Old Mutual’s response to the FAnews online - Divorce benefits

25 October 2007 Old Mutual

Old Mutual’s response to the FAnews online article  (Following the letter of the law) published on 22 October 2007

We take exception to the reference by FA News that we are not willing to comply with the spirit of the law and the implication by the publication that we are trying to hold on to pension assets of fund members to the detriment of divorced spouses of members of our funds.

The fact is that the Pension Funds Adjudicator’s ruling against the Mine Employees Pension fund has created uncertainty about the retrospectivity of the amendments to the Pension Funds Act.

The reality is that we have to comply with the law as it is drafted and our interpretation (and that of several other lawyers) is that the amendments to the Pension Funds Act do not bear out the stated intention of the legislators. We are of the opinion that the current legislation applies to divorce awards that took place prior to 13 September 2007.  It should also be borne in mind that a retirement fund owes a fiduciary duty to fund members not to pay any amounts from their retirement benefits unless sanctioned by law. A fund – and its administrator – cannot be expected to put itself into a position where fund members, who were divorced prior to 13 September 2007, might successfully be able to claim that the fund (and its administrator) have acted contrary to their interests and the law and have caused them to suffer a financial loss.

At Old Mutual, we do sympathise with non-member spouses who have had to wait for many years to access their share of benefits of the fund member and we have lobbied for a “clean break” principle for retirement fund interests on divorce for many years through various industry bodies.

We are therefore hoping that within a few months the legislation will be clearly and unambiguously amended to provide clarity.
Another stumbling block to the payouts of divorce awards to ex spouses of fund members is that the tax legislation has not yet caught up to the new Pension Funds Act amendments and there is a great deal of uncertainty regarding how the funds should apply the tax.  If the fund applies the tax provisions incorrectly, , the fund can be held liable either to SARS or the member for the incorrect or failed deduction of tax which results in either party’s rights being affected. The new Draft Revenue Laws Amendment Bill seeks to make amendments to the taxation of pension interests on divorce but this is not yet law.

The industry hopes that the tax changes will be promulgated simultaneously with the clarifying Pension Funds Act changes.

However, taking into account the fact that there is no guarantee that further legislative amendments will be made, and we want to be acting with a degree of certainty while awaiting the forthcoming amendments to legislation (if any), we are considering our options. One of these options is for us to obtain instructions from funds under our administration to approach the High Court for a declaratory order requesting guidance on how to apply the legislation.  Whilst we are doing more research into the matter, Old Mutual will not be able to entertain any claim for immediate settlement for non-member spouses who were divorced before 13 September 2007 until further clarification.

Non-member spouses who were divorced after 13 September 2007, wishing to claim their portion of the retirement benefit as specified in the Divorce Order, may contact the Old Mutual client service centre on 0860 50 60 70.

Comment by Rosemary Lightbody, Head of Product Solutions Legal – Old Mutual South Africa (OMSA).

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