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“Clean break” principle
Did you know?
- A portion of your accumulated pension is payable to your former spouse with immediate effect after a divorce decree or settlement agreement has been issued that specifically provides that a portion of your pension may be paid out.
- The GEPF considers the portion of your pension that has been paid out to your former spouse to be a divorce debt.
- As the fund considers the money paid to your former spouse to be a debt, you have to pay interest on that debt.
- This interest is then charged monthly until the day that your membership of the fund is terminated.
- If the interest that you have to pay on that amount after the divorce is not paid monthly, the interest will accrue and it will then be deducted from your accumulated pension before the pension is then paid out to you.
- This compound interest levied monthly will have a significant impact on your final pension pay-out when you eventually leave the fund.
The Government Employees Pension (GEP) Act was amended to that the “clean break” principle could be applied to the state pension fund (GEPF). The GEPF also amended its rules to allow for the “clean break” principle.
This means that pension benefits due to a former spouse, are now payable shortly after the date of divorce and not only at the time when the fund membership of the spouse who is a member of the fund is terminated and the member leaves the GEPF.
What steps have Solidarity taken?
Solidarity has already put pressure on the GEPF to revise the principle, and the GEPF has indicated that it would launch a comprehensive review process. Solidarity requested to participate in the process by the GEPF in order to give its members the opportunity to be heard, and to prevent a further negative impact on its members.
Solidarity is of the opinion that:
- The application of the “clean break” principle by the GEPF is not in accordance with the provisions of the GEP Act;
- The conduct of the GEPF contravenes the National Credit Act;
- The rules and application of the GEPF are judicially reviewable; and
- If the rules and application of the principle are successfully reviewed, persons who have suffered financial loss due to the fact that GEPF charged interest would be entitled to financial compensation from the GEPF to rectify this financial loss.