How will a delay in a divorce order affect a member’s retirement fund?

According to the Divorce Act, a member’s pension interest in a retirement fund is regarded as part of the member’s assets. This means that it may be taken into account when determining how the parties’ assets are divided upon divorce. In granting a divorce order, a court may include an order for a portion of a member’s pension interest to be awarded and paid to the ex-spouse by the relevant retirement fund. This is done in terms of section 7(8) of the Divorce Act. The pension interest refers to an amount equal to the member’s cash withdrawal benefit which would have become payable, according to the rules of the Fund, had the member resigned on the date of the divorce.

But what happens if there is a delay in the divorce order? Will the delay be considered in calculating the return or growth of pension interest due to the non-member spouse? A recent Financial Services Tribunal case sheds some light on the matter. In this case, the Applicant challenges a determination of the Pension Fund Adjudicator (PFA) on a letter dated 21 November 2018.

The Application for consideration

This matter concerns payment of interest or growth on the portion of pension interest paid to the Applicant.

ln essence the Applicant contends that:

  1. The member to the pension fund (the ex-spouse to the divorce) deliberately prevented him from claiming any share of the pension fund for 6½ years, so the interest that his portion of the pension fund was earning, could not accrue to her; and
  2. that if the current legislation in the retirement fund industry, and in particular the Pension Fund Act dealing with divorces, does not ensure fairness to both parties, the Applicant suggests that changes be put in place.

The facts of the matter

  • The Applicant and his ex-spouse were both married to each other in a community of property in terms of the Islamic law and the marriage was terminated in terms of the same law on 31 December 2011.
  • The split or division of the estate is, amongst other things, then left to the parties to negotiate and finalise at a later stage of the divorce proceedings.
  • The settlement agreement which appears to record the intention of the parties, states, amongst other things, the ex-spouse assigns to the defendant (the Applicant in this matter) 50% of her pension fund interest in any pension fund, calculated as at 31 December 2011.
  • ABSA Pension Preservative Fund, the Second Respondent in this matter, paid to the Applicant an amount in the sum of R790 924.57 as his portion of the pension interest as ordered and the same amount was transferred to Allan Gray Pension Preservative Fund.
  • The failure of the Second Respondent to add growth or interest on the pension interest paid to the Applicant is the cause of the complaint originally submitted to the PFA.
  • The effective date of divorce according to Islamic law was on 31 December 2011 and the decree of divorce for the division of the joint estate was granted on 27 March 2017.
  • As a result the Second Respondent did not add interest or growth on the portion pension fund interest from 31 December 2011 as contended by the Applicant, but added return or growth on the portion of pension interest from 21 July 2017, being the date of deduction as stated in section 37D4 (c) (ii) of the Act.
  • The Applicant acknowledged that the Respondents had applied the current law as it stands but such current law, in his view, does not cater for the dissolution of marriages and Muslim rights fairly and need to be amended.

The Financial Services Tribunal’s conclusion

  • “It is our view that the provisions of the Act and the Divorce Act do not provide for any other factor, such as delay in finalising divorce proceedings, to be considered in calculating return or growth on a portion of pension interest due to the non-member spouse.”
  • “Section 37D4 (c) (ii) of the Act, in our view, provides guidance on when does the accrual of return on the portion of pension interest of the non-member spouse occur. We are satisfied that the Respondents have complied with the law.”

As a result, the application was dismissed.

Click here to read the detail of the Financial Services Tribunal case.

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