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This article discusses the unfortunate development in South Africa relating to married retirement fund members who are divorcing. It seeks to illustrate that the current legal framework allows these members to effectively prevent their spouses from sharing in their retirement benefits by fast-tracking the accrual of these benefits pending the divorce. This conduct raises serious practical questions relating to the regulation of the relationships between retirement funds and their members as well as how such relationships are impacted by members’ marital statuses.

Unfortunately, the legislature has not shown the appetite to investigate whether there is any prejudice that arises when retirement fund members move to access their retirement benefits during divorce proceedings. This legislative shortcoming was captured in CNN v NN [2023] 2 All SA 365 (GJ); 2023 (5) SA 199 (GJ) at para 18, where it was stated that there is:

‘… an important gap in the law regulating pension interests in South Africa. The term “pension interest” is technically defined in such a way as to characterise the contributions plus investments held by funds on behalf of their member as their benefits differently depending on events that entitle member spouses to claim these benefits. If the member spouse is entitled to receive his or her benefit any time before the divorce due to dismissal, retirement, retrenchment, or resignation as prescribed by the rules of his or her fund, this benefit is referred to as a pension benefit and does not constitute part of the member’s estate for as long as it is held by the fund. If the member receives the benefit during the marriage, such benefit will constitute part of his or her joint estate if married in community of property or growth of his or her estate if married with the accrual system’.

As was the case in CNN v NN, there have been instances where retirement fund members resign from their employment once divorce proceedings have been instituted against them to ‘protect their’ retirement benefits (see Elesang v PPC Lime Ltd and Others 2007 (6) SA 328 (NC) at para 11). It is also possible that the member spouse may exit his employment through retirement or retrenchment before the date of divorce (Collatz and Another v Alexander Forbes Financial Services (Pty) Ltd and Others (GJ) (unreported case no A5067/2020; 43327/2012, 10-2-2022) (Senyatsi J, Mahomed AJ and Amm AJ) at para 145 and MCM v MRM and Another (NWM) (unreported case no DIV 129/2012, 30-10-2014) (Hendricks J) at para 2). Irrespective of the exit event before the divorce, the member can ensure that ‘he’ reinvests the accrued benefit in such a way that it will not be regarded as a patrimonial benefit in his estate or joint estate if married in community of property. This challenge was observed by the South African Law Reform Commission which stated that the ‘… issue which has a serious impact on financially weaker spouses, who are generally women, is that the law currently allows retirement fund members to hide retirement benefits and take them out of reach of non-member spouses by converting pension benefits to living annuities’ (South African Law Reform Commission ‘Review of aspects of matrimonial property law’ Project 100E Issue Paper 41 (6 September 2021) 9.21).

In CM v EM [2020] 3 All SA 1 (SCA); 2020 (5) SA 49 (SCA) para 22, without adequately reflecting on the source of the money used to purchase a living annuity and where that money would have accrued to had the living annuity not been purchased, the Supreme Court of Appeal accepted that the capital and proceeds of the living annuity cannot be shared on divorce. However, without explaining how it came to this conclusion, this court held that the value of the future annuity payments from a living annuity constitutes an asset that can be considered when calculating an accrual (para 39(2)(b)). It is not clear what the position is when the divorcing retirement fund member is married in community of property. What is clear, however, is that such a member can lawfully prevent his retirement fund from paying his accrued retirement benefit pending divorce to his bank account where it can be frozen. He simply has to issue an instruction for the fund to purchase an annuity which will effectively prevent his spouse from claiming any portion of the accrued capital amount. The danger with this approach is that the interests of the non-member spouse at the time the retirement benefit accrues, is seldom considered. Courts do not assess whether retirement fund members’ unilateral act of purchasing living annuities amounts to depriving non-member spouses of their right to share in accrued benefits (C Marumoagae ‘Deprivation of Retirement Benefits on Divorce through Living Annuities in South Africa’ (2021) Journal of African Law 151 at 162). In CNN v NN, the court further observed that:

‘There is no adequate legal framework that allows non-member spouses to claim portions of these benefits directly from the funds when member spouses exit their funds before divorce. This has allowed member spouses, as is the case in this matter, to resign after being served with divorce summons to ensure that they keep these benefits out of the reach of their non-member spouses. This is a serious concern that the legislature is yet to address’.

To effectively prevent the application of the provisions that enable the sharing of retirement benefits on divorce, a member of the retirement fund would merely resign from his employment pending divorce. Resignation is an event that leads to the accrual of the entitled retirement benefit and effectively renders the provisions of the Divorce Act 70 of 1979 that enable the sharing of retirement benefits on divorce inapplicable. In Eskom Pension and Provident Fund v Krugel and Another [2011] 4 All SA 1 (SCA); 2012 (6) SA 143 (SCA) at para 11, it was held that ‘[o]nce the pension benefit has accrued ie beyond the date of divorce at which time the pension interest converts into a pension benefit, the provisions of sections 7(7) and 7(8) are no longer applicable’. In other words, divorce is not the trigger event that led to the accrual of the retirement fund member’s benefit. Just because the retirement fund member chose to resign before the court granted a divorce decree, the non-member spouse is prevented from sharing the portion of her ‘entitled’ retirement benefits that she would have been eligible to share had the trigger event been a divorce.

I am of the view that there is an urgent need to investigate whether the current legal framework that allows married retirement fund members to prevent their spouses from sharing in their retirement benefits pending the finalisation of divorce proceedings is sound. In particular, the investigation should focus on the adequate application of matrimonial principles where retirement fund members are married in accordance with the marital regimes that mandate the sharing of patrimonial assets. This raises a fundamental question of whether the current legal position where accrued retirement benefits are not ordinarily viewed as members’ assets or as falling within their joint estates, is justified, particularly while such benefits are still held by the funds. I am of the view that the law should be reformed to explicitly provide that when any of the trigger events that entitle retirement fund members to request payment of their benefits occur, such benefits would automatically amount to patrimonial benefits to which retirement members’ spouses would derive a right to share when they are married in terms of the marital regime that allows for the sharing of assets. I have argued elsewhere that:

‘It would be ideal to amend section 7(7) of the Divorce Act in order to remove the deeming provision and make it clear that the pension interest falls automatically within the parties’ joint estate, regardless of whether or not the parties are divorcing. Such a provision would automatically render a pension interest an asset in the joint estate which can properly be taken into account even in the so called “blanket divorces”’ (C Marumoagae ‘The law regarding pension interest in South Africa has been settled! Or has it? With reference to Ndaba v Ndaba (600/2015) [2016] ZASCA 162’ (2017) 20 PER 14).

This proposal relates to circumstances where any of the trigger events for the payment of retirement benefits as prescribed in the retirement fund rules occur. In De Kock v Jacobson and Another 1999 (4) SA 346 (W) at 349, the court correctly held that there is ‘… no reason in principle why the accrued right to the pension should not form part of the community of property existing between the parties prior to the divorce’. It is important to note that this argument does not extend to the retirement benefits that have not yet accrued. It cannot be denied that ‘[a] pension benefit that has not yet accrued to a person is not an asset in his or her estate, because the right to claim the benefit only vests in the person when the benefit accrues to him or her …’ (J Heaton ‘The proprietary consequences of divorce’ in J Heaton (ed) The Law of Divorce and Dissolution of Life Partnerships in South Africa (Cape Town: Juta 2014) 74).

It is generally accepted that contributions that members pay towards their retirement funding are deemed to be assets of their retirement funds. Retirement fund members only have a right to claim payment when any of the trigger events prescribed in the rules occur. For instance, s 5(1)(b) of the Pension Funds Act ‘… makes it clear that the contributions that members pay to their retirement funds and the investments that result therefrom are deemed to be assets of the funds, and no person shall have a claim to these assets “except in so far as the claim has arisen”’ (C Marumoagae ‘Do retirement funds have a right to transfer accrued retirement benefits without non-member spouses’ consent? An analysis of the Collatz matter’ (2023) 140 SALJ 17 at 23).

I submit that there is an urgent need for a comprehensive investigation of the law that regulates the sharing of retirement benefits when spouses are divorcing. Failure to do so will perpetuate the economic hardships experienced by financially weaker spouses, the majority of whom in practice are women, who are effectively forced to forfeit portions of their spouses’ retirement benefits to which they would have been entitled to receive had divorce been a trigger event that led to the accrual of such benefits. In my view, non-member spouses are entitled to receive a portion of their member spouses’ accrued retirement benefits irrespective of whether any trigger event occurred before the divorce.

In conclusion, in M v M (SCA) (unreported case no 1305/2021, 31-3-2023) (Mabindla-Boqwana JA (Dambuza AP and Mocumie and Mbatha JJA and Nhlangulela AJA concurring)) at para 21, Mabindla-Boqwana JA incorrectly held that
‘[e]ntitlement to a portion of pension interest of one party against the other is governed by sections 7(7) and 7(8) of the Divorce Act’. The entitlement of the non-member spouse to share a portion of the member spouse’s retirement benefit derives from the contract of marriage itself. The parties’ chosen marital regime will determine whether the non-member spouse would be eligible to share in the member spouse’s retirement benefit. The definition of the phrase ‘pension interest’ in s 1, s 7(7) deeming provision, 7(8) payment facilitation provision, merely provides a legislative framework that enables the member spouse to claim the amount that they are entitled to be paid and the court to order the fund to make payment.

Clement Marumoagae LLB LLM (Wits) LLM (NWU) Dip Insolvency Practice (UP) PhD (UCT) is a legal practitioner at Marumoagae Attorneys Inc and a Professor at the University of Witwatersrand in Johannesburg.

This article was first published in De Rebus in 2024 (Sept) DR 28.