By Naleen Jeram
The payment of pension interest benefits to non-member spouses on the dissolution of a marriage has been the subject of intense debate and has recently received judicial attention in several ground-breaking judgments. In Clement Marumoagae ‘Pension interest – is there a need to plead a claim?’ (2017 (Jan/Feb) DR 38), the author avers that the ruling in Ndaba v Ndaba [2017] 1 All SA 33 (SCA) clarified the position and concludes that the court ruled that it is not necessary for the pension fund to be identified and ordered to pay the benefit in order for such a fund to pay the non-member spouse. It is this conclusion that I respectfully disagree with, as in my view, this was not the court’s ruling, nor does it reflect the current position in law.
The key issue for consideration in the Ndaba matter, was whether the pension interest automatically forms part of the joint estate (where parties are married in community of property). Both the majority and minority judgments of the Supreme Court of Appeal (SCA) accepted that the pension interest automatically forms part of the joint estate, regardless of whether it is pleaded or not and whether or not an order to that effect is issued. Put differently, the effect thereof is that the pension interest value of the member as at date of divorce is regarded as an asset in the estate and a rand value may be ascribed thereto, notwithstanding the fact that the benefit itself has not yet been paid. On the facts of this matter, it means that the liquidator appointed to divide the estate, could take that value into account.
However, although the value of the pension interest must be taken into account in the division of the estate, it is still necessary to obtain an order in terms of s 7(8) of the Divorce Act 70 of 1979 (the Divorce Act), if the fund is to be co-opted into payment of any assigned pension interest and the SCA ruling does not alter that position. The court ruled that pension interest automatically forms part of the joint estate by virtue of s 7(7)(a) and does not have to be pleaded and held that such an order would be echoing the provisions of s 7(7(a). Hereafter, the SCA drew a distinction between ss 7(7)(a) and 7(8) and concluded that s 7(7)(a) is self-contained and is not subject to s 7(8). Moreover, s 7(7)(a) is a peremptory provision, which increases the value of the joint estate by vesting in the joint estate, the pension interest, which parties married in community of property are entitled to. Section 7(8), on the other hand, provides a mechanism to co-opt the fund concerned into payment of any allocation of
such pension interest to the non-member spouse. Such payment to bind the fund can only occur by order of the court. The majority judgment comments as follows on the requirement (at para 27):
‘Section 7(8), on the other hand, creates a mechanism in terms of which the pension fund of the member spouse is statutorily bound to effect payment of the portion of the pension interest (as at the date of divorce) directly to the non-member spouse as provided for in s 37D(1)(d)(i) of the Pension Funds Act 24 of 1956 and s 21(1) of the Government Pension Law, 1996. This is as far as s 7(8) goes and no further. The non-member spouse is thereby relieved of the duty to look to the member spouse for the payment of his or her share of the pension interest with all its attendant risks. The remarks by this court in relation to s 7(8)(a), in Old Mutual Life Assurance Co (SA) Ltd and Another v Swemmer 2004 (5) SA 373 (SCA) are instructive. It said the following (para 20):
“Once a part of the pension interest of the member spouse becomes due or is assigned to the non-member spouse in the course of the divorce proceedings, the Court may order that such part of the pension interest must be paid by the pension fund concerned to the non-member spouse when any pension benefits accrue in respect of the member spouse.”’
Therefore, the court acknowledged that once the fund has been ordered to pay the benefit, then the member spouse is relieved of the duty to make payment. Thus, in the absence of such an order, the fund cannot pay and the member spouse may become liable to the non-member spouse in respect of that claim. The minority judgment agreed with the main conclusions of the majority judgment, but differed in the application of the law to the facts of the case. On the issue of whether the fund must be ordered to pay, the minority judgment also adopted a similar position and ruled (at paras 69 and 70):
‘This does not help the appellant much, because, absent an order in terms of s 7(8)(a), the declaratory order in terms of s 7(7) remains enforceable only between the parties. The pension fund to which they both belong, the GEPF [Government Employees Pension Fund], is empowered by law to give effect only to an order made in terms of s 7(8)(a).
[70] Such an order must direct the pension fund to make payment of a member’s pension interest to a non-member spouse, and endorse its records accordingly. A declaratory order such as the one made by my colleague, is not sufficient. The upshot of this is that, unless and until one of the parties approaches the regional court for an order in terms of s 7(8)(a) of the Divorce Act, the appellant’s victory in this court would remain hollow and a brutum fulmen as far as the GEPF is concerned’ (my italics).
Hence, the minority judgment clearly expressed concern that the majority judgment did not order the fund to pay as this meant that the order was not binding on the fund. On the facts of this case, it may mean that the non-member spouse’s claim may not be fulfilled. Be that as it may, both judgments confirmed that the order may only be enforceable against the fund if the divorce order made a specific order against the fund and in the absence thereof, the order will only be binding between the divorcing parties.
The final order issued by the court appointed a liquidator with specific powers and a declaratory order was issued to the effect that the non-member spouse was entitled to an amount equal to 50% of the members’ nett pension interest in the GEPF as at date of divorce. Thus, notwithstanding the request for an order against the fund, the court did not make such an order in the form of an allocation of pension interest in terms of s 7(8) such that it might form a direct claim against the fund. Instead, the court clarified the entitlement of each spouse to an inter partes claim flowing from the deeming provision in s 7(7)(a).
There are a number of reasons as to why the fund must be identified and ordered to pay and they are briefly discussed below. Firstly, the fund itself is ordinarily not a party to the divorce proceedings. It is an independent third party holding benefits on behalf of the member that forms part of the joint estate (where the parties are married in community of property). Hence, while it is not necessary to join the fund as a party to the proceedings, a clear order directing the fund to pay a portion of the benefit to the non-member spouse is necessary. The absence of such an order would mean that the fund by paying would be acting ultra vires the rules read together with the legislation regulating the transfer of pension interest benefits.
Secondly, in terms of the definition of pension interest, for occupational pension and provident funds, the benefit represents the resignation benefit the member would have received as at date of divorce had he or she notionally resigned from service. While this entire benefit forms part of the joint estate, the parties may well agree or the court may determine that only a portion of the benefit (for instance, 33% or 40% or 66% of the benefit) is to be assigned or transferred to the non-member spouse. In the absence of any order against the fund, the fund will not be in a position to determine what amount is payable to the non-member spouse.
Thirdly, the member may belong to multiple funds (pension fund, provident fund, retirement annuity fund, and/or preservation fund), and in the absence of any order, it will be unclear whether the order is directed against all or some of the funds. Thus, it would be unlawful and unwise for a fund to guess whether it should pay and what portion of the benefit should be paid.
Fourthly, there have been several statutory amendments dealing with the requirement that the fund be ordered to pay the benefit. Section 7(a)(i) of the Divorce Act permits the court granting the divorce to order the said fund to pay the benefit to the non-member spouse. Moreover, s 7(a)(ii) requires the Registrar of the court to notify the fund that part of the pension interest is payable to the non-member spouse. With effect from 1 November 2008, s 37D(4)(a) was inserted into the Pension Funds Act (only dealing with funds registered under this Act), which reads:
‘For purposes of section 7(8)(a) of the Divorce Act, 1979 (Act No. 70 of 1979), the portion of the pension interest assigned to the non-member spouse in terms of a decree of divorce or decree for the dissolution of a customary marriage is deemed to accrue to the member on the date on which the decree of divorce or decree for the dissolution of a customary marriage is granted, and, on the written submission of the court order by the non-member spouse –
(i) must be deducted by –
(aa) the pension fund or pension funds named in or identifiable from the decree;
…’.
The above amendment, in line with s 8 of the Divorce Act, makes it clear that the fund must be named in the order or be identifiable from the order. Accordingly, should a fund not be identifiable from the order, it would not comply with the amended provision. In M v M (LP) (unreported case no HCA18/2015, 17-6-2016) (Makgoba JP), the High Court expressed this principle as follows (at para 30):
‘Thus, even though the pension interest of a spouse who is married in community of property automatically falls into the joint estate upon divorce and does not have to be specified to be part of the joint estate, an order in terms of section 7(8)(a) is required in order to enable the non-member to compel the pension fund to pay his or her portion of the member’s pension interest to him or her. In the absence of an order in terms of section 7(8)(a), the pension fund would refuse to pay any portion to the non-member. In such event, the non-member spouse would have to claim his or her portion of the pension interest from the member personally’ (my italics).
See also Sayster v SABC Pension Fund and Another [2016] 3 BPLR 446 (PFA); Lubbe v Central Retirement Annuity Fund [2015] 1 BPLR 39 (PFA); Rampa v Sentinel Mining Industry Retirement Fund [2014] 1 BPLR 106 (PFA); Kapot v Liberty Group Ltd [2012] 1 BPLR 41 (PFA); Maqubela v Municipal Employees Pension Fund [2012] 1 BPLR 65 (PFA); Pillay v Pioneer Foods Provident Fund [2008] 3 BPLR 248 (PFA); and Dosson v Cape Municipal Pension Fund [2009] 1 BPLR 12 (PFA). In all of these matters, it was held that the fund must be identified and/or ordered to pay the benefit.
Furthermore, any order simply stating the ‘equal division or joint division of the estate’ would not identify the fund from the order nor is there any order requiring the fund to pay and thus would not be enforceable against the fund/s (ss 7(7) and 7(8) of the Divorce Act, read together with s 37D(4)(a) of the Pension Fund Act).
In light of all of the above, while the pension interest benefit automatically forms part of the joint estate, in order for the fund to pay the non-member spouse directly, it will need a specific order from the court requiring it to do so, and the order will need to specify the percentage or rand amount of the pension interest allocated. In the absence of such an order, the payment of the pension interest obligation will remain a personal claim between the divorcing parties.
Naleen Jeram BA LLB LLM (UCT) is a Legal Manager at MMI Group Limited and an Adjunct Professor at the University of Cape Town.
This article was first published in De Rebus in 2017 (June) DR 28.
