Pension and provident funds

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By SHAUN BERGOVER

Introduction
The purpose of a pension or provident fund is to provide an income to its members when they retire from employment. However, the members can also be paid when they are unable to work in cases of illness or retrenchment. The term ‘pension’ is a generic name for all types of retirement funds that fall within the scope of the Pension Funds Act. Employees that are part of pension or provident funds are called members, and employees that are not are called non-members.

The difference between a pension fund and a provident fund The main difference is that if a pension fund member retires, the member gets one third of the total benefit in a cash lump sum and the other two-thirds is paid out in the form of a monthly pension over the rest of the member’s life. A provident fund member gets the full benefit paid in a cash lump sum on retirement.

Divorce and pensions
In divorces involving pensions, it is always best to get the assistance of a legal practitioner. The Pension Funds Amendment Act of 2007 introduced the clean-break principle for pensions and divorces. The Act allows retirement funds to deduct an amount or percentage upon divorce from a member’s benefit and to pay it to the non-member spouse.

The clean-break principle allows the non-member to access his or her portion shortly after the divorce has been granted (previously the non-member spouse had to wait until the member spouse retired).

A marriage in community of property means that from the start of the marriage all assets and liabilities are incorporated into a single, joint estate. Similarly, all assets accumulated and liabilities incurred during the marriage also become part of the joint estate. Both spouses are joint owners of the estate, and on divorce they are therefore each entitled to an equal share (50%) of the joint estate.

The common law position has always been that the member spouse’s pension does not form part of the joint estate at all. However, with the introduction of section 7 (7) of the Divorce Act, a spouse’s pension is deemed to be part of his or her assets.

This means that the common law position remains the same in that a pension is not automatically part of the joint estate, but a spouse wanting to claim a share of the other spouse’s pension must invoke section 7 (7) and apply for an appropriate order during the proceedings. If this order is not specifically sought by the non-member spouse, then the non-member spouse will not acquire a share in the pension.

A claim under the Divorce Act can only be brought where the spouse is still a member of the fund. In other words, the spouse must still be employed and still contributing to the fund at the time of divorce. The order will be made for one-half of the pension interest to be paid, calculated on the date of divorce.

In marriages out of community of property with accrual, the spouse’s pension fund value will be taken into consideration to determine the value of his or her estate for purposes of the accrual calculation only. This means that the non-member spouse could benefit from the pension, depending on the size of their respective estates. The value of the pension from the date of marriage to the date of divorce is taken into account.

In marriages out of community of property without accrual, the non-member spouse will have no claim to the pension of the member spouse.

After the divorce has been finalised and a decree has been issued by the court, your attorney should assist you by submitting all the relevant documents to the pension fund. By this stage you would already know which pension fund is involved and what their requirements are. Each fund has different requirements and different processing times.

  • Shaun Bergover is an attorney at the Rhodes University Law Clinic
Rhodes University Law Clinic helping you

The Rhodes University Law Clinic strives to improve access to justice through the provision of free legal services to indigent people in most areas of law. The Law Clinic’s New Street offices are open during ordinary business hours, and is available to those members of the public who qualify for assistance in terms of a means test.
For more detail, please contact:

Rhodes University Law Clinic
41 New Street, Grahamstown
Telephone 046 603 7656
lawclinic@ru.ac.za

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