Savings in a retirement fund is often one of our biggest assets along with property we own.
Retirement funds savings, however, only become yours at certain times – for example, when you withdraw from the fund, retire or die.
Since 1989, the Divorce Act has included a provision that allows for what is known as a pension interest to be included in your matrimonial estate and shared on divorce (clause 7(7)(a). The Divorce Act also provides for a court to include in the divorce order an award of a portion of that pension interest (as decided by the spouses) to a non-member spouse (clauses 7(8)(a) of the Divorce Act).
The Pension Funds Act provides for a retirement fund to deduct from a member’s account any portion of the pension interest (as defined in the Pension Funds Act) that is awarded to the spouse who is not a member of the fund (the non-member spouse) in terms of a divorce order (in section 37D of the Pension Funds Act).
Your pension interest is the only retirement savings amount in a fund that can be shared on divorce.
The Divorce Act defines a member’s pension interest, but this definition has become problematic since the introduction of the two-pot retirement system.
The Divorce Act defines the pension interest as:
Pension interest post the two-pot system
The two-pot retirement system was introduced from September 2024 and since that date a portion of the fund – the two thirds of contributions (plus growth) allocated to the retirement pot - is not available on resignation from employment and termination of your membership.
This means that the definition of the pension interest in the Divorce Act only includes the vested pot (the savings before September 2024 and the growth thereon) and, generally, the savings pot (one third of all contributions made after September 2024 and growth on these contributions.) Since the introduction of the two-pot retirement system, the retirement pot is not included in what can be shared in terms of the definition of “pension interest” in the Divorce Act. So spouses relying on this definition will share a potentially much lower amount.
In order to address this problem, the Pension Funds Act was amended to define pension interest in relation to a divorce order as the member’s full individual account (fund credit) or minimum individual reserve as at the date of divorce. This includes all three pots under the two-pot system, but excludes any allowable deductions for, for example, a housing loan granted by the fund.
This means that when a court grants an order under the Divorce Act, it needs to refer to the pension interest defined in the Pension Funds Act (and not the Divorce Act). This will ensure that all three pots are included in the meaning of the pension interest. The portion of the pension interest awarded to a non-member spouse will then be taken from all three pots (vested, savings and retirement pots) proportionately.
Divorce Act definition
The definition in the Divorce Act has unfortunately not been removed and pension lawyers are concerned that court orders may refer to the pension interest as defined by the Divorce Act and not as defined in the Pension Funds Act.
Typically a court will simply make the settlement agreement an order of the court and often settlement agreements erroneously refer to the definition of pension interest in the Divorce Act instead of in the Pension Funds Act.
This could limit the amount to be shared to what is available in the savings component and vested component only – excluding the retirement component or it may lead to a fund refusing to make the deduction. Funds may take different approaches, depending on their interpretation of the law. This may lead to further expense and delay for divorcing spouses as they may have to get the court order changed.
The Pension Funds Act definition of pension interest also means that divorcing spouses can share the pension interest if one of them is a paid-up member of a fund – a member who is no longer employed, has stopped contributing to the fund, but has left their savings in the fund until they make a decision about their benefits.
Before the definition of pension interest was added to the Pension Funds Act, a paid-up member did not have a pension interest. But now as long as the paid-up member has money in the fund, there is a pension interest and it can be assigned to a non-member spouse in a divorce order.
If a fund member who has already retired and is receiving a pension gets divorced, a court order can only assign pension interest to the non-member spouse if the fund is paying the pension. If the member bought an annuity from an annuity provider, the capital value has been transferred out of the fund and no longer belongs to the member.
However, if the fund is paying the pension, it holds a capital value for that pensioner and then pays a regular pension from that capital value. The definition of a pension interest in the Pension Funds Act that applies from September 2024, allows for the portion of the pension interest awarded to a non-member spouse in a divorce to be deducted from this capital value. If this is the case, the pensioner’s pension will then decrease.
When drafting the two-pot retirement system legislation, policymakers realised that the new system could be problematic in divorces, as the spouse with all, or more, retirement savings than the other could request a withdrawal from the savings pot 
before the divorce order was obtained. This would then have reduced the amount of pension interest the member has to share with a former spouse.
To prevent this, the Pension Funds Act from September 2024 provides for the non-member spouse to inform the fund that divorce proceedings (in a court or a religious marriage) are underway (for example, a divorce summons has been issued or a notice of motion has been filed). The fund may then not pay a savings pot withdrawal to the member spouse unless the non-member spouse consents or the divorce has been finalised and the court order issued.
The member spouse can also not unilaterally use their retirement savings for a housing loan or guarantee for a housing loan when divorce proceedings are underway.
Before November 2008, if you were awarded a portion of your former spouse’s pension interest it was ringfenced within the fund and only transferred to you when the 
member resigned or retired from the fund.
Effective from 1 November 2008, the Pension Funds Act has provided for a “clean break” in retirement savings on divorce, which means the pension interest awarded to a former spouse can immediately after the divorce, be:
This “clean break” in retirement savings is provided for in the Pension Funds Act. The Act provides (in section 37D(4)) for divorce order awards of a portion of a member’s pension interest to be deducted from a member’s retirement savings and paid to the spouse who is not a member of the fund.
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If a pension interest divorce award is paid out as cash to the non-member spouse, it will be taxed. The former 
spouse receiving the cash, will be liable for the tax.
The cash payment will be taxed at the rates provided for in the retirement fund lump sum withdrawal table.
This means that the first R27 500 of the amount withdrawn is tax free and thereafter different tax rates apply from 18 percent depending on the amount you withdraw.
Withdrawals of retirement fund benefits before retirement count against you at retirement because they reduce the tax-free lump sum you are entitled to when you retire (as the tax-free lump sum allowance is an allowance over your lifetime).
If a former spouse elects to have the pension interest award transferred to another retirement fund in their name, it will be transferred tax-free.
Your marital regime, retirement savings and divorceYour marital regime has implications for how your pension interest can be shared on divorce. In community of property If you are married in community of property, the pension interest is treated as part of the joint estate. This means that the pension interest of both spouses automatically forms part of their joint estate. Each spouse will have a right to 50 percent of the other spouse’s pension interest.
The spouse with more savings than the other is therefore likely to have to pay the spouse with less savings 50 percent of the difference between their savings balances as at the date of divorce. Read more: What do I need to know about being married in community of property?
Out of community of property with accrual If you are married out of community of property with accrual, whatever retirement fund savings you came into the marriage with remains yours but whatever savings have built up in the fund during the marriage will be shared in line with the accrual calculation.
Parties to such a marriage should decide what (if any) portion of pension interest will be paid to the former spouse. Divorcing spouses may agree to share other assets rather than splitting retirement savings – for example, one spouse may take ownership of a property in lieu of some or all of the retirement savings of the other spouse. Out of community without accrual If you are married out of community of property without accrual, each spouse’s retirement savings form part of their own estate and are not shared.
The Divorce Act (section 7(3)) provides for a spouse married out of community of property without accrual before 1 November 1984 to apply to the court for a redistribution order. The Act prevented spouses married out of community of property after this date from applying for such an order. However, in 2024, the Constitutional Court, found this to be unconstitutional and ordered parliament to amend the Divorce Act. The amendment has not yet been passed. REMEMBER
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ensure these savings are preserved until your retirement.
Consequently, the court can divide the pension interest of both spouses as the spouses deem fit. It is important to be aware that the court order must still order the fund to pay the 50 percent portion of pension interest directly to the non-member spouse, if this is the intention.
A pension interest forms part of the estates of both spouses and is included in the accrual calculation. Read more: 
The pension interest may, however, be shared if the court finds grounds for a redistribution of assets order where one party claims assets belonging to the other party, or they agree to share it. Read more: 
Divorcing spouses may agree to share other assets rather than splitting retirement savings – for example, one spouse may take ownership of a property in lieu of some or all of the retirement savings of the other spouse.