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Monday, September 1, 2008
Tangible impact

This Financial Services Laws General Amendment Bill amends various Acts, but the amendments to the Pension Funds Act will probably have the biggest tangible impact on consumers. So says Anna Rosenberg, Deputy Executive of Legal and Policy at the Life Offices’ Association (LOA).

In terms of this amendment (when it becomes effective), the clean-break principle, whereby the portion of a pension benefit assigned to a non-member in terms of a divorce order must be paid out immediately, now also applies to divorce orders granted before 13th September 2007.
“While the LOA supports the clean-break principle, there were a number of concerns raised about the proposed amendment,” she says. These include:
• Many divorce settlements before 13th September 2007 involving pension interests, would have taken into account that the non-member’s share of the pension interest would only be paid out to him/her at a future date. Having to make payment now would detrimentally reduce the member’s benefit.
• Therefore, a process needs to be defined that will enable the pension fund member to prove that it would be unfair and inequitable for a retrospective application to apply in his/her particular case.
• The detrimental effect on the retirement savings of the member spouse.
• The investment strategies of the fund may be negatively affected if the fund suddenly received a large number of requests to pay out non-member divorce benefits, and funds will have to liquidate assets.
• Requests will have to be processed manually and this will prove costly for funds, especially where there are a large number of requests in a very short space of time.
• Since non-members can get immediate access to pension benefits and are not forced to use the money for retirement funding, this may lead to a substantial leakage in retirement provision.
 

Copyright © Insurance Times and Investments® Vol:21.8 1st September, 2008
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