Present legislation regarding the splitting of assets during a divorce needs updating, David Marcusse, a senior manager, legal and technical services at BoE Investment Administrators, says.
Addressing the Pension Lawyers' Association conference in Somerset West this week, Marcusse said that before August 1989 an unfair situation existed where the pension benefits of a divorcing member of a retirement fund were excluded from joint assets.
This meant that people who got divorced and were not members of pension schemes were left with nothing for their retirement years.
The situation was addressed by the introduction of the Divorce Amendment Act No 7 of 1989.
According to the amendment, when you get divorced you are entitled to part of your spouse's pension. The value of the pension you will receive is based on what your spouse would be entitled to if he or she resigned from the pension fund on the date of the divorce.
With a retirement annuity, the amount due to your spouse (and proportionately what you would receive) is calculated as being equal to the contributions plus interest at 15,5 percent up to the date of the divorce.
But there are several problems with the existing legislation, says Marcusse.
It does not provide for the pension awarded to you, the divorced spouse, to increase in value from the date it is determined until the date on which your former partner retires.
"The parties can agree on some form of interest, but the operative word here is agree," says Marcusse.
Also, due to the wording of the Act, paid-up pension benefits and pensions in preservation funds can escape the net.
This is because often the rules regulating paid-up pensions and amounts in preservation funds do not provide for any benefit should the member resign from employment. So if your divorced husband or wife was in this situation you would not be entitled to any benefit.
Another issue is that, especially in the early years, the value of a member's benefit in a retirement annuity can often be less than the sum of all the contributions plus interest (the method used to calculate the interest).
This is because life and disability costs and other administrative expenses impact on the actual value of the retirement annuity.
Payment of tax is also a problem. The pension fund member has to pay tax when he or she receives the retirement benefit and also has to bear the tax burden on the partner's portion.
"The only way around this is to negotiate that pro rata tax due on the pension be paid by the non-member spouse to the member," says Marcusse.
He also criticised court orders for sometimes being incorrect due to lack of understanding of the requirements of the Act.
"Retirement funds sometimes refuse to register your share of your ex-spouse's pension in their records because the court order doesn't place a proper onus on the fund to register the award in your favour," he says.
There are other problems with the legislation such as the fact that the Divorce Act only recognises legal marriages.
So, it has long been realised that a revamp of the current legislation is needed for a more equitable situation for all parties concerned.
A committee has been set up to look at certain issues regarding the pension rights of divorcing members, but it is in the early stages of investigation.
Marcusse says most of the pension problems arise from the way the value of your former partner's pension is determined. This is particularly true with defined benefit pension funds or funds that have a period of time over which the benefit accrues to a member.
"A solution is crucial to the issue of promoting the concept that at divorce there should be a clean break between the parties ? at least as far as their assets are concerned," he says.
A fairer method might be to defer calculating the amount due to you until your former partner, who is the pension member, actually retires.
The current situation is far from ideal and it is important to find a solution that is more equitable and workable for all parties, says Marcusse.