Johannesburg – The end of a marriage can be a traumatic experience with wide-ranging social and financial implications. Lebona Khabo talks about entitlement when it comes to retirement savings
Depending on your matrimonial property regime, there may be a sharing of assets that you own individually or jointly when you get divorced.
One asset that may be included in this division is your retirement savings, which may have been accumulated over a long period of time.
A retirement fund is a longterm investment that is meant to take care of your financial needs once you stop working. Therefore, the applicable laws are intended to ensure that access to these benefits is restricted until you reach retirement age.
The Pension Funds Act (PFA) is highly prescriptive about when and how retirement benefits may be accessed by a member. What is your spouse entitled to? Before to 2007, a former spouse had to wait until a member left or became entitled to a benefit from the fund before they could claim a portion of the retirement benefit.
As a result, in many instances the non-member spouse would have to wait years to receive a share of the benefit.
What is pension interest?
Pension interest is a notional amount based on the benefit you would have received had you retired from the retirement fund on the date of divorce.
It is, therefore, calculated as at date of divorce and does not consider the duration of the marriage or whether you were married when you first became a member of the retirement fund.
Pension interest is defined in the Divorce Act, and a distinction is made between pension interest in a retirement annuity fund, and pension interest in any other retirement fund, such as a pension fund, provident fund, pension/provident preservation fund.
Pension interest is defined as follows:
Retirement annuity fund:
The total amount of a member’s contributions to the fund up to the date of the divorce, together with a total amount of annual simple interest on those contributions up to that date, calculated at the same rate as the prescribed rate of interest (3.5% + repo rate).
Retirement fund (excluding retirement annuity fund):
The benefits a member would have been entitled to in terms of the rules of that fund if his/her membership of the fund ended on the date of the divorce due to resignation.
It is important to be aware that a 100% pension interest deduction from a retirement annuity fund may not be the full value in the fund.
Furthermore, if a member has multiple accounts in a retirement fund, pension interest is calculated at fund level and not at account level.
Does pension interest apply to all matrimonial property regimes?
There are three different matrimonial property regimes in South Africa; marriage in community of property, marriage out of community of property without accrual, and marriage out of community of property with accrual.
The default if you marry without concluding an By Kabelo Khumalo Applications for short-term loans decreased by over a third during lockdown level 5.
A study by credit provider Wonga saw a 32% reduction in short-term loan applications during level lockdown 5.
A survey of over 8 000 respondents conducted by Wonga at the end of 2020 revealed that spending over the festive season was expected to be down 15% from 2019, with 56% of people having reported that they would spend less during festive season than they did in 2019.
James Williams from Wonga said that while loan application volumes have once again begun to approximate pre-Covid-19 levels, Wonga had noted changes in how South Africans planned to navigate their festive season.
“Notably, our survey further showed that as many as 22% of respondents planned on taking out a short-term loan to cover additional expenses, with 9% relying on credit cards. This is up 17% from for the same period in 2019,” he said. To manage expenses into 2021 – especially with the uncertainty surrounding both the introduction of new lockdown restrictions and the stability of the national economy – Wonga advises South Africans to consider building an emergency fund to help them plan for and manage unforeseen expenses or emergencies, such as being made redundant.
“Financial flexibility is the ability to manage expenses to make everyday life affordable. The best way to achieve this is to set up an emergency saving fund,” said Williams.
“An emergency fund is just that – for emergencies. Drawing up a list of criteria of when you plan to use your fund can help you manage your money and help you make decisions that will affect your future.”
Williams said there are easy tips consumers can use to create an emergency fund to future- proof finances.
Determine your needs:
Consider what your fund will be used for and try to save up to three months’ worth of income.
Create a savings plan:
Each antenuptial contract is a marriage in community of property.
In this regime, you and your spouse each own 50% of the assets and liabilities in the estate (joint estate), and upon divorce each spouse has a 50% claim against the other.
If you do not want to have a joint estate you must conclude an antenuptial contract, either with or without accrual. If without accrual, each spouse keeps their own assets and there is no claim against the other’s assets.
If accrual is included, at divorce, the spouse with the larger accrual must pay the difference between her/his accrual and the accrual of the spouse with the smaller accrual to the spouse with the smaller accrual.
A pension interest benefit is an asset for the purposes of the division of an estate. In terms of the Divorce Act, a retirement fund may only make a pension interest deduction in terms of a divorce order granted by a South African court.
The Divorce Act confirms that pension interest deductions do not apply to marriages entered into out of community of property excluding accruals that were entered into after November 1 1984.
You must have been married in community of property, out of community of property with accrual and out of community of property without accrual before November 1 1984.
If you are married out of community of property without accrual after November 1 1984, your spouse has no claim for pension interest from your retirement savings.
Khabo works for Allan Gray. The article was first published on the company’s website.
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