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CHAPTER 4

4. Conclusions and recommendations

4.1 The Commission remains of the view that it is desirable to make provision for the division of retirement fund benefits in specific legislation, separate from the present property provisions of the Divorce Act, 1959. The Commission strives to achieve an equitable division of retirement fund benefits accumulated during the subsistence of a marriage. In principle each spouse should have a right to share in the retirement fund benefits which have accumulated in respect of the other spouse during the subsistence of the marriage and this principle ought to be embodied in the proposed legislation. Spouses should nevertheless remain free to exclude this right contractually or to limit its application or to waive the right. These broad outlines or objectives are stated in clause 2(1), (2) and (3) of the proposed Bill.

4.2 The existing provisions for the division of pension benefits approach the matter from the premise that pension rights are matrimonial assets which ought to be divided between spouses in accordance with the matrimonial property dispensation applicable to the marriage. Since pension rights are, however, often dependant upon contingencies and are not always realizable at he time of a divorce, the division of these benefits is effected by way of the exchange of other assets in lieu of the pension rights. Only where this is not possible, provision is made for the payment of the non-member spouse’s share out of the proceeds of the retirement fund benefits when the benefits become payable, and the obligation is placed on the fund concerned to make the payment. In the Commission’s view, this approach does not give proper expression to the underlying purpose of pension schemes, namely to make provision for one’s old age, nor does it always result in the equitable division of pension rights on the divorce of spouses. The Commission proposes a scheme whereby the retirement fund benefits as such are divided, either at the time of the divorce, or at a future date or the occurrence of some future event determined by the rules of the fund. Spouses should, however, remain free to exchange other assets in lieu of a right to retirement fund benefits. This is Provided for in clause 2(4) of the proposed Bill.

4.3 Although the formulae proposed by the Commission for the division of the various types of retirement fund benefits between spouses on their divorce are aimed at achieving equitable results, it is perhaps possible that the personal circumstances of spouses might necessitate departure from the said formulae in certain respects. For this reason spouses are permitted to agree in writing to share retirement fund benefits in a proportion different from that which is prescribed by the Act.

4.4 It is appreciated that there may be instances where the information which is necessary for the application of the formulae prescribed by the Act will not be available. It is therefore deemed necessary to provide that in such circumstances use may be made of approximate figures, having regard to the objectives of the Act.

4.5 One of the main objections to the legislation proposed by the Commission is that it is too complicated and that even lawyers and others involved in the pension industry would find it difficult to understand and to apply the proposed provisions. It is notable that similar objections have been raised against similar legislation that have recently been introduced in some of the jurisdictions referred to in the comparative survey summarized in Chapter 3 above. The fact of the matter is that the equitable division of unmatured retirement fund benefits is not always a simple matter that lends itself to uncomplicated legislation. The choice lies between, on the one hand, detailed and relatively complex provisions to achieve the objective of a fair and equitable division of benefits in the event of the divorce of spouses, and on the other hand, more simple and straightforward provisions which would, however, often fall short of the desired aim. The Commission has opted for the first choice. It should be noted that this is also the direction taken by most of the countries covered in the comparative study.

4.6 The basis of the proposed legislation is that retirement fund benefits accumulated in respect of a member of a retirement fund during the member’s marriage, ought to be shared equally between the member and his or her spouse in the event of their divorce.

4.7 It is necessary to distinguish between matured and unmatured benefits and between benefits in a defined contribution scheme and benefits in a defined benefit scheme. By matured benefits is meant that the retirement date or other payment event in respect of the member of a retirement fund has already arrived, and unmatured benefits are benefits in respect of which such event lies in the future. Defined contribution schemes, also referred to as money purchase schemes, are schemes in respect of which the benefits payable are dependant mainly on contributions made to the retirement fund by or on behalf of the member of the fund and on investment returns on such contributions. Defined benefit schemes are schemes where the benefits are dependant not merely on contributions by the member and the employer, but also on length of service and salary levels of the member.

4.8 The division of benefits in a defined contribution scheme is a relatively simple exercise because the value of the benefits are readily ascertainable at any time. It is also a simple exercise to split the benefits at the time of the divorce of the spouses into the shares to which each spouse is entitled. In order to effect a clean break between the spouses, it is proposed that the spouses’ shares should be separated and the non-member spouse’s share should either be retained by the member’s retirement fund in a separate account or should be transferred to another retirement fund for the benefit of the non-member spouse. The transfer of the benefits would, however, be subject to the rules of the fund in respect of the vestment of benefits. What is important to bear in mind, is that the non-member spouse’s share of the benefits will not be available to him or her as a cash benefit, but only as a deferred pension, payable on the retirement events prescribed by the rules of the fund. In the event of the death of the non-member spouse before his or her share of the benefits become payable, the fund must pay to the estate of the deceased non-member spouse the amount which would have been available for transfer to another fund at the date of the death of the non-member spouse.

4.9 In the case of retirement fund benefits embodied in a defined benefit scheme, the division of benefits between spouses become somewhat more complicated because there are several contingencies which may play a role.

4.9.1 An unmatured defined benefits scheme has no cash value, other than the withdrawal value in the event of the member leaving the service of his or her employer before reaching the retirement age. In terms of the existing legislation all that the non-member spouse is entitled to is a share of the withdrawal value of the member’s benefits, which in most cases is a very insignificant amount.

4.9.2 In terms of the proposed legislation the non-member spouse has a right to a share of the member’s retirement fund benefits on the date when those benefits become payable in terms of the rules of the fund concerned. The non-member spouse’s share is based on the duration of the marriage, but salary increases of the member and improvement of benefits are taken into account in favor of the non-member spouse. The formula in clause 4(1) of the proposed Bill is not really as intricate as it appears on the face of it. It is designed to cover all the contingencies that may have to be taken into account but all the factors would not necessarily figure in each and every instance where a non-member spouse’s share of the benefits have to be determined.

4.9.3 Clause 4(3) of the proposed Bill deals with the situation where the non-member spouse dies before the member’s retirement fund benefits become payable. It was initially proposed that the amount which falls into the estate of the deceased non-member spouse should also be determined at the date when te benefits become payable. This would, however, necessitate a delay in the finalization of the estate of the deceased non-member spouse. It is therefore proposed that a cash value representing the value of the withdrawal benefit at the date of the death of the non-member spouse should be paid to the deceased’s estate.

4.9.4 If the divorce takes place when retirement fund benefits are already payable or being paid to the member, the non-member spouse becomes entitled to a share of those benefits based on the duration of the marriage and, in the case of a polygamous marriage, on the number of spouses who have to share those benefits. The non-member spouse’s share is payable to him or her direct from the fund.

4.10 The Commission has been urged to extend the proposed legislation so as to cover relationships in the nature of marriage which are at present not recognized as marriages. It was also endeavored to persuade the Commission that a failure to apply the proposed provisions also to same-sex relationships would render the legislation unconstitutional on the ground of unfair discrimination on grounds of sexual orientation.

4.10.1 The Commission is, however, of the view that the sharing of retirement fund benefits between spouses on their divorce should for the present be limited to spouses recognized as such in terms of existing law. The Commission is engaged in projects under which the review of the Marriage Act, 1961, the recognition of religious marriages, the legal consequences of cohabitation and similar relationships are being investigated and considered.

4.10.2 Very recently customary marriages have, at the initiative of the Commission, become recognized as marriages in terms of the Recognition Of Customary Marriages Act, 1998. Such marriages would therefore fall within the ambit of the proposed provisions. Further developments in the field of family law might extend the pension sharing provisions to other types of relationships in the near future.

4.11 As appears from Chapter 3 above, one of the main objections to the Commission’s proposals is that the division of retirement fund benefits on the basis proposed by the Commission would involve retirement funds in a great deal of administration which in turn would bring about extra costs.

4.11.1 It is appreciated that the proposed provisions will require retirement funds to keep certain records in the event of the divorce of a member and in some instances to open accounts in respect of non-members. There are also matters such as notices to and correspondence with non-members. It seems inevitable that certain costs will have to be absorbed by retirement funds. There are, however, other costs that could be attributed to the member or the non-member spouse. Provision is made in clause 7 of the proposed Bill for regulations prescribing, inter alia, the costs that may be recovered from the member or the non-member spouse.

4.11.2 It is submitted that with the aid of modern technology the extra administration and costs would not be an excessive burden upon retirement funds. In so far as administration and costs are, however, unavoidable, it is the price that have to be paid for a better and more equitable system for the division of retirement fund benefits between spouses in the event of the breakdown of their marriages.

4.12 In the working paper published by the Commission the view was expressed that the rules of the matrimonial property law are unsuitable for the equitable division of retirement fund benefits between spouses on their divorce and the reasons upon which this view was based were set out in the working paper. Most of the respondents who reacted to the Commission’s proposals supported this view. There were, however, also those who were of the opinion that it would be much simpler to treat retirement fund benefits simply as matrimonial property and let the applicable property system take care of the division of the assets of the spouses. The Commission remains convinced that the only manner in which retirement fund benefits can be shared equitably between spouses in the event of their divorce is to separate such benefits from the other assets of the spouses and to make provision for the sharing of those benefits on the basis of the duration of the marriage as provided for in the proposed Bill. For this reason it is recommended that section 7(7) of the Divorce Act, 1979 (which provides that in the determination of the patrimonial benefits to which the parties to a divorce action may be entitled, the pension interest of a party shall be deemed to be part of his assets) should be repealed. As consequential amendments the definitions of “pension fund”, “pension interest” and “rules” in section 1 of the Act, the rest of section 7(7) and section 7(8) of the Act should also be deleted. This is provided for in clause 9 of the proposed Bill. Furthermore it is necessary that it should be explicitly provided that retirement fund benefits do not form part of the joint estate of spouses married in community of property and are also excluded from the accrual of the estate of a spouses who are married in accordance with the accrual system. This is provided for in clauses 8 and 11 of the proposed Bill.

4.13 The Commission also makes the following recommendations:

4.13.1 It is recommended that the proposed provisions should be applicable to spouses whose marriages are dissolved by divorce or annulment after the commencement of the proposed legislation. Where divorce action or annulment proceedings have been instituted before the commencement of the proposed provisions the law applicable before such commencement should apply.

4.13.2 It is recommended that the provisions of the proposed legislation should not be applicable in respect of spouses who married before the commencement of those provisions if they have effected the complete separation of their property by way of an antenuptial contract which excludes community of property and of profit and loss and the accrual system. Such spouses should nevertheless have the option of making the said provisions applicable to them by written agreement. Spouses who marry after the commencement of the proposed legislation and who wish to effect a complete separation of their property and also to exclude the sharing of retirement fund benefits between them as contemplated in the proposed legislation will have to embody a specific exclusion to this effect in their antenuptial contract.

4.13.3 It should be noted that spouses who married after the Commencement of the Matrimonial Property Act, 1984(1November 1984), and who have excluded community of property and of profit and loss and the accrual system are also excluded from pension sharing under the existing law. In fact, no sharing of any assets take place between them on their divorce. This matrimonial system is deliberately chosen by many elderly people who marry for a second or subsequent time and where both spouses have sufficient means of their own. It is submitted that there is no need to extend the provisions of the proposed legislation to such spouses, unless they do so contractually.

4.13.4 In respect of spouses who married out of community of property and of profit and loss before 1 November 1984 the court granting a divorce has the power to order that assets be transferred form one spouse to the other in narrowly defined circumstances. Such an order may only be made on the application of one of the parties and in the absence of agreement between the parties regarding the division of their assets. The court must furthermore be satisfied that it will be equitable and just to make such order by reason of the fact that the party in whose favor the order is made has contributed directly or indirectly to the maintenance or increase of the estate of the other party during the marriage. The court must take into account the extent of the contribution made by such party, the means and obligations of the parties, any donation made by one party to the other during the marriage or which is still owing in terms of the antenuptial contract, any order granted by the court in respect of the forfeiture of patrimonial benefits, and any other factor which in the opinion of the court should be taken into account. It is submitted that the entitlement of a party to retirement fund benefits under a retirement scheme would be a factor which must be taken into account. It therefore seems unnecessary to treat the marriages under discussion differently from those referred to in paragraph 4.13.3 above.

4.13.5 The Commission’s recommendations for the reform of the law relating to the division of retirement fund benefits on divorce are embodied in the Bill which forms Annexure B of this report.