Articles

Proposed Amendments to rules regulating “Divorce Debt” created by Government Employees Pension Fund, Light at the end of the Tunnel.

Presently, aggrieved divorce spouses who are members of the Government Employees Pension Fund (GEPF) are receiving the short end of the stick. The divorced spouse is subjected to rules enabling the GEPF to create an onerous ‘divorce loan’ benefiting the Fund at the expense of the divorced spouse. The proposed changes will serve to ease the burden on divorcees belonging to the GEPF.

Current Position;

Clean-Break Principle

This principle was primarily introduced in private pension funds in 2007, and the public sector pension fund (GEPF) later followed suit in 2011. Basically, the principle provides that the non-member spouse no longer has to wait for an exit event to occur. This means that a pension benefit awarded to a non-member spouse in terms of the Divorce Act is deemed to have accrued on the date of the divorce. The aim was to separate the knots between the former spouses as soon as possible after the divorce in all aspects.

The GEPF rules were amended to incorporate this clean break principle by establishing the following procedure. The former spouse has to submit a commissioned decree of divorce to the Fund and the latter is thereafter required within 45 days to request such spouse to make an election between direct payment of the accrual or transfer to his or her retirement fund. The former spouse will then have 120 days to make a decision and if she/he does elect an option within the 120 days period, the Fund will have 60 days to make payment or transfer. If, however, the non-member spouse does not decide, the Fund will make a direct payment to that spouse within 30 days after the expiry of the 120 days period.

‘Divorce Debt’

The Fund’s model is to create a debt by paying the amount due to the claimant spouse from its own reserves and not taking it from the member’s actual benefit. The Fund is actually granting ‘divorce loans’ to its divorcing members and thus, creating an obligation for the member spouse to repay this debt with interest charged at the Fund’s discretion. The drastic effect of these ‘loans’ is that upon the retirement of the member spouse, he or she still owed the Fund a substantial amount resulting in the member not receiving a gratuity lump sum and their annuity substantially reduced.

The Proposed changes

Following the gazetting of the Government Employees Pension Law Amendment Bill on 23rd May 2019, the Government Employees Pension Fund (GEPF) will, once the amended rules are implemented, no longer subject a member to a debt model in executing a divorce settlement. This amendment now ensures that rather than creating a debt, there will be an adjustment to the member’s pensionable service following the payment of a divorce settlement by the GEPF. This means that the benefit that will be paid to the member upon retirement will now be decreased by reducing the members’ years of pensionable service to take into account the pension interest of the member that was given to the spouse upon divorce. 
Therefore, members will receive their full benefit after the reduced pensionable service has been affected. Members who have more than ten years of pensionable service will still be entitled to a lump sum and a monthly pension upon exiting the fund, however at a reduced value.

Xolisa Colani

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