the fund if their membership of the fund would have been terminated on the date of the divorce on account of their resignation from their office.”
If the member already resigned before the date of divorce, there is no longer any “pension interest”, even if the member has not accessed the fund or terminated their membership in the fund.
“In simple terms, this means that only active members of an occupational fund have a pension interest in that fund and non-member spouses of paid-up members cannot access any portion of the member’s benefit in the fund,” said Felicia Hlophe, legal adviser at Allan Gray.
Example
This matter was seen in a recent High Court case, where a member of an occupational fund resigned from his employment in May 2021 but kept his pension benefits in the fund. He then divorced his non-member spouse in October 2021.
Although the divorce awarded 50% of the member’s pension interest to the non-member spouse, the fund said that a pension interest no longer existed in the fund.
“The challenge that confronted the non-member spouse was that she was claiming a portion of the benefit that had accrued to the member before their divorce was granted,” said Hlophe.
The court said that a non-member spouse’s access to their spouse’s benefits is dependent, first on divorce and then on whether the member spouses are still active in their funds, even if the benefits are still held by these funds.
Type of marriage
Importantly, a member’s matrimonial property regime determines where the non-member spouse can claim from the member’s interest in the fund.
For those who marry without an antenuptial (prenup) contract, the default marriage regime is in community of property. In this case, each member and non-member spouse each own 50% of assets and liabilities in their joint estate, with each spouting claiming 50% of the joint estate in a divorce.
For a marriage out community of property without accrual, each spouse keeps their respective assets, and there is no claim against the other’s assets.
If accrual is included in a marriage out of community of property, the spouse with the larger estate (assets minus liabilities) must pay the difference between their estate and the estate of the other spouse.
“The Divorce Act further makes it clear that where the spouses are married out of community of property without accrual and entered into that marriage on or after 1 November 1984, the non-member spouse has no claim for pension interest from the member’s retirement savings,” said Hlophe.
Getting a divorce
For those getting a divorce, the member may approach their occupational fund with a request for information.
This can include checking the wording used in the drafted order or settlement agreement to decide whether it is appropriate, and if the occupational fund would be allowed to give effect to an order in those terms.
A divorce order must:
- Ensure that the retirement fund is identified or identifiable
- Provide that the non-member is entitled to “pension interest”. An order that refers to “interest”, “full value” or “retirement interest” may be invalid.
- Provide for the pension interest amount or percentage that must be paid to the non-member (e.g. “50% of pension interest”).
- Instruct the fund to make the pension interest deduction.
In addition, the member can ask the fund the calculate the possible pension interest value for information purposes.
If the member and non-member spouses agree on the content of the drafted order or settlement agreement, the court will give a divorce order, which includes the allocation of pension interest to the non-member spouse.
The occupation fund will need the final divorce order (and settlement agreement, if applicable) to be forwarded as quickly possible to process the deduction and payment of pension interest.
That said, a fund will not be able to give effect to a divorce order in the following circumstances:
- If the member has terminated employment but has elected to become a paid-up member in the fund; or
- If the divorce order/settlement agreement does not contain the appropriate wording to enable the fund to make a pension interest deduction; or
- If the spouses are married out of the community of property without accrual and entered into the marriage on or after 1 November 1984.
The fund will be able to give effect to a divorce order in the following circumstances:
- The member spouse must be an active member of the fund as of the date of divorce; and
- The wording of the divorce order/settlement agreement is competent; and
- The parties are married:
- In community of property; or
- Out of community of property with accrual; or
- Out of community of property without accrual and entered into the marriage before 1 November 1984.
Tax matters for the non-member
If the fund has determined that the court order is appropriate, the non-member must see how they wish to receive their allocation of the pension interest.
The Pension Funds Act allows the non-member spouse to receive the money as a cash lump sum.
“If the non-member spouse chooses to receive a cash lump sum payment, a tax directive is requested from SARS in the non-member spouse’s name,” said Hlophe.
“The fund will deduct any tax due from the amount awarded to the non-member spouse and pay it to SARS before it makes payment to the non-member spouse (this applies to divorce orders issued on or after 13 September 2007 and payable on or after 1 March 2009).”
A second option is for non-members to transfer their benefits to an approved retirement fund, with the transfer being tax-free for both the member and non-member spouse (this again applies to divorce orders issued on or after 13 September 2007 and payable on or after 1 March 2009).
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