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Introduction

We often come across divorce orders and/or settlement agreements which make provision for the allocation of interest/growth on pension interest. Such orders would typically read as follows:

“The Plaintiff’s said one-half share in the aforesaid Pension Fund shall bear interest at the rate of 10% per annum from the date of divorce to the date of payment”.

Unfortunately, such orders are not enforceable against the fund in question. The reason therefore lies in the applicable legislation, namely the Pension Funds Act 24 of 1956 and the Divorce Act 70 of 1979.

Pension Funds Act, Act 24 of 1956

Section 37A of the Pension Funds Act (“PFA”) specifically limits the circumstances for the lawful deduction of an amount from a member’s pension benefit. As a general rule a fund may only make a deduction from a member’s benefit if such a deduction is allowed in terms of the Pension Funds Act, the Income Tax Act or the Maintenance Act.

Section 37D(1)(d) of the PFA states that a registered fund may “deduct from a member’s or deferred pensioner’s benefit, member’s interest or minimum individual reserve, or the capital value of a pensioner’s pension after retirement, as the case may be – (i) any amount assigned from such benefit or individual reserve to a non-member spouse in terms of a decree granted under section 7 (8) (a) of the Divorce Act, 1979 (Act No. 70 of 1979) or in terms of any order made by a court in respect of the division of assets of a marriage under Islamic law pursuant to its dissolution;...”.

Furthermore, in terms of section 37D(4)(c)(ii) of the PFA “accrual of fund return” will be payable to a non-member spouse upon the expiry of 120 days after the fund has requested the non-member spouse to make an election as to how he/she wants payment of the pension interest to be made.

The section reads as follows:

  • “(c) A non-member spouse-
    • (i) Is not a member or beneficiary in relation to the pension fund; and
    • *(ii) Is entitled to the accrual of fund return from the date of the deduction contemplated in paragraph (a)(ii) until payment or transfer thereof,
    • but not to any other interest or growth.” (* sub-paragraph (ii) has been substituted by section 52 (g) of the Financial Services Laws General Amendment Act, 45 of 2013)

Divorce Act, Act 70 of 1979

Section 7(7) of the Divorce Act provides that a “pension interest” (as defined in section 1) will be deemed to be a part of the assets at divorce. In terms of section 7(8) of the said act a court may order that a portion of the “pension interest” of a member of a fund be awarded to the spouse of such member. Section 7(8) reads as follows:

“(8) Notwithstanding the provisions of any other law or of the rules of any pension fund -

  • (a) The court granting a decree of divorce in respect of a member of such a fund, may make an order that-
    • (i) any part of the pension interest of that member which, by virtue of subsection (7), is due or assigned to the other party to the divorce action concerned, shall be paid by that fund to that other party when any pension benefits accrue in respect of that member;
    • (ii) the registrar of the court in question forthwith notify the fund concerned that an endorsement be made in the records of that fund that that part of the pension interest concerned is so payable to that other party and that the administrator of the pension fund furnish proof of such endorsement to the registrar, in writing, within one month of receipt of such notification;”

    “Pension Interest”

    The definition of “pension interest” as referred to in section 1 of the Divorce Act sets out how the pension interest of a member’s pension is valued. The Divorce Act defines “pension interest” as follows –

    • “pension interest”, in relation to a party to a divorce action who—
      • (a) is a member of a pension fund (excluding a retirement annuity fund), means the benefits to which that party as such a member would have been entitled in terms of the rules of that fund if his membership of the fund would have been terminated on the date of the divorce on account of his resignation from his office;
      • (b) is a member of a retirement annuity fund which was bona fide established for the purpose of providing life annuities for the members of the fund, and which is a pension fund, means the total amount of that party’s contributions to the fund up to the date of the divorce, together with a total amount of annual simple interest on those contributions up to that date, calculated at the same rate as the rate prescribed as at that date by the Minister of Justice in terms of
      • section 1 (2) of the Prescribed Rate of Interest Act, 1975 (Act No. 55 of 1975), for the purposes of that Act;

    It is clear from the definition that “pension interest” does not include any interest or fund returns that accrue to a member spouse after the date of divorce.

    Conclusion

    The definition of “pension interest” as set out in section 1 of the Divorce Act (quoted above) does not include any interest or growth which may accumulate after the date of divorce. Furthermore, the PFA makes it clear that the said act does not make provision for the payment of fund interest after the date of divorce.

    In the Supreme Court of Appeal matter of Old Mutual Life Assurance Company (South Africa) Limited and another v Swemmer 2004(5) SA373 (SCA) the court held:

    • “Moreover, there is no provision in the relevant sections of the (Divorce) Act for the pension fund concerned to be ordered to pay the non-member spouse interest or capital growth on the portion of the pension interest allocated to that spouse from the date of divorce to the date of eventual payment”.

    In the recent matter of D T Beytell v Old Mutual Staff Retirement Fund and Old Mutual Life Assurance Company (S.A.) Ltd the complainant wanted the first respondent to pay interest at the rate of 15.5% per annum on the former spouse’s pension interest from the date of divorce to the date of transfer. The Pension Funds Adjudicator held that no provision was made in the Divorce Act for payment of interest and it is therefore not permitted by any legislative provision. The complaint was accordingly dismissed.

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