New Rules for Division of Pension Interest on Divorce

New Rules for Division of Pension Interest on Divorce

When involved in a divorce action, the Divorce Act 70 of 1979, states that a member's pension interest in a retirement fund (which could be held in a pension fund, provident fund, retirement annuity fund or preservation fund), is regarded as part of the member's assets. This means that the fund value may be taken into account when determining how the parties' assets are divided upon divorce. On divorce, the non-member spouse may be entitled to a share of their ex-spouse’s pension interest (anywhere between 0% and 100%).

The Pension Funds Amendment Act, 2007, introduced the clean-break principle upon divorce. This allows the non-member spouse to access their former’s spouse’s retirement fund benefit or “pension interest”, and have an amount or percentage (as stipulated by the divorce decree) paid out, or transferred to another fund, at time of divorce.

For years, many Government Employees, have however been crippled by the debt created, after divorce, by the Government Employees Pension Fund (GEPF), when making payment of a pension interest to a non-member spouse. Instead of just making payment or transfer the ordered percentage to the non-member spouse from the fund value, as per above, the GEPF created a debt or loan account for the amount paid out to the non-member spouse at time of divorce.  The debt or loan account, with interest, had to be paid off by the member on a monthly basis.

Finally, relief came recently, in the form of the Government Employees Pension Law Amendment Bill, gazetted on 23rd May 2019. The GEPF has amended and implemented these new rules, and a member of the fund will no longer be subjected to a debt or loan, with interest, being created when getting divorced. The new amendment now rather makes provision for the reduction of pensionable service of the GEPF member, that is equal to the value of the divorce settlement amount paid.                                                                                                                                             
This amendment to the law, removes the pension debt or loan, that accrued to the GEPF member when a portion of their pension was paid out by the GEPF to the non-member spouse, as a divorce settlement. The previous model, comprising of the debt or loan created against the member’s name, and repayable monthly, very often created the perception that members could find themselves owing money to the GEPF when they retired, and also affected their monthly income drastically.                                                                    

The amendment now ensures that rather than creating a debt, an adjustment will be made to the member’s pensionable service, following the payment of a divorce settlement by the GEPF. This means that the benefit that will be paid to the member upon retirement, will now be decreased by reducing the members’ years of pensionable service to take into account the pension interest of the member that was given to the non-member spouse upon divorce. 

Although structured somewhat differently from other funds, members of the GEPF will now receive their full benefit, after the reduced pensionable service has been reduced accordingly, and those with more than ten years of pensionable service will still be entitled to a lump sum, as well as a monthly pension, upon exiting the fund, however at a reduced value.

Following these amendments, the GEPF has gazetted the new rules that will govern the implementation, and which will come into effect as of the 1st of August 2019.

Correspondence will go out to all GEPF members, informing them of these changes and how they will be affected. Members will still be allowed to opt from the old divorce debt model or the new service reduction model. The affected members have up until 22nd May 2020 to indicate their choice of either remaining with the debt and interest model or move to the service adjustment model approach. Currently affected members who fail to indicate their choice by 22 May 2020 will automatically be converted into the new approach.

It is still uncertain whether the act will apply retrospectively to members currently affected by the debt model, as well as the financial impact on the fund.  It does however offer substantial relief to current government employees involved in divorce proceedings.

 

Anja Griesel

Practising Attorney