Understanding Divorce And Pension Funds In South Africa


Divorce can be a difficult and emotionally taxing process, and when it comes to dividing assets, it becomes even more complex. For many South Africans, one of the most significant assets to consider during a divorce is their pension fund. Understanding the legal complexities surrounding the division of pension funds is crucial for protecting your financial future.

Divorce and pension funds in South Africa are intricately connected. It’s vital to comprehend that various funds and marital regimes wield substantial influence over how pensions get distributed during divorce proceedings. Understanding these nuances is paramount.

To help you navigate this landscape, we’ll explore the different types of pension funds, how your marital regime affects retirement fund claims, the clean break principle and its establishment, and specific considerations for government employees. So, let’s dive into the intricacies of divorce and pension funds in South Africa.


What Are Pension Funds?

Pension funds are financial vehicles designed to provide their fund holders with a source of income during their retirement years and are governed by the Pension Funds Act 24 of 1956. These funds serve as a form of long-term savings, with contributions made regularly, either by individuals, employers, or both, depending on the type of pension fund.

There are various types of pension funds, including pension and provident funds, retirement annuity funds, and preservation funds, each with its characteristics and benefits. Understanding the nature of these funds is essential when considering how they may be affected during a divorce in South Africa.


What Are The Different Types Of Pension Funds?

Before we delve into the nitty-gritty of divorce and pension funds in South Africa, let’s first understand the various types of pension funds available:


Pension and Provident Fund

Pension and Provident Funds are two standard retirement savings vehicles in South Africa. Both types serve the same purpose: to provide financial security during retirement. However, they differ in how they operate.

Pension funds are usually employer-driven, with contributions made by both the employee and employer. Concerning payouts, upon retiring with a pension fund, you will get one-third of your fund paid out immediately, and the rest will get paid out to you in the form of a monthly pension over the rest of your life. Provident funds, on the other hand, allow for more flexibility, as employees can access their entire fund as a lump sum upon retirement.


Retirement Annuity

A Retirement Annuity (RA) is a personal pension fund that individuals can set up independently. It operates separately from your employer and is popular for self-employed individuals or those without access to employer-sponsored pension plans.


Preservation Fund

A Preservation Fund allows individuals to preserve their retirement savings when they change jobs. This fund prevents you from cashing out your pension, ensuring that you have sufficient savings when you retire.


How Does Your Marital Regime Affect A Retirement Fund Claim?

Marital regimes in South Africa significantly influence how pension funds get divided during a divorce. Let’s explore the various scenarios:


Married In Community Of Property (COP)

If you are married in community of property, your assets, including your pension fund, are merged. In a divorce, these assets typically get divided equally between spouses.


Married Out Of COP With Accrual

In cases where couples are married out of COP with accrual, the pension fund value of each spouse gets factored into the overall assessment of their respective estates. This inclusion of pension fund values is specifically to calculate the accrual to ensure a fair determination of the growth in their estates during the marriage.

Parties can also note in their antenuptial contract that any pension funds or benefits shall be excluded from their estate in the event of divorce.


Married Out Of COP Without Accrual Before 1 November 1984

In marriages under the out of COP without accrual, spouses maintain separate estates, and asset sharing doesn’t happen automatically in divorce. However, a court can order asset redistribution under Section 7(3) of the Divorce Act 70 of 1979, including a spouse’s pension interest. Alternatively, parties can agree to share the pension interest through a settlement agreement.


Married Out Of COP Without Accrual After 1 November 1984

In this scenario, each spouse maintains their distinct estate, and there is no automatic asset sharing during divorce proceedings. Any division of the pension interest must be agreed upon mutually. Parties also have the option to include the pension interest division within a settlement agreement if they so choose.


What Is The Clean Break Principle, And When Was It Introduced?

The Clean Break Principle, introduced in The Pension Funds Amendment Act, 2007, stipulates that retirement funds are permitted to subtract a specific amount or percentage from a member’s benefits in the event of a divorce and transfer it to the non-member spouse or a retirement fund chosen by the non-member spouse.

This principle aims to provide financial independence to both parties after divorce and ensures a clean break from financial obligations to one another.


Divorce And Government Employees Pension Fund

The Government Employees Pension Fund (GEPF) underwent significant changes with the introduction of the clean-break principle on 1 April 2012. Formerly, a portion of a member’s pension benefit designated for a former spouse as part of a divorce settlement only got disbursed when the member left the fund.

Under the new regulations, ex-spouses can now promptly receive their share of the pension interest post-divorce, either as a cash payout or a transfer to another chosen pension fund. These fresh guidelines dictate that upon payment of a divorce benefit, the GEPF will establish a debt against the member equal to the amount owed to the non-member spouse.

This debt, subject to interest, accumulates until the member exits the fund. You can reduce this debt if the member makes repayments throughout the remaining service period. Upon the member spouse’s fund exit, the total benefit value gets assessed and adjusted to account for the outstanding debt.

In May 2019, the Financial Matters Amendment Act 18 of 2019 ushered in a significant change for the GEPF, eliminating the concept of notional pension debt when disbursing funds to former spouses as part of divorce settlements. Instead, the amendment allows reducing a GEPF member’s pensionable service years to accommodate the payment made to a former spouse according to the divorce order.


What Is Pension Interest And How Does It Work For Each Fund?

Pension Interest is the portion of the pension fund that is subject to division during a divorce. Its calculation depends on the type of fund:


Pension And Provident Fund

For these funds, pension interest is calculated as the fund’s value at the date of divorce, less the non-member spouse’s share.


Retirement Fund

In the case of a retirement annuity, the interest rate is calculated as the total amount of the member’s contributions to the fund up to the divorce date, along with straightforward annual interest at the designated rate.


Preservation Fund

For Preservation Funds, pension interest is calculated as the benefit that a fund member would be entitled to if their membership were hypothetically to conclude on the date of divorce.


Settlement Agreements: The Importance Of Correct Wording

When drafting a settlement agreement during divorce proceedings, it’s crucial to use precise and legally sound wording. Failure to do so could lead to complications and disputes later on. Consulting with an attorney experienced in divorce and pension fund matters can ensure your settlement agreement aligns with your intentions and the law.

Navigating divorce and pension funds in South Africa can be intricate, but understanding the different types of funds, marital regimes, and the unique considerations for government employees is vital. Seeking legal advice from professionals like the Burnett Attorneys & Notaries team can help protect your financial interests during this challenging time. Remember, proper planning and expert guidance can make all the difference and ensure a secure financial future for yourself post-divorce.