Paid-up members and the definition of “pension interest” when dealing with divorce orders
By Adél Gräbe, Legal and Technical Specialist
The pension interest of a retirement fund member may be divided upon divorce. The interaction between “pension interest” as defined in the Divorce Act, 70 of 1979 and the Pension Funds Act, 24 of 1956 respectively can be a source of conflict and confusion, due to differences in the two definitions.
The Divorce Act
In the Divorce Act, “pension interest” in respect of a member of an occupational fund is described as the benefits to which the member would have been entitled in terms of the fund rules if their membership would have been terminated on the date of the divorce on account of their resignation from their office.
Therefore, in terms of the Divorce Act, a member’s “pension interest” ceases to exist on the date of termination of such member’s service. This means that a paid-up member (a member who has left service but whose benefit has not been paid out yet) has no “pension interest” that can be paid to the non-member spouse by the fund.
The Pension Funds Act
Another definition of “pension interest” was introduced in the Pension Funds Act, effective 1 September 2024. It refers to the member’s individual account or minimum individual reserve on the date of divorce. This means that paid-up members, deferred retirees and in-fund pensioners will have a pension interest to be divided even if the member has already left employment.
Divorces granted before 1 September 2024
The definition of “pension interest” in the Divorce Act will have to be applied, because the definition in the Pension Funds Act does not have retrospective effect. If the member left service prior to the date of divorce, they therefore have no pension interest, and such an order is unenforceable against a retirement fund.
Divorces granted on or after 1 September 2024
A paid-up member now has a “pension interest” and orders granted on or after 1 September 2024 may be enforceable against a retirement fund, if all the other requirements for validity have been met.
However, if the order specifically refers to “pension interest as defined in the Divorce Act”, it is still not binding on the fund, as the member had no “pension interest” for the purposes of the Divorce Act definition.
Conclusion
Until the Divorce Act is retrospectively amended to reference the “pension interest” definition in the Pension Funds Act, divorce parties should be aware of the implications of divorce awards from a paid-up member’s retirement fund.
Read the article from EBnet