Citing a pension fund as a party to divorce proceedings

Lize de la Harpe of Glacier by Sanlam.

As well all know, there must be an order against a fund before any portion of the member’s pension interest can be paid out to the non-member spouse. This week we look at why it’s not necessary to cite the fund in question as a party to the divorce proceedings.

First things first – an order for the payment of pension interest

In terms of section 37A of the Pension Funds Act, no pension benefit payable by a pension fund organisation may be reduced except in the limited instances set out in the section itself.

The aim of section 37A is to protect a members’ pension benefits from his/her creditors, and it expressly limits a fund’s ability to deduct amounts from a members’ pension interest. As a general rule a fund may only make a deduction from a members’ benefit if such a deduction is allowed in terms of the Pension Funds Act, the Income Tax Act and the Maintenance Act. This general rule is, however, subject to the exceptions set out in section 37D.

One of these exceptions relates to divorce. Section 37D(1)(d)(i) states that a registered fund may deduct any amount assigned to a non-member spouse in terms of a divorce order granted in terms of section 7(8)(a) of the Divorce Act (or any order made by a court in respect of the division of assets of a marriage under Islamic law).

Section 7(8) of the Divorce Act, read together with section 37D(4)(a) of the Pension Funds Act, sets out certain conditions with which a divorce order must comply in order for the fund concerned to be able to give effect to a non-member spouse’s claim.

These conditions can be summarised as follows:

1. the order must specifically provide for the non-member spouse’s entitlement to a “pension interest” as defined in the Divorce Act;
2. the relevant fund which has to deduct the “pension interest” must be named or identifiable; 3. the order must set out a percentage (%) of the member’s “pension interest” or a specific amount; and
4. the fund must be expressly ordered to endorse its records and make payment of the “pension interest”.

Pension Fund Adjudicator determination

In Taljaard v Haggie Pension Fund the complainant and Mr Taljaard had been married in community of property and Mr Taljaard was a member of Haggie pension fund. On 23 June 1994, the parties were divorced in terms of a settlement agreement which was made an order of court. The settlement agreement provided for (inter alia) 50% of Mr Taljaard’s pension interest as at the date of the divorce. In about June 1999, Mr Taljaard transferred from Haggie pension fund to the AFREF, however, Haggie pension fund failed to inform the AFREF of the endorsement and its consequent liability in terms of the High Court order. Accordingly, the AFREF did not endorse its records to give effect to the said deduction. When the member resigned in April 2001 the AFREF paid his withdrawal benefit without effecting the deduction of the pension interest as awarded (and due) to the complainant. The said complaint was then lodged.

Ms Renton on behalf of Haggie pension fund and the AFREF made various submissions as regards why the funds were not liable – one of which was that the laws of natural justice prescribe that all parties against whom an order is made must be given an opportunity to be heard, which had not occurred in this matter as her clients were not joined as defendants in the divorce proceedings.

The Adjudicator held that there is no need to join a pension fund in divorce proceedings - it is clear on a proper reading of sections 7(7) and 7(8) of the Divorce Act that there is no such need. On the contrary, these provisions empower the court to make an order for the transfer of a member’s pension interest to the non-member spouse and for the endorsement on the records of the relevant fund to give effect to the transfer. All the fund is required to do is to perform an administrative function of endorsing its records and effecting payment when due.

Conclusion

There is no need to join a pension fund in divorce proceedings – as long as the order meets the necessary requirements (summarised above) payment will be made in accordance with the non-member spouse’s election.