“Once a pension fund receives a divorce order mandating the payout of a sum of money to a non-member spouse, the fund will reduce each component of savings, retirement and vested pot proportionally,” said Wright Rose-Innes.<\/p>\n\n\n\n
“The PFAA further provides that should a member wish to withdraw from his savings pot while divorce proceedings are underway, the other spouse\u2019s consent must first be sought.” <\/p>\n\n\n\n
This is extremely different from the prior position, where pension funds would pay out without the other spouses’ consent, with the only remedy being an urgent interdict against the pension fund to retain the funds pending the divorce’s finalisation.<\/p>\n\n\n\n
“How this will all unfold in practice will depend on the rules of the various funds.” <\/p>\n\n\n\n
“The amendments introduced by the PFAA will raise questions regarding all pending divorce cases where the pension interests of spouses are involved in the division of the marital estate.”<\/p>\n\n\n\n
Two-pot dangers <\/strong><\/p>\n\n\n\n Although the two-pot system will potentially help South Africans in an emergency, serious long-term consequences exist for those who withdraw early.<\/p>\n\n\n\n “While the two-pot system offers flexibility for accessing funds during emergencies, early withdrawals come with significant long-term financial consequences that could drastically reduce a member\u2019s standard of living in retirement,” said Coronation\u2019s Rael Bloom. <\/strong><\/a><\/p>\n\n\n\n \u201cThe immediate consequence is that withdrawals from the savings pot are taxed at the member\u2019s marginal tax rate, meaning a portion of each withdrawal is lost to taxation.\u201d<\/p>\n\n\n\n \u201cMembers who wait until retirement to withdraw benefit from preferential lump sum tax tables. By withdrawing early, they effectively forfeit this valuable tax advantage.\u201d<\/p>\n\n\n\n On top of the tax losses, there are also investment gain losses.<\/p>\n\n\n\n \u201cMembers disrupt the powerful effects of long-term compounding when they withdraw early. Compounding enables retirement savings to grow exponentially over time, as returns generate further returns,” said Bloom. <\/p>\n\n\n\n “For every R1 withdrawn from a retirement fund 30 years before retirement, the future value of a member\u2019s savings is reduced by around R6 in real terms due to the opportunity cost of foregoing compounded growth.\u201d<\/p>\n\n\n
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