Understanding the Pension Funds Amendment Act 31 of 2024: Key Changes and Divorce Implications

 

The Pension Funds Amendment Act 31 of 2024 (PFAA) introduces crucial changes to pension funds in South Africa, particularly affecting how pension interests are handled during divorce proceedings. This legislation aims to enhance retirement savings and provide better financial options for individuals.

KEY CHANGES INTRODUCED BY THE PFAA

Two-Pot System

• The PFAA establishes a two-pot system, dividing retirement savings into two parts: a savings component and a retirement component. This structure is designed to help individuals preserve more of their retirement savings while allowing access to some funds in emergencies.

Savings Withdrawal Benefit

• Members can now access a portion of their savings before retirement without needing to resign from their jobs. This savings withdrawal benefit aims to provide financial relief during emergencies, reducing reliance on high-interest loans.

Deductions and Fees

• Accessing the savings component will incur administration costs and taxes at marginal rates. Members should be aware that they will forfeit future growth potential and retirement benefits associated with these funds.

Legal Amendments

• The PFAA amends several existing laws, including the Pension Funds Act of 1956 and others, to facilitate the implementation of the two-pot system.

IMPACT ON DIVORCE PROCEEDINGS

Pension Interests as Joint Estate

• The Act clarifies that pension interests are part of the joint estate in divorce cases. This means that both parties must receive a fair division of these interests.

Valuation and Distribution Guidelines

• New guidelines are provided for valuing and distributing pension interests during divorce, ensuring equitable sharing of retirement savings accumulated throughout the marriage.

Court Orders for Division

• Courts can issue orders to divide pension interests based on each party's contributions and the duration of the marriage, promoting fairness in asset distribution.

IMPLEMENTATION TIMELINE

• The two-pot system was implemented on September 1, 2024. Retirement funds must align their rules with these changes and inform members accordingly.

CONCLUSION

The Pension Funds Amendment Act 31 of 2024 aims to strengthen retirement outcomes for South Africans while ensuring fair treatment of pension interests during divorce. By providing access to savings in emergencies and clarifying legal frameworks around divorce, the PFAA represents a significant shift in South Africa's pension landscape.