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Setting the record straight

06 November 2007 Gareth Stokes

Our recent article on the Pension Funds Adjudicator, Momodupi Mohlala’s landmark determination “that the new amended provisions [as promulgated in the Pension Funds Amendment Bill] applied to all divorces whether concluded prior to or after 13 September 2007,” stirred up a hornets nest.

We have to accept responsibility for this as we published a knee-jerk reaction to the news that Old Mutual did not believe the provisions applied retrospectively. We felt the company’s stance that fund administrators and intermediaries seek declaratory guidance from the High Court in individual cases amounted to delaying tactics.

The truth is the matter is more complex than we initially thought – and we have to thank the many readers who wrote in to set the record straight. In today’s newsletter we focus on Old Mutual’s response to the article, and share some of our reader’s views.

Old Mutual takes strong exception…

“We take exception to the reference by FAnews Online 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,” begins the Old Mutual release.

Old Mutual says that their interpretation (and that of several lawyers) is that the Pension Funds Act fails to bear out the legislators’ intentions. So while they are sympathetic to the situation that non-member spouses find themselves in, they believe the current legislation applies to awards made prior to 13 September 2007, and will continue to advise funds to exercise their fiduciary duty to fund members.

Until further legislation is passed (and there is no guarantee this will happen) Old Mutual has to consider its options. These, says Old Mutual, include “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.” Click here for Old Mutual’s full response.

Legislators and not insurers to blame

After reading Old Mutual’s submission and the various responses from our readers we must concur that the legislation is incomplete. The following excerpts from reader responses are a good indication of the consensus:

Reader 1: “I am disappointed that the legislators have not looked at all the corners, when putting down the amendment, surely they should have done that or don’t they have enough resources?”

Reader 2: “I think all in the industry would welcome changes to legislation to correct this situation, but until that happens, fund trustees will have difficulty in applying the provisions of the divorce amendment.”

More care required before making determinations

A number of readers also felt it was unwise for the Pension Funds Adjudicator to have issued such a determination in light of the legislative situation. These views include:

Reader 3: “Sadly this is another case where the ruling and its implications were NOT thought through properly, nor investigated.”

Reader 4: “This new legislation - as with most of the Pensions Fund Adjudicator’s latest rulings - will have unintended consequences which, in hindsight, were entirely foreseeable.”

Taking it on the chin

And we deservedly fielded a few tough comments for bashing Old Mutual.

Reader 5: Your attack on Old Mutual is unwarranted (this time).  It has nothing to do with the unwillingness to part with money. In no system can legislation arbitrarily be interpreted to meet some intangible spirit of the law.
 
Reader 6: “I despise the attitude at which you made reference to Old Mutual and their stance on the amendment of this Act.”

Reader 7: “Your comment that “The Pension Funds Amendment Bill is clearly intended to be applied retrospectively” is astounding, if one considers that the Legislature saw it necessary to specifically declare some sections to have retrospective effect.”

Our readers don’t pull any punches when we get things wrong. Click here to read detailed reader responses.

Editor’s thoughts:
For the time being, non-member spouses hoping to receive their portion of member funds awarded in divorce settlements will have to bunker down while the legislators and courts flesh out the details. We would love to hear further comments on the matter – particularly if you have taken the time to read both Old Mutual and our reader’s responses. Send your comments to gareth@fanews.co.za

 

 

Comments

Added by GJ, 08 Nov 2007
When I read the article the question that came to my mind is whether the pension fund adjudicator has any powers (which I doubt) to decide that a court decision is retrospectively in force and I would like to have clarity about this. the problem is that this information is freely distributed and everybody just accept it as correct creating a lot of false hope to people.
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Added by TM, 08 Nov 2007
I wish to argue from the point that pension benefits are for retirement and further that this country has a bad record as far as pension savings are concerned. One of the reasons for the problem is interruptions caused by resignations and the use of funds for other purposes when paid out. Monthly savings needs time to grow. It would be interesting if an actuary could investigate the influence of the divorced spouse’s withdrawal on the end value of the fund. Wouldn’t they both be better off had the fund being left intact till normal retirement date? Was the Pension Funds Adjudicator responsible when she ruled that the spouse has a choice to take the cash available instead of transferring it to another fund?
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Added by FP, 08 Nov 2007
I would be very surprised if divorced non-member spouses out there have not yet formed the apprehension that administrators and retirement funds are deliberately applying delaying tactics in respect of the payment of their portions of benefits due to them in terms of divorce orders. Be that as it may, I am not sure if most people are aware that when the enabling Pension Funds Amendment provisions were passed into law, the taxation issues were and still are not clarified. In simple terms: the PF Act deems an active member to have withdrawn from the Fund as at the date of divorce. This means that administrators must then apply to SARS (provided the divorce order is perfectly valid and the non-member spouse has made an election in writing of how they would prefer their benefits to be dealt with (paid in cash/transferred to their own retirement funds) for a tax directive. At this stage the income tax laws do not provide how this benefit should be taxed, ie whether the entire amount as at the date of divorce or the portion that is due to the non-member spouse would be subject to tax; if so, whether this is taxable in the hands of the member or non-member spouse (if non-member spouse is not eligible to be taxed this would obviously create problems for SARS). However, we are aware that SARS is currently proposing the amendment of the provisions, in order to clarify the taxation issues. The problem is that Parliament’s legislative program is over for this year, meaning that such proposals can only come before Parliament during the course of 2008. Ideally therefore, funds and administrators may only be able to pay out non-member spouses during the latter half of 2008; provided the Old Mutual case – if it goes to court – would have been resolved by then. So yes, in the meantime funds and administrators might have to prepare themselves to deal with Adjudicator complaints lodged by unhappy non-member spouses, complaining that funds and administrators are refusing to pay out their legitimately entitled and accrued benefits!
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