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3.1 The Commission published a Discussion Paper on the Sharing Of Pension Benefits during April 1998.[13] The proposals were in the form of a draft Bill, which is attached as Annexure A to this report. The proposals can be summarized briefly as follows:
3.2 The proposed Bill was drafted in close consultation with representatives of the Institute of Retirement Funds, The Life Offices Association and the Actuarial Society of South Africa. The said representatives, together with the research officer of the Commission, formed an informal workgroup which met on several occasions. A representative of the South African Revenue Services was also included in the workgroup from time to time. The workgroup also tried to involve a representative of Cosatu but, although the documentation was send to him he did not find it possible to attend the workgroup’s meetings.
3.3 The Discussion Paper was published for general information and comment . The availability thereof was made known by means of a media announcement. Ample time was allowed for the submission of comment. The comments received are summarized below.
3.4.1 Adv Ngalwana is a member of the Cape Bar. He is also an associate member of the Pension Lawyers Association of South Africa.
3.4.2 Adv Ngalwana argues that the definitions of “marriage” and “spouse” in the Bill are in conflict with the Constitution because they exclude same-sex marriages and thus discriminate unfairly against members of such relationships.
3.4.3 Clause 3(1) of the Bill envisages that the member’s equishare in a money-purchase scheme is to be divided equally between the member and the non-member spouse on their divorce before the maturity of the member’s benefits. The member’s equishare could, however. include employer’s contributions that have not vested at the time of the divorce. Such contributions, and investment returns thereon, are usually not available to a member on his or her withdrawal from the fund by reason of resignation or dismissal. Clause 3(1) of the Bill ought therefore to be qualified so as to ensure that the non-member spouse does not become entitled to benefits to which the member would not have been entitled in the event of his or her withdrawal from the fund before the vesting of those benefits.
3.4.4 Adv Ngalwana is further of the opinion that clause 3(3) of the Bill has the effect of giving the non-member spouse “membership-by-ambush” of the member’s retirement fund and that this flies in the face of the requirements for approval of a fund for tax purposes, namely an employer-employee relationship. He is also of the view that the transfer of the non-member spouse’s share to another fund, as provided for in the Bill, will have tax implications since such transfers are not covered by the Income Tax Act.
3.4.5 The duties placed on an administrator of a fund in terms of clause 3(2) and (4) should rest on the fund itself, which is a persona iuris.
3.4.6 Clause 4(1)(b) read with clause 4(2) of the Bill provides that the non-member spouse shall. in the case of a benefit that becomes payable to the member in terms of the rules of the fund in circumstances other the resignation, dismissal or the winding up of the fund, be entitled to a benefit calculated in accordance with a prescribed formula. The benefits in question would include retirement benefits, disability benefits and death benefits. Not all retirement funds provide for “risk benefits”(death and disability cover). Such benefits are often provided for separately by way of life assurance or a separate disability scheme. However, no one is entitled to a death benefit. The trustees of a fund have a discretion to who among the deceased member’s dependants and nominees should receive a death benefit and what the amount of such benefit should be. The trustees may in their discretion award all the death benefits to a dependant child of the deceased member and no benefit at all to a surviving spouse. Furthermore, whatever death benefit may be awarded to a surviving spouse he or she is not entitled to within the first twelve months of the death of the member. This provision ensures that sufficient time is allowed for the tracing of all possible dependants or nominees of the deceased member.
3.4.7 In Adv Ngalwana’s view the provisions of the Bill in general are in conflict with the principle underlying retirement funds, namely to provide retirement benefits for members of those funds. In his opinion it is not necessary to introduce entirely separate legislation to govern the division of retirement benefits between spouses on their divorce. All that is needed is to make provision that any amount to which the non-member spouse is entitled in terms of the existing provisions shall bear interest at the prescribed rate if not paid at the time of the divorce.
3.5.1 The current dispensation determining the rights and entitlements of divorcing members and their spouses is not satisfactory. Apart from the practical difficulties and anomalies created by the wording of the Divorce Amendment Act of 1989, the Act is based on an interim solution and not on a satisfactory long term solution to the problem. The new draft is an attempt to formulate a long term solution. Although the main concept embodied in the draft has successfully been implemented elsewhere, one should be mindful of the fact that it is difficult to superimpose such a new concept on a well-developed retirement fund industry such as our own. The implementation of the new dispensation will require a number of administrative adjustments with cost implications. The maintenance of the new dispensation will also require the keeping of additional exact data which will place upward pressure on the administration costs of retirement funds.
3.5.2 Apart from the inevitable complexity which will be created, the new dispensation appears to be workable on the whole. The most difficult aspect, to which the Institute is not at this stage able to recommend any single satisfactory solution, is the exact basis upon which the member and the non-member spouse’s benefits should be defined for purposes of the Act. One will have to choose between two alternatives. One alternative is an accurate but costly method which identifies with sufficient detail not only all monthly contributions, but also any lump sum injection, especially amounts transferred from other funds, together with the investment returns thereon, before and after the date of the marriage. The other alternative, which will be less accurate, is to determine an average according to years of membership, with an appropriate arrangement relating to lump sum payments and transfers.
3.5.3 As regards the application of the proposed provisions also in respect of cohabitation agreements and so called same sex marriages, the Institute is of the opinion that this is a matter which ought to be dealt with properly as part of the matrimonial property law and until such time as such general reform measures are adopted in our law the existing position should remain unchanged.
3.5.4 The Institute has suggested a number of changes to some of the definitions in clause1 of the Bill. These changes appear to be necessary and have been adopted.
3.5.5 The following comment was made in connection with clause 3(1) of the Bill:
Paragraph 4.1.6.2 (of the Discussion Paper) read with section 3(1) require fund administrators to be able to determine, with a great deal of accuracy, the contributions made in respect of any member during any period, together with investment returns thereon. The following concerns should be dealt with:
(a) Many administrators will not be able to produce these numbers with regard to past transactions.
(b) Secondly, section 3(1), if implemented, will require administrators to maintain a very laborious and costly operating system which may not be in the interest of members on a cost-benefit analysis.
(c) The formulation focuses on total contributions and does not take into account the amounts deducted in respect of risk benefits and administration costs. In the current climate of greater benefit flexibility and cafeteria arrangements the numbers arrived at will be very inaccurate.
The most obvious solution(especially in regard to the third point) appears to be a simple pro rata calculation, i.e. divide the total amount accumulated for retirement benefits into the relevant number of years of membership requiring recurrent contributions- without reference to the amounts paid during any particular period. More than one marriage, transfers to one or more funds or lump sum injection will, however, frustrate the aim of this simplistic pro rata apportionment of the benefit. If forced to chose between imperfect solutions, many of the objections to such a pro rata apportionment can be overcome by providing for the total period of membership(including “transferred membership”) to be reduced by one half of the period of marriage in respect of which benefits have been paid to a non-member spouse or transferred to another fund for a non-member spouses. As argued above, in the case of defined benefit funds, benefits resulting from lump sum contributions should not be divided with reference to the length of periods. Such benefits should rather be divided into two equal parts in favor of the member and the non-member to whom the member was married at the time of the making of the order.
3.5.6 In clause 4(1)(a) symbol B needs to be reduced by one half of the period of marriage in respect of which benefits have been paid to a non-member spouse or transferred to another fund for the non-member spouse. Again, in clause 4(1)(b) symbol B must be reduced as outlined above. It is possible in principle for a non-member spouse to become entitled to both a retirement as well as a death benefit after the date of the divorce. It is suggested that a proviso be inserted to deal with such a situation. This section will also be problematic in the sense that the non-member spouse may become entitled to a proportion of any benefit payable to a child. Once again, a proviso should be inserted to deal with such an eventuality. In terms of current practice, children’s pension and surviving spouse’s pension compete for the same available cash held by the fund, unless the children’s pensions are fully insured. No complete solution to the problem appears possible.
3.5.7 Section 4(2) belongs under section 5 and should be incorporated there as section 5(2). The intention with this clause is to make sure that, in relation to a member who is retired at the date of the divorce, the non-member spouse will also be entitled to 50% of the benefit payable at his death, such as the survivor portion of a joint and survivor annuity. In the case of members not yet retired, this is dealt with by splitting the actuarial liability. It seems that the actuarial liability in respect of a member should be expressed as “the fund’s actuarial liability in respect of a member(including the fund’s actuarial liability in respect of non-member spouses resulting from members’ membership)”.
3.5.8 A new section 4(2) should be considered. providing as follows:
At any time after a member, if he were to retire, would become entitled to a retirement benefit from a fund, the non-member spouse in respect of whom an order was made in accordance with subsection (1) may request in writing to the fund that his or her share of the retirement fund benefits be transferred to another retirement fund for his or her benefit. In this event the transfer value will be determined in accordance with section 4(1)(b), but factor C will be the actuarial liability of the fund in respect of the member on the date of the non-member’s written request, as calculated by the actuary of the fund concerned.
This new subclause is considered necessary to give the non-member spouse some control over his or her retirement planning. Without it, he or she will have to wait until the member actually retires before any retirement benefits can be paid. But the noble objectives of such a measure will create complications which the retirement fund industry may not be able to administer. It will also increase some fund’s and employers’ liabilities., because the death benefits of those who may already retire may be less in value than the retirement benefit. The introduction or not of such a measure will have to be debated further with the retirement fund industry.
3.5.9 In clause 4(4) one should consider the appropriateness of making provision for the payment of the non-member spouse’s share at he date of his or her death, rather than the arrangement in terms of which his or her estate must wait until a benefit accrues to the member. To achieve this, the last line from “when” should be deleted and replaced with the following:
The claim shall be calculated in accordance with subsection 4(1)(b), where factor C will be the actuarial liability of the fund in respect of the member on the date of death of the non-member spouse, calculated by the actuary of the fund concerned.
This measure will, however, also create complications which the retirement fund industry may not be able to administer, and may increase funds’ liabilities to an extent deemed unacceptable. Its introduction or not will have to be debated further with the industry. The reasons for the objections to the new section 4(2) apply here as well. One has to remember that a part of the actuarial value as at the date of death of the non-member will often be inferior to the discounted value of what he or she would have been entitled to at the retirement of the member. Symbols A and B requires different meanings, depending on whether the benefits were accumulated under a defined benefit or defined contribution fund. It seems that a special formula should apply to benefits purchased with lump sums.
3.5.10 With regard to clause 8, it seems that the proposed Act will apply notwithstanding the entire Pension Funds Act, 1956, other laws that establish particular retirement funds and rules of retirement funds. It should, however, be made sure that sections 37(A),(B),(C) and (D) of the Pensions Fund Act, 1956 will apply to a non-member spouse’s share as if he or she is the member.
3.5.11 Specific provision need to be made for existing housing loans and securities and divorce orders vis-a vis a non-member spouse’s claim on the splitting of retirement fund benefits at divorce, after the new act came into operation. Measures should be introduced to ensure that any existing security or housing loan will take precedence pari passu in date order. Non-members will become quasi members of the fund and will have to be taken into account in respect of all member communications as well as member election exercises. A specific provision should be considered whereby the benefits of members and beneficiaries other than non-member spouses are reduced in proportion to the sharing in those benefits by non-member spouses.
3.6.1 At the request of the Law Society of the Cape Of Good Hope a committee of attorneys practising in and around Cape Town compiled the following comments on the Commission’s proposals:
3.6.2 Section 7(7) of the Divorce Act provides that pension benefits are to be taken into account in determining the patrimonial benefits to which the parties to a divorce action are entitled. Accordingly, pension benefits should be treated in the same manner as any other asset in the parties’ estates when determining the parties’ respective rights. In other words, the parties’ entitlement in respect of pension benefits should be determined by the parties’ matrimonial regime, in the same manner as the parties’ other assets.
3.6.3 Subsection 7(7)(c) specially provides that in determining the patrimonial benefits to which the parties are entitled, pension benefits will not be taken into account in respect of a marriage out of community of property entered into after 1 November 1984 where the accrual system is excluded.
3.6.4 It should be made clear that, except in the case of a community marriage or where the basis on which the accrual is to be shared warrants it, there should be no equal sharing of the pension benefits.
3.6.5 The committee is of the view that the discretion of the court, when ordering a redistribution or a division and/or forfeiture, should not be effected by proposed legislation, nor should the parties’ right to decide how they wish to deal with their assets be determined by the legislature.
3.6.6 The committee suggest that new legislation should include directions as to how the member of a pension fund may exercise any election he or she may have in respect of pension benefits. For example, in terms of the rules of a pension fund the members may be entitled to elect to receive only a portion of the pension benefit by way of a capital sum and te remainder by way of monthly pension payments, without the non-member being entitled to object.
3.6.7 The committee suggests that new legislation should prescribe whether or not pension benefits accrue to a member on withdrawal from a particular fund or whether the member is entitled to re-invest such in a new fund so that the non-member would only receive his or her share when the member actually receives the benefits.
3.6.8 The committee suggests that new legislation should provide that only the portion of the pension benefit which the member actually receives accrues to the member for tax purposes.
3.6.9 The committee suggests that various definitions contained in the proposed Bill require clarification.
(a) “divorce” - What is a marriage in accordance with religious law?
(b) “marriage” - What is a union or relationship in accordance with “any recognized religion”? Who should recognize the religion? Would any obscure belief be regarded as a religion?
(c) “matured” - This should be extended to include resignation, dismissal or termination of services.
3.6.10 The committee suggests that section 3(1)(a) of the proposed Act be qualified with the words “until the date of the divorce”.
3.6.11 The committee suggests that section 3(1)(b) should make it clear that the net investment returns allocated or to be allocated in respect of those contributions up to the date of divorce should be those allocated from the date of the marriage.
3.6.12 It is suggested that payment of interest accruing to the portion due to the non-member from the date of divorce to the date of payment should be addressed. The committee is of the view that the non-member’s interest is severely prejudiced if his or her benefit is frozen at the date of divorce. It is suggested that the Pension Fund Rules should be amended to provide that the non-member could receive his or her share of the pension benefit at the date of the divorce.
3.6.13 An anomaly will be created if the sharing of pension interest, which is a consequence of marriage, be applied to relationships not formally recognized in civil law. Until such time as de facto marriages are recognized in other respects, pension sharing should not be contemplated in respect of such relationships.
3.6.14 The consequences resulting from the shortfall in the event of the parties’ liabilities exceeding their assets, should be dealt with in accordance with the present practice, i.e. the shortfall should be divided proportionately in accordance with the divorce Act and, in the event of non-payment, a member who has paid more than his or her proportionate share should be entitled to a recourse against the other member. If this is not allowed and pension is divided equally, the committee is of the opinion the non-member’s right of recourse is taken away.
3.6.15 The committee is of the opinion that the proposal regarding the determination of the value of pension interest as well as compensating assets in place of the share of pension interest, appears to be a sound one as does the proposal that the pension administrator set up a separate account for the non-member from which he or she will receive payment directly from the fund.
3.7.1 The Law Society supports the proposals of the Commission, but wishes to make the following comments:
3.7.2 The proposed legislation should not contain any restrictions which may limit or inhibit the exercise of a court’s discretion in ordering either a redistribution or division or for failure of patrimonial benefits.
3.7.3 Insofar as pension/provident fund benefits are concerned, the Society agrees that the value thereof for purposes of sharing or forfeiture or redistribution should be calculated from the date of the marriage to the date of the divorce.
3.7.4 It is suggested that the proposed legislation should make provision to the effect that, regardless of whether the member elects to receive the maximum percentage payable in a lump sum or whether he or she elects to re-invest for the purposes of receiving a larger annual or monthly pension, the amount the member would have been entitled to receive if he or she had elected to take the maximum cash payment is the amount to be taken into account in the calculation of the non-member’s share.
3.7.5 The vast majority of people who have married in community of property, and a significant number of people who have married with antenuptial contract excluding the accrual system, are not aware of the potential benefits that may have been due to a non-member of a pension or provident fund. It is therefore recommended that, regardless of the matrimonial property regime applicable to parties in a divorce action, the provisions relating to pension sharing should be applicable, save where the parties have excluded pension sharing in their antenuptial contract.
3.7.6 Section 11 of the proposed legislation would appear to be draconian- it would seem to exclude a benefit that may be applicable in the distribution or redistribution of assets which would normally be taken into consideration on divorce. If this is not the intention of the legislature, the section should be worded with more clarity.
3.7.7 The Society is in agreement with the principle of the Bill, but questions the wisdom of including “divorces” arising from unregistered marriages. Such marriages and such divorces do not have the sanction of the State.
3.7.8 The intention of the Bill is that the sharing of retirement fund benefits on divorce will not be dependent upon the matrimonial property system. However, marriages contracted between 1984 and the introduction of the new Act are expressly excluded. Whilst legislation should not be retrospective, it is thought that the Bill should apply to all marriages regardless of the regime.
3.8.1 Tswaranang commends the Commission on the initiative taken to address problems encountered with the current system of sharing of pension benefits on the dissolution of marriages. The Bill is a progressive step forward in its deeming of the legal consequences of the various matrimonial dispensations irrelevant in determining whether or not a person is entitled to share in a partner’s pension benefits when the marriage is dissolved. By making pension sharing possible, a woman who is not economically active and consequently not in a position to acquire her own pension scheme, is protected from being left destitute by her partner when the marriage is dissolved. However, Tswaranang is concerned that the ambit of relationships which can benefit from this new scheme is limited to traditional families. Relationships other than formal marriages, such as cohabitation relationships and same-sex relationships, have been excluded from this scheme. Tswaranang recommends that the scope and ambit of the Bill should be broadened to include these relationships so as to ensure the constitutionality if the Bill and to protect those who are most needy of protection.
3.8.2 Tswaranang recommends various amendments to the Bill, all aimed at extending the provisions of the Bill to partners in cohabitation and same-sex relationships. It is thus suggested that the definition of “divorce” should be replaced by a definition of “dissolution of the marriage” which is defined to include “the dissolution of a relationship of marriage by an order of court or in accordance with recognized customary or religious law and the dissolution of a relationship of cohabitation by agreement between the parties.”
3.8.3 The definition of “marriage” is to be replaced by a definition of “relationship” which should include “a relationship between people of opposite and same sex living together as husband and wife in a relationship of cohabitation”
3.8.4 It is further suggested that the definition of “non-member spouse” should be replaced by a definition of “member’s partner”.
3.9.1 The Coalition is a voluntary association of more than 74 lesbian, gay, bisexual and transgendered organizations in South Africa. The Coalition is mandated to work for legal and social equality for its members.
3.9.2 The Commission is urged to take cognisance of the diverse range of family relationships and structures within South Africa, including heterosexual couples, same-sex partnerships, polygamous marriages, and domestic partnerships between siblings such as two unmarried sisters living together and who owe each other a mutual obligation of support. The Commission’s attention is drawn to the decision in Fraser v Children’s court of Pretoria North 1997 (2)SA 261 where it is stated that family law can no longer be based on simplistic distinctions between married and unmarried people because in modern society stable relationships between unmarried parents are no longer exceptional. Attention is further drawn to the decision in Harksen v Lane NO and others 1998(1)SA300(CC) where the majority of the court expressed the view that discrimination on the basis of marital status touches the essential dignity and worth of the individual.
3.9.3 The Coalition endorses the view that the criteria for any relationship, married or unmarried, should take into account the personal and proprietary consequences of any relationship, be they married or unmarried, heterosexual or same-sex. There can be little doubt that the framers of the Constitution aimed to recognize the worth and dignity of all human relationships based on freedom, equality and dignity.
3.9.4 Family law has traditionally failed to keep pace with changing social realities. The failure to recognize and support other than conventional marriages has created substantial uncertainty regarding the rights and obligations of individuals in non-conventional relationships. The exclusion of gays and lesbians from marriage and the absence of legally recognized alternatives has left many couples unable to define their relationships as they choose and has lead to unfair treatment. Such exclusions clearly constitute discrimination on the grounds of both sexual orientation and marital status.
3.9.5 Apart from fulfilling constitutional obligations, the inclusion of same-sex couples in the proposed legislation will guide the State and all and all providers of pension schemes in promoting diversity and tolerance in society because it eliminates unfair discrimination which contributes to general social conflict. The State has a legitimate interest in developing pension sharing in a just, fair and equitable manner among diverse family relationships including lesbian and gay families, because such a policy will ensure that the overburdened social security and assistance programs would reach poorer families in all their diversities.
3.10.1 Professor Sonnekus approves the approach that pension sharing ought to be regulated by separate legislation and not merely by way of a few obscure provisions in the Divorce Act. He also approves the approach of discarding the idea whereby pension interests were in the past merely regarded as forms of assets in respect of which the ordinary rules relating to matrimonial property apply. The new approach of dividing or splitting pension benefits is in his view the correct one. It is in accordance with the objectives of pension schemes and pension expectations.
3.10.2 A criticism leveled at the Bill by professor Sonnekus is that it does not make provision for compulsory pension preservation. He lays stress on the disadvantages of the present practice in terms whereof accumulated pension benefits (or at least part of such benefits) are available to a member on the termination of employment or membership of the fund. Such benefits are often wasted instead of applying them for retirement purposes. Legislative intervention in this regard is in his opinion urgently required.
3.10.3 Professor Sonnekus is opposed to the idea embodied in clause 2(2) of the Bill that spouses may in their antenuptial contract exclude the sharing of pension benefits between them in the event of their divorce.
3.10.4 If polygamous marriages are recognized for purposes of pension sharing, the formulae provided for on the Bill will have to be adapted. Professor Sonnkus agrees that same-sex relationships should not at this stage be recognized for purposes of pension sharing.
3.10.5 The events upon which a pension becomes payable should not in respect of a non-member spouse be linked to those events in respect of the member. Once a division or splitting of benefits has been effected, the entitlement of the non-member spouse to any benefit must be determined in terms of the rules of the fund irrespective of any option exercisable by the member.
3.11.1 Mr Wright views the Bill as a first draft which needs refinement. In his view the limited membership of the non-member spouse of the member’s retirement fund after a splitting of benefits has been effected, will create problems and uncertainties. He also points out that the Bill does not make provision for multiple spouses of a member nor does it recognize same-sex partners.
3.11.2 In Mr Wright’s view, the Bill seems to be far more complex than the existing law and it will create a feeding ground for dispute and litigation. It should be seen as starting point for discussion rather than a finished product.
3.12.1 Kobus Hanekom, Senior Manager, E B Legal Consultancy and member of the informal work group, took the initiative to organize two seminars on the splitting of pension benefits on divorce. The seminars were sponsored by the Institute Of Retirement Funds and were held at Johannesburg on 10 November 1998 and at Cape Town on 11 November 1998. Each seminar was attended by some 30 persons, mostly lawyers and other persons practising in the retirement fund industry.
3.12.2 Although divergent views were expressed at the seminars, the majority of attendants at the Johannesburg seminar appeared to find the proposed legislation too complex and called for its simplification. They suggested that improvements should rather be effected to the existing law than to introduce an entirely new law. They suggested that the clean break on divorce principle should be promoted as far as possible. Many were also opposed to the idea of separating retirement fund benefits from other matrimonial property. They were of the view that many of the perceived “unfair” provisions of the existing law could be avoided by adequate division of matrimonial property. There were, however, also those who supported the proposed legislation.
3.12.3 The attendants at the Cape Town seminar were generally more in favor of the proposed Bill, although most of them also had difficulty with the complexity of the new provisions. It was, however, conceded that an equitable division of pension benefits does not lend itself to simple legislation. As one attendant remarked, “Good legislation should be based on principle rather than expediency. One should strive for ways and means of overcoming the problems and arguments relating to administration costs, rather than deviate from the principle.”
3.13.1 In view of all the comments received and the views expressed at the seminars, the Bill was redrafted. It was again considered by the informal work group referred to above. The Bill was further refined and eventually approved by all the members of the work group.
[13] Discussion Paper No 77
[14] At the time of the publication of the Discussion Paper, the Recognition Of Customary Marriages Act, 1998 had not yet been passed by parliament.
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