Your interest in your spouse’s pension benefit that is split in terms of a divorce order must be reduced by any amount owed on a home loan that your spouse has taken against his or her pension fund before the benefit is split, the Acting Pension Funds Adjudicator ruled recently.
Elmarie de la Rey, the acting adjudicator, received a complaint from the former spouse of a pension fund member who was unhappy about the amount she was paid out in 2009 from her ex-spouse’s fund in terms of a divorce order.
L Farrell divorced her husband, DA Farrell, in March 2003. Her husband had been a member of the Cape Municipal Pension Fund for 21 years, and the divorce order made provision for her to be paid 50 percent of his interest in the fund.
Mrs Farrell was unhappy that she was paid out only R85 947.
She complained about the sum in the pension fund and the tax deduction for an early withdrawal.
Mrs Farrell complained that her former spouse was still paying off the home loan.
De la Rey found that the fund’s records with its administrator, Alexander Forbes Financial Services, reflected that Mr Farrell’s interest in the fund was R241 891, and De la Rey said that she had no reason to doubt these records.
The amount outstanding on the home loan was R71 796, and a notional deduction of this amount was made before the remaining pension interest was split. De la Rey found that the fund was, in terms of the Pension Funds Act, entitled notionally to deduct this amount before it split the pension interest in terms of the divorce order.
The fund does not actually deduct and pay over the money to settle the loan. The outstanding amount is used to compute the pension interest available to split on divorce, the adjudicator pointed out in her ruling.
If Mr Farrell had left his employment on the day on which his pension interest was paid out, the amount outstanding on the loan would have been deducted before his pension interest was paid to him, she says.
On the issue of the tax paid, the adjudicator found that the tax had been determined correctly as R20 601 and paid by Mr Farrell – as was provided for in law at the time the pension interest was paid out. Therefore, the tax had no effect on Mrs Farrell’s payout. De la Rey dismissed the complaint.
If you are awarded a portion of your former spouse’s pension interest as part of a divorce settlement, you should be aware that any outstanding amount on a home loan will reduce the pension interest and hence your portion of it, and you should adjust the amount awarded in terms of your divorce agreement accordingly.
In more recent divorces in which the pension interest is split, the non-member former spouse is responsible for paying any tax on the payout.
Amendments to the Income Tax that took effect in March 2009 make the non-member former spouse responsible for paying the tax on the pension interest that is paid out where the divorce order is granted after the clean-break principle for a pension interest was introduced in September 2007 and the split in a pension interest takes place after March 1, 2009.
The non-member former spouse will not have to pay tax if he or she transfers the benefit to another retirement fund, such as a retirement annuity fund.
ENSURE YOUR DEDUCTIONS ARE MADE
Retirement fund members who receive a home loan from their fund are responsible for ensuring that their repayments are deducted from their salaries, a recent ruling by the Acting Pension Funds Adjudicator shows.
Elmarie de la Rey, the acting adjudicator, dismissed a complaint brought by a member against his fund, its administrator and his employer because, he said, they failed to ensure that his home loan repayments were deducted from his salary.
ZM Molefi was aggrieved that his fund, the Municipal Employees Pension Fund, its administrator, Akani Retirement Funds Administrators, and his employer, the City of Tshwane Metropolitan Council, had not ensured that the repayments were made, which resulted in his loan going into arrears and his being charged interest on the arrear balance.
Molefi took out a home loan of R51 000 from the fund in November 2004. His employer only started to make deductions for the home loan at the end of June 2006. By then the outstanding loan amount had increased to R62 343.
The fund provided De la Rey with proof that it had notified Molefi’s employer that it was responsible for deducting the home loan repayments from his salary. The fund had also sent Molefi’s employer monthly loan repayment schedules and had called the payroll office numerous times.
The employer told the adjudicator that Molefi had a duty to check on his payslip that a deduction was made to repay the loan.
De la Rey says that for Molefi’s claim against the fund to succeed, he would have to prove that the fund committed an intentional or negligent act or omission that was wrongful and caused him to suffer a loss. Molefi had not proved this, and therefore the fund could not be expected to write off the arrear interest, she says.
If any party could be held responsible, it would be Molefi’s employer, De la Rey says. However, the City of Tshwane Metropolitan Council had provided Molefi with salary advices, which reflected that the loan repayments were not made.
As no deductions were made, Molefi had received a larger salary, and he had not suffered any loss. The employer could not be held liable for damages, De la Rey says.
CONTACT
You can contact the Pension Funds Adjudicator’s office as follows:
Telephone: 087 942 2700
Fax 087 942 2644
Email [email protected]
Post: PO Box 651826, Benmore, 2010