Divorce can have significant implications for retirement and pension funds. It is crucial to have a well-drafted retirement fund clause in a divorce settlement agreement to avoid rejection of claims by the fund. If the clause is not properly drafted, it may require a costly court application to rectify it.

Types of Retirement and Pension Funds in South Africa

There are different types of retirement funds, including pension funds, provident funds, retirement annuity funds, and preservation funds. Pension funds require at least two-thirds of the retirement benefit to be taken as an annuity, while provident funds allow the member to take the entire benefit in cash. Retirement annuity funds are for retirement plans outside of the workplace, and preservation funds are where benefits from a pension fund can be transferred.

Legal Framework: Divorce Act and Pension Funds Act

The allocation of unaccrued pension benefits to a non-member spouse upon divorce is controlled by the Divorce Act and the Pension Funds Act. A claim under the Divorce Act can only be made if the spouse is still a member of the fund. Once the member exits the fund, the benefit accrues to them, and there is no longer any “pension interest” or unaccrued benefit.

Pension Interest and Marital Regimes

The division of pension interests depends on the marital system.

• In marriages in community of property, each partner has a claim to 50% of the pension interest on the date of divorce.

• In marriages out of community of property with accrual, the pension fund value is considered for calculating the accrual, but there is no direct sharing of the pension interest.

• In marriages out of community of property without accrual, the pension interest forms part of the spouse’s estate and can be shared if agreed upon or ordered by the court.

The Clean-Break Principle: Immediate Access for Non-Member Spouses

The clean-break principle allows retirement funds to deduct an amount or percentage from a member’s benefit and pay it to the non-member spouse upon divorce. The non-member spouse can choose to receive a cash lump sum or have the money transferred to another approved pension fund.

Government Employees Pension Fund (GEPF) and Divorce Settlements

The Government Employees Pension Fund (GEPF) introduced the clean-break principle in 2012, allowing former spouses to receive their share of the pension interest soon after the divorce. The GEPF creates a debt against the member equal to the amount payable to the non-member spouse, which is reduced over the member’s remaining period of service.

How Pension Interest is Defined and Calculated

Pension interest is defined differently depending on the type of fund, but it generally includes the member’s contributions up to the date of divorce, with interest. A non-member spouse can choose to receive a cash lump sum or transfer the amount to another fund.

Importance of Correctly Naming the Retirement Fund

It is essential to accurately identify the retirement fund in the divorce settlement agreement to avoid confusion. The agreement should specify the name of the fund and the assigned percentage or amount of the pension interest.

Tax Implications for Pension Interest Allocations

Taxation of pension interest allocations can be complex, and professional advice is recommended. The non-member spouse is generally responsible for paying tax if they choose a cash benefit, while transfers to other retirement funds are tax-free. The tax implications depend on the date of the divorce order and the tax legislation in effect at that time.

Final Thoughts: Navigating Divorce and Retirement with Care

Overall, navigating the division of pension and retirement funds in a divorce requires careful consideration of the specific circumstances and legal requirements to ensure a fair and appropriate outcome.