Retirement

Pension interest and marital regimes – what to know

By Annalise de Meillon Muller, head of Technical Support at Glacier by Sanlam

The marital regime in terms of which a couple is married could affect whether retirement savings are available for distribution if their marriage ends in a divorce. It is imperative for financial advisers to know these regimes and their implications for retirement savings when building a holistic financial plan for their clients.

The definition of pension interest since 1 September 2024

The implementation of the two-pot retirement system has helped us get to a simpler definition of pension interest.

The amended definition of pension interest in the Pension Funds Act became effective after the two-pot system was implemented and has been a blessing in disguise for retirement annuity fund members in particular.

Although the definition of pension interest in the Divorce Act has not been amended to match the one in the Pension Funds Act, the definition in the latter has overriding authority in terms of the law.

LET’S GET CLEAR

What is pension interest?

Pension interest as a concept refers to the amount linked to retirement fund membership that may actually be considered to be the member’s asset when that member gets divorced. The necessity for the concept comes from the fact that when an individual becomes a member of a retirement fund, that individual’s ability (and right) to just access their savings in the retirement fund at any time becomes contractually limited. The savings of a retirement fund member in that fund do not legally form part of the member’s personal assets while they are in the fund. The member contractually has rights to the benefits the retirement fund offers, but not to the actual savings as they please. The benefits that a retirement fund offers are based on the value of the savings at certain times or on the occurrence of certain events.

This is why the member’s savings, in principle, do not form part of the member’s personal assets that may be divided on divorce. Consequently, it is necessary to make the savings available on divorce for the purposes of fairness, in other words, a possible distribution of assets – that include retirement savings – between divorcing spouses. Obviously, this is only if a divorce court orders that as a fair outcome.

VALUE SIMPLIFIED

How to calculate the value of pension interest

The new, simplified meaning of pension interest is that it refers to ‘the value of a member’s individual account or reserve in their retirement fund as at the date of the divorce court order’. In other words, the pension interest is the member’s fund value or the savings allocated to the member in the fund.

This new meaning applies whether the retirement fund in question is a pension, provident, pension preservation, provident preservation or retirement annuity fund. The silver lining here is that, prior to the two-pot system, pension interest in a retirement annuity fund specifically required an actuarial calculation. The value of pension interest was calculated by adding annual simple interest to all the contributions to the retirement annuity fund up to the date of divorce. The interest rate itself was determined by the Minister of Justice from time to time.

The value of pension interest is now the same simplified value for all.

LEGAL CLARITY

Marital regimes and pension interest

One could be wondering at this point how it is possible for the law to determine that retirement savings must be available for sharing on divorce when one chooses at the onset to share, or not, in each other’s assets during a marriage.
The type of marriage entered into, and the applicable marital regime, affects the availability of pension interest in a divorce court. Here is a list of marital regimes and the inherent implications for pension interest:

Civil marriages and civil unions are either in community of property or out of community of property (with or without the accrual).
- In community of property means that the pension interest of spouses automatically forms part of their joint estate. Consequently, the divorce court can divide the pension interest of both spouses as they deem fit.
- Out of community of property with accrual means that pension interest forms part of the personal estates of both spouses and is part of the accrual calculation. This means that there is a sharing of pension interest in terms of the logic of the accrual regime.
- Out of community of property without accrual means that there is no obvious sharing of personal assets on divorce, not even pension interest. But a divorce court can order this sharing in terms of section 7(3) of the Divorce Act, or the spouses can agree to share it in a settlement agreement.
Religious marriages, in other words, concluded in terms of the tenets of a religion, are also recognised under the Pension Funds Act. The new definition of pension interest specifically makes provision for this type of marriage. In such cases, a court may order a sharing of pension interest between the spouses as they deem fit (a division of assets).
There is no formal common law marriage concept in South African law. The dissolution of a common law or co-habitation relationship will not have formal financial and property results. This means that the parties will have to agree, but no court can order a sharing of their pension interests.
Customary marriages are registered in terms of the Recognition of Customary Marriages Act in South Africa. The applicable matrimonial property results are complicated. Simply put, such a marriage is generally in community of property when monogamous. Should the marriage become polygamous, the property system is regulated by agreement and formal requirements. Should these fail, the courts have found that the marriage will then be out of community of property. In a worst-case scenario for sharing in pension interest, such a marriage is viewed as an out-of-community-of-property regime, where there is no obvious sharing of personal assets on divorce, not even pension interest. But a divorce court can order this sharing in terms of section 7(3) of the Divorce Act, or the spouses can agree to share it in a settlement agreement.

LEGAL COMPLIANCE

Valid divorce court orders are still required

Irrespective of the applicable regime or the meaning of pension interest, a retirement fund will only pay an amount to a non-member spouse in terms of a court order, and if the order is legally valid.

Requirements for a valid and enforceable court order are as follows:

The retirement fund (name and registration number) must be clearly identified.
The order must state the wording ‘pension interest’.
The order must confirm how much of the pension interest (rand value or a percentage value) is awarded to the non-member spouse.
The order must expressly order the retirement fund to pay the interest to the non-member spouse.

Glacier Financial Solutions (Pty) Ltd is a licensed financial services provider. Sanlam Life Insurance Ltd is a licensed life insurer, financial services and registered credit provider (NCRCP43).