The Constitutional Court on Friday confirmed the declaration by the Western Cape High Court of the constitutional invalidity of the “clean-break” principle of the Government Employees Pension Law.
This case highlighted the plight previously experienced by people married in community of property and whose spouses were, upon divorce, members of the Government Employees Pension Fund (Government Pension Fund) established under the Government Employees Pension Law (GEPL).
Under the matrimonial laws, non-member spouses could, in certain circumstances, be entitled to payment of part of the pension interest due or assigned to the member of the Government Pension Fund when any pension benefit accrued to that member. Prior to the Government Employees Pension Law Amendment Act (GEPL Amendment Act), the non-member’s benefit would be frozen on divorce until any pension benefit accrued to that member, unlike that of a counterpart under the Pension Funds Act (PFA). The effect of this was that non-members could not benefit from any interest or capital growth on the portion of the pension interest allocated to the member spouse – thus resulting in the portion devaluing over time.
Invoking the equality provision in the Constitution, the GEPL was originally challenged by the applicant on the ground that it did not afford to a former spouse of a member of the Government Pension Fund the same rights and advantages that are afforded to former spouses of members of funds subject to the PFA. The applicant also sought a constitutional remedy of reading in certain provisions of the PFA into the GEPL together with an order for costs.
Parliament passed the GEPL Amendment Act to cure the defects in the GEPL. As such the Constitutional Court did not pronounce on the constitutional issues in this matter. As a result of this legislative intervention, a question arose whether any live constitutional issue requiring determination by this Court was extant.
There are two parallel regimes of pension funds at play: first, those private funds governed by the PFA and second, government funds which are not governed by the PFA but, rather, by a statute unique to that fund. This latter class of government funds includes, but is in no way limited to, the Government Pension Fund.
During 1989, section 7(7)(a) was added by the Divorce Amendment Ac to deal with certain problems. Under the Divorce Act non-member spouses were, in certain circumstances, entitled to payment of part of the pension interest due, or assigned to, the member of the Government Pension Fund when any pension benefit accrued to that member. A pension interest which had not yet accrued was not considered an asset in the spouse’s estate. To cure this defect, the amendment provided that a pension interest is deemed to be an asset in the estate for the purpose of determining patrimonial benefits.
The Divorce Amendment Act was, however, not without difficulties. One was the question of when the payment of a pension interest should occur. Generally, this depended on the rules of a specific fund but usually took place on retirement, dismissal or some other defined “exit event”.
The problem was that a non-member spouse would be severely prejudiced if the value of his or her benefit was frozen at the date of divorce and the beneficiary would have had to wait for a later exit event.
To cure this defect, various amendments were made to the PFA, in particular, the Pension Funds Amendment Act, which incorporated the “clean-break” principle into section 37D of the PFA. The effect of this amendment is that the non-member spouse no longer has to wait for an exit event to occur. This means that a pension benefit awarded to a non-member spouse in terms of the Divorce Act is deemed to have accrued on the date of the divorce. This demonstrates the interplay between the Divorce Act and the PFA.
The oversight, however, was plainly that these amendments only apply to the PFA and, by extension, to funds that are governed by the PFA. As mentioned above, this is only one leg of the parallel regime. The Government Pension Fund could not benefit from the clean-break principle, as it was governed by its own statute, the GEPL.
In its amended form, section 3 of the GEPL Amendment Act introduces a clean-break principle by incorporating section 24A after section 24 of the GEPL. Section 24A is, in effect, similar to section 37D of the PFA.
Section 24A authorises the Government Pension Fund to make payment of a pension interest upon divorce or dissolution of a customary marriage.
Non-members of the GEPF were denied their share of the pension benefit immediately upon divorce or on dissolution of a customary marriage. They had to wait until their member and former spouse became entitled to his or her pension benefit. This was the subject of a challenge in the Western Cape High Court.
The Applicant Mrs Wiese submitted that it was unfair for the GEPF not to allow her access to the pension benefits that were awarded to her in terms of a divorce order. The High Court found in her favour and declared it unconstitutional as the GEPF failed to give former spouses of members the same rights as those afforded to spouses of members of pension funds falling within the ambit of the Pension Funds Act.
It granted Parliament a year to amend the Government Employees Pension Law so that the GEPF could amend its rules.
The High Court’s declaration was referred to the Constitutional Court for confirmation. The suspension of invalidity was appealed by Wiese.
While the proceedings in the Constitutional Court were pending, Parliament amended the law. Wiese and the GEPF agreed that the amendment disposed of the main issues before the Constitutional Court and the matter had become moot.
The court found that although the absence of a live controversy did not constitute an absolute bar to justifiability, the matter had become moot in the light of the amendment. It could still consider the question of costs.