Landmark ruling on payment of divorce benefits

The Pension Funds Adjudicator has ruled that pension benefits now accrue to the divorced spouse of the member on the date of the divorce settlement.

Landmark ruling on payment of divorce benefits

04 Oct 2007

Source: Gareth Stokes of FA News

A ruling by the Pension Funds Adjudicator in the matter of Cockcroft v the Mine Employees Pension Fund is a landmark one which will affect thousands of divorced spouses awaiting payment of the divorce benefits from various retirement funds. Prior to a recent change in the Pension Funds Act the legal position was that any benefits due to the former spouse would only be paid by the pension fund when any pension benefits accrue in respect of the pension fund member (e.g. on death, retirement or resignation). In terms of the amendments, the pension benefits now accrue to the member on the date of the divorce settlement.

This case sets a significant precedent which could have far reaching impact on the industry. It will unlock all similar pension transfer benefits regardless of when divorce settlements were made. The intent of the amendment to the Pension Funds Act thus applies retrospectively.

One could be excused for thinking the Pension Funds Adjudicator (PFA) has been quiet in recent months. There have been few widely published determinations. However, a quick look at the PFA website confirms that the regulator has been quietly going about the business of resolving pension disputes, with a number of new rulings made in recent months.

The latest determination was made by PFA Momodupi Mohlala on 3 October 2007 in the matter of Cockcroft versus the Mine Employees Pension Fund. It is a landmark ruling which will "impact on thousands of divorced spouses awaiting payment of the divorce benefits from various retirement funds."

The lengthy determination includes numerous references to High Court rulings to underpin the precedent set.

Honouring the divorce settlement

A basic outline of the case is as follows: Mr Cockroft was a member of the Mine Employees Pension Fund until 28 January 2002. On that date he ceased making contributions to the fund, although remaining a member in terms of the fund rules. Mr Cockroft and the complainant were divorced on 7 July 2003. Their divorce order "provided that the complainant shall be entitled to 50% of Mr Cockcroft's pension interest in the fund and furthermore this amount must be paid to her on the finalisation of the divorce proceedings or when the benefit accrues, whichever event occurs first."

Although this seemed a simple enough decision, the law had other ideas. The problem was that the complainant was not legally entitled to any benefit until Mr Cockroft received it. In other words, Mr Cockroft or the fund administrator had the power to withhold these benefits. The Mine Employees Pension Fund main contention was that the pension benefit only accrued to the complainant at the same time it was paid to Mr Cockroft. This interpretation was based on the legal framework in place when the divorce settlement was ordered.

Confirming Section 37D

We recently wrote about some of the amendments to the Pension Funds Act as they applied to divorce settlements. The Cockroft case is a perfect example of the result of amendments in section 37D.

"The Adjudicator firstly held that in terms of the law as it stood prior to 13 September 2007, a Court granting a divorce order may make an order that a share of the pension interest be allocated to the non-member spouse and such amount should be paid by the fund to the former spouse, when any pension benefits accrue in respect of the pension fund member." This argument directly supported Mr Cockroft's case.

The PFA then investigated the effect of changes to the Pension Funds Act which came into effect on 13 September 2007. In terms of the amendments, the pension benefits now accrue to the member on the date of the divorce settlement. The PFA said the effect of the amendments is to "notionally accelerate the date of accrual of the benefit to the member spouse and in turn the date on which the divorce benefit accrues to the non-member spouse."

"The Adjudicator ordered the complainant to exercise her option terms of section 37D(1)(e)(iii), and to notify the fund whether she intended to receive a cash benefit or to transfer the benefit to another pension fund and furthermore the fund was ordered to implement her election within 60 days of receipt of the complainant's election."

A significant ruling

This case sets a significant precedent which could have far reaching impact on the industry. It will unlock all similar pension transfer benefits regardless of when divorce settlements were made. The intent of the amendment to the Pension Funds Act thus applies retrospectively.

"The Adjudicator after examining various High Court cases and the effect of retrospective legislation on vested rights held that the intention of the legislature was clearly to rectify the previously unfair position of non-member spouses in respect of the payment of divorce benefits. She was satisfied that the new amended provisions applied to all divorces whether concluded prior to or after 13 September 2007."

FAnews Online believes the Adjudicator is correct in applying these amendments retrospectively. It would be senseless to modify an aspect of law in an attempt to right a serious flaw, and then only apply that law to new cases. It remains to be seen how wide the impact of this determination will be.

Editor's thoughts:
This landmark ruling is bound to grab the attention of a number of pension schemes and fund administrators in the local pension funds industry. It would be interesting to know to what extent various funds and administrators are sitting on similar pension interests. If you are aware of any cases affected by this ruling we would love to hear from you. Send your story to gareth@fanews.co.za