The Divorce Act defines the pension interest that can be taken into account in a divorce order or settlement agreement.
Pension or provident fund
The pension interest is the amount equal to the cash withdrawal benefit that would have become payable in terms of the rules of the fund if the member had resigned on the date of the divorce. The amount should be calculated on the same basis as the “member share” or “fund credit” (as at the date of divorce) referred to on the member’s benefit statement, Kobus Hanekom, the head of strategy, governance and compliance at Simeka Actuaries & Consultants, says.
Retirement annuity fund
The pension interest is defined as the aggregate of contributions, plus interest at a prescribed rate (currently, 15.5 percent). Hanekom says that when investment returns are low, this formula can result in an amount that is greater than the member’s total credit in the fund. In this case, the Pension Funds Act limits the amount by stating that the simple interest may not exceed the return on the pension interest.
Preservation fund
Until the Pension Funds Act was amended last year, the pension interest was defined in the same way as it is for pension and provident funds. This was problematic, because no benefit would have become payable from a preservation fund if the member resigned on the date of divorce. (Preservation funds allow for only one withdrawal before retirement.)
The problem was addressed in an amendment to the Pension Funds Act, and now the Act provides that, as is the case with pension and provident funds, the amount that must be taken into account is the benefit to which the member would have been entitled in terms of the rules of the fund if his or her membership of the fund had terminated on the date on which the divorce order was granted.
Hanekom says that, in principle, the amount should be calculated on the same basis as the “member share” or “fund credit” (as at the date of divorce) referred to on the member’s benefit statement.
Deductions
Hanekom says certain deductions in terms of the rules of a fund and the Pension Funds Act may reduce the gross pension interest:
* If your spouse was married before and a share of his or her pension interest was awarded to the former spouse in terms of their divorce order, that amount must be deducted, and only the balance of the savings can be divided in a subsequent divorce order;
* If there are any maintenance orders against retirement savings, these must also be deducted before any divorce orders; and
* If your spouse’s retirement fund provided him or her with a home loan, or if he or she had a pension-backed housing guarantee, any outstanding amount must be deducted before any other amounts are awarded in terms of a divorce order or maintenance order.