CHAPTER 1

1. Background

1.1 The question of the division of pension benefits upon the divorce of spouses was investigated by the South African Law Commission some twelve years ago. ^[1] At the time no provision existed in our law in terms of which a divorced spouse had any claim to any portion of the retirement fund benefits of the spouse from whom he or she is divorced the Commission recognized that the retirement fund benefits of a member of a retirement fund form an important part of the member’s assets, even though those benefits may not be immediately realizable. The member’s right to such benefits was referred to as the member’s “pension interest”. It was further recognized that the spouse of a member of a retirement fund has a direct interest in the member’s pension interest and that this interest ought not to be terminated summarily be the divorce of the spouses. It was therefore recommended that for purposes of the division of the assets of spouses upon their divorce the pension interest of a spouse who is a member of a retirement fund must be deemed to be part of his or her assets, thus affording the non-member spouse an opportunity to share in the retirement fund benefits of the member spouse to the extent that the applicable matrimonial property dispensation allows the sharing of the assets of the spouses^[2].

1.2 In order to effect a division of the assets of the spouses upon their divorce it is necessary that the value of the pension interest of a member of a retirement fund should be readily ascertainable on the date of the member’s divorce. If the divorce occurs before benefits become payable in terms of the rules of the fund concerned, the true value of the member’s pension interest as at the date of the divorce would in many instances have to be determined actuarially with regard to the contingencies which determine the payment of those benefits. The Commission was of the view that this would be too costly and time-consuming to be a practical solution. It was therefore decided that the value of the pension interest should be fixed at the amount that would have been available to the member if he or she had resigned on the date of the divorce, or in the case of a retirement annuity, the total of the member’s contributions to the fund as at the date of the divorce, plus interest thereon at the prescribed rate. ^[3]

1.3 The Commission considered the question whether the courts should be empowered to make an equitable division of the pension interest as such in every case. The Commission, however, saw no justification for treating the pension interest differently from any other asset of the parties. The Commission was of the view that such a differentiation would run counter to the essential features of the various matrimonial property dispensations.^[4]

1.4 Because the pension interest is a deemed asset which would not be available for division between the parties on their divorce, the Commission was of the opinion that in most instances the non-member spouse’s share of the pension interest would be paid in the form of other available assets. Such compensatory asset could consist in the form of the cession of a policy equal to the value of the non-member spouse’s share of the pension interest, or the transfer of a sum of money or some other asset to the non-member spouse.^[5] The Commission recognized that in some instances it might not be practical to make a compensatory asset available to the non-member spouse. Provision was therefore made that a court may make an order that a retirement fund must pay the non-member spouse’s share of the retirement fund benefits direct to the non-member spouse when the benefits become payable under the rules of the fund. ^[6]

1.5 The Commission’s recommendations were embodied in the Divorce Act, 1979, via the Divorce Amendment Act, no 7 of 1989.

1.6 The provisions for the sharing of retirement fund benefits on divorce as provided for by the abovementioned legislation proved to be unsatisfactory in several respects. Representations in this regard led to a further investigation by the South African Law Commission. The Commission’s second report, under the title : The Division Of Pension Benefits On Divorce, was brought out in March 1995. In paragraph 4.1.1 of this report the Commission makes it clear that its second investigation was not aimed at reviewing the law relating to pension sharing, but merely at solving particular problems that have been identified.

1.7 The Commission’s recommendations involving legislative changes emanating from its second investigation are summarized in paragraph 4.3 of the 1995 report and are set out in the Bill which forms Schedule A of that report. These recommendations relate mainly to the extension of the definition of “pension interest” so as to clarify certain obscurities and to provide for matters not covered by the existing definition. It is further made clear that an order deferring a non-member spouse’s share until the member’s benefits become payable, should be resorted to only if the court is satisfied that the non-member spouse cannot be compensated satisfactorily in any other manner in respect of his or her share of the member’s pension interest. It is also made clear that an amount payable to a non-member spouse by way of deferred payment in terms of an order of court may not exceed the amount payable in a lump sum in terms of the rules of the fund concerned.

1.8 One of the main objections to the existing provisions is that no provision has been made for the avoidance of the effects of inflation on the non-member spouse’s share where that share is payable when the member’s benefits become payable. The Commission again gave consideration to the desirability of making provision for the addition of interest to the non-member spouse’s share but decided against it. The reasons given by the Commission are, firstly, that it would be unfair to the member spouse who would have to pay the interest, and secondly, because an order for the deferred payment of the non-member spouse’s share ought to be made only as a last resort if that spouse cannot be compensated satisfactorily in any other manner.^[7]

1.9 The Commission was urged to investigate the splitting of retirement annuities so that part of the reserve value could be transferred to a new annuity in the name of the non-member spouse.^[8] The Commission was, however, of the view that the splitting of retirement annuities is a matter which is connected with the reform of the law relating to pensions as such and that it ought to be addressed by the pensions industry if necessary. ^[9]

1.10 It was also suggested to the Commission that because of the nature and purpose of a pension, the pension interest of a member ought to be divided between spouses separately from their other assets. The Commission, however, preferred the more practical approach which promotes a clean break between the spouses and probably requires much less administration and would also be less costly than the proposed division of the pension interest.^[10]

1.11 The Life Offices Association and the Institute of Retirement Funds expressed the view that the changes proposed by the Commission at the time could be accepted by way of interim measures, but the unsatisfactory and inequitable way in which the non-member spouse’s share of the member’s pension interest is determined remains a source of great dissatisfaction. It was suggested that in the long term a more equitable solution should be developed, even though it may require fundamental changes to the current pension practice.^[11] In view hereof the Minister of Justice did not proceed with the promotion of the legislation proposed by the Commission, but referred the matter back to the Commission so that the necessary review could be undertaken.

^[1]See Commission’s report on the Investigation Into The Possibility Of Making Provision For A Divorced Woman To Share In The Pension Benefits Of Her Former Husband, October 1986, herein referred to as the 1986 report.

^[2]Par. 6.4 of 1986 report.

^[3] Pa r. 6.9 of 1986 report

^[4] Par. 6.4 of the 1986 report

^[5] Par. 6.18 of 1986 report

^[6] Par. 6.20 of 1986 report

^[7] Par. 4.2 of 1995 report

^[8]Ar. 3.1,10.3 (d) of 1995 report

^[9]Par. 2,20 of 1995 report

^[10] Par. 2.3.19 of 1995 report

^[11] Par. 3.1.10 of 1995 report

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