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Groundbreaking precedent setting ruling concerning the payment of divorce benefits

04 October 2007 Pension Fund Adjudicator

The Pension Funds Adjudicator today issued a landmark ruling concerning the payment of divorce benefits, which will have a material impact on thousands of divorced spouses awaiting payment of the divorce benefits from various retirement funds.
 
The ruling was made in the matter of Cockcroft v Mine Employees Pension Fund, where the complainant was the former spouse of Mr Cockcroft, who was a member of the fund until 28 January 2002, at which point he ceased paying contributions but remained a non-contributory member of the fund in terms of its rules.
 
On 7 July 2003, the complainant and Mr Cockcoft were divorced in terms of an order handed down by the Southern Divorce Court.  The divorce order provided that the complainant shall be entitled to 50% of Mr Cockcroft's pension interest in the fund and furthermore this amount must be paid to her on the finalisation of the divorce proceedings or when the benefit accrues, whichever event occurs first. The fund refused to pay the benefit and argued that in terms of the then applicable legislation, the benefit can only be paid once the benefit accrues to the principal member that is when the benefit is paid to Mr Cockcroft. As the benefit has not yet been paid to him, the complainant is not entitled to the divorce benefit.
 
The Adjudicator firstly held that in terms of the law as it stood prior to 13 September 2007, a Court granting a divorce order may make an order that a share of the pension interest be allocated to the non-member spouse and such amount should be paid by the fund to the former spouse, when any pension benefits accrue in respect of the pension fund member. The effect of this statutory provision was that the non-member spouse can only receive payment of the pension interest when the benefit accrues to the member spouse. As to when the benefit accrues to the member, this is normally determined in terms of the rules of the fund and is usually linked to the termination of the employment contract (such as retirement, resignation, retrenchment, dismissal etc). Thus, in light of Mr Cockcroft still being a member of the fund and to date not having received his benefit, in terms of the provisions of the Divorce Act, the complainant was not entitled to the payment of a divorce benefit.
 
However, with effect from 13 September 2007, the legislature sought to address this problem by amending the Pension Funds Act and in particular inserting a new sub-section in terms of which, with regard to the payment of divorce benefits, the pension benefit is deemed to accrue to the member on the date of the Court Order. The Adjudicator held that the effect of the new section is to notionally accelerate the date of accrual of the benefit to the member spouse and in turn the date on which the divorce benefit accrues to the non-member spouse. The result is that the divorce benefit accrues to the non-member spouse on the date of divorce. Thus, from this date onwards, the non-member spouse is entitled to have the divorce benefit disinvested from the fund portfolios and paid (or transferred to another fund) to him/her.
 
The Adjudicator then dealt with the vexed question of whether the amended provisions applied to divorces concluded prior to 13 September 2007. The Adjudicator after examining various High Court cases and the effect of retrospective legislation on vested rights, held that the intention of the legislature was clearly to rectify the previously unfair position of non-member spouses in respect of the payment of divorce benefits. She was satisfied that the new amended provisions applied to all divorces whether concluded prior to or after 13 September 2007.
 
The Adjudicator ordered the complainant to exercise her option terms of section 37D(1)(e)(iii), and to notify the fund whether she intended to receive a cash benefit or to transfer the benefit to another pension fund and furthermore the fund was ordered to implement her election within 60 days of receipt of the complainant's election.
 
The significance of this ruling is that it effectively unlocks divorce benefits currently held in retirement funds in respect of non-member spouses awaiting payment of divorce benefits. The Adjudicator concluded that regardless of when the divorce order was issued, the new amended provisions (allowing non-member spouses to receive or transfer the divorce benefits upon the date of divorce) is applicable to all divorce orders containing a transfer of pension interest.

Click here to download the full ruling (PDF File 60 KB) 

 

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