At this week’s conference of the Pension Lawyers Association (PLA) in Cape Town, lawyers highlighted that, despite amendments to the Pension Funds Act, funds are often unable to help non-member spouses receive what they believe they are entitled to following a divorce.
This is the case when former spouses who are not fund members try to access the retirement benefits of an ex-spouse who is no longer an active member of a fund, or when non-member spouses try to prevent a member-spouse from withdrawing a benefit before a divorce is granted.
Naleen Jeram, the legal manager at MMI Group and adjunct professor in the law faculty of the University of Cape Town, recounted how the Pension Funds Act was amended in 2007 to allow divorcing couples to split the member spouse’s retirement savings in line with the divorce order, and so that the fund could pay the relevant portion to the non-member spouse or to his or her retirement fund.
Until then, the non-member spouse had to note a claim against the member’s savings and wait until the member spouse withdrew or retired from the fund. In the interim, he or she lost out on the investment growth on the savings.
But after the amendment, divorcees found they were still unable to access their share of a former spouse’s retirement savings if their former spouse was a deferred member of the fund or received a pension from the fund.
Jeram says that, until 2007, all the amendments were made to the Divorce Act, but, for unknown reasons, from 2007 all the amendments dealing with divorce benefits were made to the Pension Funds Act. This has created uncertainty and led to many of the problems faced by divorcing spouses today. He called on lawmakers to bring all the laws that deal with divorce benefits under one Act.
In order to address the problems that divorcees face when accessing a former spouse’s benefits when the member spouse is a deferred member or a pensioner, the Pension Funds Act was amended with effect from February 28, 2014, specifically to allow for deductions to be made from the pension benefit of a deferred member or pensioner and so that payment could be made to a non-member spouse in terms of a divorce order.
Jeram says a deferred member is someone who has not yet retired, but who left the service of the employer that sponsors the fund before his or her normal retirement date, as set out in the fund’s rules. Such a member elects to leave his or her benefits in the fund. Your rights to benefits when you are a deferred member are defined in the fund’s rules.
A pensioner member is a former member of a fund who receives a pension from the fund. Members of pension funds are obliged to use two-thirds of their savings to buy a pension from the fund or a financial institution.
But Jéanri de Souza, a legal adviser with Sanlam Employee Benefits, told the conference that the amendment did not have the intended result, because the definition of a pension interest in the Divorce Act was not amended when the Pension Funds Act was amended.
The Divorce Act defines the benefit that can be split at divorce as the amount a member would have received if he or she had resigned from service on the date of divorce. This definition does not cater for the retirement fund savings of a deferred member or a pensioner member, because once you, as a member, withdraw from service, you no longer have a pension interest as defined by the Divorce Act, because you can no longer resign.
De Souza says the Pension Funds Act provides that an amount can be deducted in respect of a pensioner or deferred member, but there is no pension interest to be awarded, because the deferred or pensioner member’s savings are no longer defined as a pension interest.
Michelle David, a director at Norton Rose Fulbright, agreed that the definition of a pension interest in the Divorce Act needs to be amended. If it is not, the pension interest of a deferred member or a pensioner member who has left the service of the employer before a divorce will always be zero, she says.
Amending the Divorce Act is the most sensible solution, because the amendment would also cover the retirement savings of members of the Government Employees Pension Fund and other parastatal pension funds that are not governed by the Pension Funds Act, David says.
Clement Marumoagae, the director of Marumoagae Attorneys, says pension funds should not take a hard-line approach, particularly if it is clear that the intention of the parties is to divide the benefit.
He said that, in his experience, funds often reject orders that should be accepted.
If you and your spouse are in the process of getting divorced and you find out that your spouse is planning to resign so that he or she can withdraw his or her pension benefit from the fund before it is split, you may want your attorney write to the fund and ask it not to pay out the benefit.
But, the lawyers point out, this will not have the intended effect.
David says, in her view, a fund does not have the legal authority to give effect to such a request.
De Souza says if you, as a non-member spouse, obtain an interdict against the fund to prevent it from paying out the member’s benefit, the fund will have no choice but to withhold the benefit.
However, once the divorce order has been granted and the interdict is lifted, if the member spouse has resigned from employment before the date of divorce, he or she no longer has a pension interest that can be split on the date of divorce, and it will not be possible for the fund to give effect to the order.
David says the non-member spouse’s attorney needs to find other ways of securing the money once the fund pays the member, so that the non-member can be paid what is due to him or her.
There was intense debate at the PLA conference whether, in light of a recent ruling by the Supreme Court of Appeal, the fund must be specifically ordered to pay the non-member spouse.
Marumoagae argued that the ruling means the fund does not have to be specifically ordered to pay the former spouse. Jeram disagreed, saying the ruling still requires the fund to be ordered to pay.
David and De Souza agreed with Jeram and pointed out that if the position were to change, and it were accepted that a fund does not have to be ordered to pay, funds will face many practical difficulties and the result will be legal uncertainty.
YOUR RIGHT TO INFORMATION
The retirement fund of your soon-to-be former spouse may be less than helpful if you ask it for information about a pension benefit that could be split in terms of a divorce order.
Jéanri de Souza, a legal adviser at Sanlam Employee Benefits, says it is risky for a fund to provide such information to anyone who asks, and it may also be against a fund’s duty to act in the best interests of its members. A prudent approach is for the fund to tell the member that someone claiming to be his or her spouse is asking for information about a benefit and to provide the member with the information to pass on to his or her spouse.
But if the divorce is acrimonious, the member may refuse to provide information about his or her benefit to the non-member partner. In this case, De Souza says the non-member spouse can obtain a subpoena or court order to obtain information about the benefit.
Michelle David, a director at Norton Rose Fulbright, says a fund has a duty of good faith to provide the information, as the non-member spouse may need the information to give effect to his or her rights.