No more pension 'debt' on divorce

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With very little fanfare, an important piece of legislation came into effect last week regarding the calculation of divorce benefits for members of the Government Employees’ Pension Fund (GEPF).

The long-awaited amendment will remove the “pension debt” that is accrued when a member pays out a portion of their pension benefit to their former spouse on divorce. The clean break principle applies where a divorce agreement allows for the non-member spouse to receive a portion of the member’s pension fund.

Currently, the way the pension withdrawal is calculated uses the concept of debt and interest in the apportionment of pension benefits on divorce. This means that members effectively have a “debt” owing on their pension fund.

This created a situation where members could find themselves owing money to the GEPF when they retired. This happened to a City Press reader who divorced in 2012 after the introduction of the clean break principle.

After 41 years of service, he would owe the fund well over R2 million – this included the original payment to his spouse of R1.3 million, plus interest that is charged on this “debt”.

He wrote in his letter to City Press: “My total pension is only worth R1.4 million. That would leave me in debt to the sum of more than R700 000 and my only ‘crime’ was to get divorced.”

The amendment to the law now means that, rather than creating a debt, there is an adjustment to the member’s service following the payment of a divorce settlement by the fund.

According to the amended section 24A of the Government Employees’ Pension Law, “the benefit that is subsequently payable to the member shall, as provided in the rules, be decreased by reducing the member’s years of pensionable service to take into account the pension interest of the member which was assigned to any former spouse of the member”.

For example, if you have 18 years of service and the divorce settlement entitles the non-member spouse to 50% of the pension fund interest, the years of service would be reduced in terms of benefit calculations.

The amendment also allows for members who have already paid out pension benefits to their former spouse to opt for the new calculation.

Affected members have 12 months from May 23 to notify the fund whether they wish to remain with the previous calculation in terms of the divorce debt, or change over to the new amendments as a reduction in service.

If the member does not notify the fund, the new rules will apply automatically.

It is important to note that, if a member so chooses, they can select to buy back those years of service by either paying in immediately or increasing their monthly contributions.

According a GEPF spokesperson, the GEPF, through the Government Pensions Administration Agency, will be engaging with affected members over the next few months.

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