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Divorce loophole to access retirement funds before retirement

The raison d'etre of Government's proposed two-pot system is to only allow the retirement component to be withdrawn at retirement, so that retirees don't become a burden on the state. Currently, many people withdraw their entire retirement savings when they resign from a company, and are destitute in their older years, eking out a meagre existence with their only income being a state old age pension

Stage a fake divorce & withdraw retirement component

It seems that there is a loophole whereby a (financially desperate) married couple could stage a fake divorce and withdraw the retirement component allocated as part of the divorce order to the non-member spouse.

National Treasury's view

Judging by the response below from National Treasury on whether the retirement component can be paid out in cash on divorce; the non-member spouse can elect to have the retirement component of the member paid out as a cash lump sum (albeit subject to tax) to the non-member spouse.

In National Treasury's 16 April 2024 responses to various comments made on the proposed two-pot retirement system, there was one comment which relates to divorces:

• "Comment: Request for clarity on the treatment of the retirement component in cases of divorce proceedings. Confirmation should be provided on whether the ex-spouse would be entitled to a lump sum from their ex-partner's retirement component or if the amount must be transferred into a retirement component of another fund."
• Response from National Treasury: "Noted. In terms of the PFA Bill (inclusive of the public sector laws) read with the Income Tax Act/RLAB, funds should allocate all permissible deductions proportionally across all components that a member has. The PFA Bill (inclusive of amendments to public sector laws) does not change the status quo on the way amounts deducted to settle divorce orders should be paid to a non-member spouse. Meaning that the request/election will be made by the non-member spouse if the amount to be deducted must be:
  • paid directly to the non-member spouse (cash lump sum subject to tax) or
  • if it must be transferred to a fund on the non-member spouse’s behalf."

Errors or omissions expected.

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Info on Divorces & Pension Fund assets

Alongside the house being lived in; holdings in pension funds are often the biggest assets in a divorce.

NB: Under the new 2 pot system law, you must formally notify your spouse's pension fund in writing about the divorce proceedings, along with providing proof. Once this notice is given, the pension fund is legally prohibited from permitting any withdrawals, loans, or guarantees without the consent of the non-member spouse.

Proposed two pot retirement system and impact on divorce settlements:

• Faking divorce to withdraw retirement savings
• Faking divorce to effect a tax arbitrage while withdrawing retrement savings
• Changes to Government Employees Pension Rules when divorcing

Get your info directly from spouse's pension fund, not indirectly from your spouse.

Divorce and pension fund payouts

Undisclosed Pension Interest at divorce results in amendment to divorce order

Pension interest in the accrual calculation, and the related tax liability

When the state pension fund refused to pay

• The Wiese Pension Case
• Spouse pension payouts on divorce for Post Office & Transnet workers

Navy pension payout post-divorce

Unmarried couples & pensions

Divorce & pension funds discussion forum

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