Parties in a divorce action where the marriage is in community of property or out of community of property with application of the accrual system, must take note of the fact that the pension interest of a member falls in the joint estate or is subject to the rules of accrual in a divorce action. A non-member in a divorce action therefore has a claim against his or her spouses’ pension interest.
The Pension Funds Amendment Act 31 of 2024 introduced an alternative definition of “pension interest”. The definition so introduced is different from the definition contained in section 1 of the Divorce Act 70 of 1979. The amendment has consequently impacted non-member spouses’ entitlement to share in retirement benefits in cases where the matrimonial property regime permits the sharing of assets.
The Amendment Act did not amend the Divorce Act definition of pension interest. Under the Divorce Act, pension interest is calculated using a formula that reflects the benefits the member spouse would have been entitled to had they resigned and exited the retirement fund on the date of divorce. The Supreme Court of Appeal has endorsed the approach, describing pension interest as the value placed, at the date of divorce, on the member’s interest in future retirement benefits, calculated in terms of a fixed formula and deemed to be an asset of the member’s estate (see Old Mutual Life Assurance Co (SA) Ltd and Another v Swemmer 2004 (5) SA 373 (SCA) at para 18).
As a result of the amendment of the The Income Tax Act 58 of 1962 which created two components of benefits, namely the retirement and savings components, members’ ability to access retirement benefits has been restricted. Benefits held in the retirement component may only be accessed at retirement. This is contrary to the Divorce Act that provides for benefits to be accessible at the date of divorce. As a result, the retirement component falls outside the Divorce Act definition of pension interest.
On the same basis members may only withdraw from the savings component once per year. In divorce cases where a withdrawal has occurred, the member spouse may have no remaining entitlement in that component for that year, despite the provisions of section 7(7) of the Divorce Act. Members of schemes may have a defence against a claim of a non-member spouse in a divorce action on said basis, namely both in respect of the retirement and savings components of the benefits.
The Legislature has attempted to address these difficulties by enacting the Pension Funds Amendment Act, which contains a definition of “pension interest” that does not affect the Divorce Act. In terms of the Amendment Act, where a court order refers to a pension interest under section 7(8) of the Divorce Act, it refers to the member’s “individual account or minimum individual reserve, determined in terms of the fund rules as at the date of the court order.” Non-member spouses are hereby permitted to share in the benefits notwithstanding that the member is not entitled to access those benefits.
There are presently many interpretations given to the relevant statutory enactments and although many commentators disagree on the application of the provisions, presently in practice, non-members have not experienced problems in enforcing court orders that require payment of the total member’s benefits on date of divorce as reflected in the member’s account of his or her particular fund. It is however advisable to keep track of forthcoming court judgments.
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