How can retirement savings be split on divorce after retirement?

If you divorce your spouse after they have retired from their retirement fund and are receiving a pension, the division of the savings providing that pension or the income it provides on divorce will depend on how the pension is provided.

Pension paid by the fund (in-fund)

All retirement funds are required to offer retiring members a default annuity (pension) option.

Some funds offer members what are known as in-fund annuities or in-fund living annuities. If a fund offers this option and a member elects to use it, they will invest at least two thirds of their savings in the annuity offered by the fund and draw a pension from that annuity.

Should the member get divorced, the fund holds the capital which is regarded as the member’s pension interest in line with the definition of pension interest in the Pension Funds Act that became effective on 1 September 2024.

This means that this capital can be included in the marital estate and a portion of the capital can be awarded to a non-member spouse in a divorce settlement. If this is the case, the pensioner’s pension will then decrease.

An out-of-fund pension

If at retirement a member chose either a default annuity or an annuity of their own choice provided by a life insurer and not the fund itself, then their retirement savings are transferred to that insurer in return for certain rights.

• Guaranteed life annuity

If the member elected a guaranteed life annuity, their right is to receive a certain pension for life, or, if this option was chosen, for a guaranteed period. On death, or after the guaranteed period, there is no residual value in the annuity.

• Living annuity

If the member elected a living annuity, they have a right to invest in various investment portfolios and to draw an income within regulated limits from their investments and the growth on them.

On death, any residual value must be paid to the annuitant’s nominated beneficiaries.

In both cases, the investment capital no longer belongs to the fund member but rather to the life insurer and will no longer be regarded as part of the marital estate and capable of being divided in the divorce settlement. 

Despite there being an investment account in the case of a living annuity, it cannot be split and no part of it can be surrendered to a spouse in a divorce.

The future income stream

South African courts have increasingly recognised that post-retirement annuity income rights are assets that should be included in the marital estate.

In a Supreme Court of Appeal ruling in the case of Montanari v Montanari in 2020, the court held that the value of the future income from a living annuity can be included as an asset in the marital estate for the purposes of an accrual calculation and splitting on divorce. The court stated that the value of this income stream is not the same as the capital held by the insurer, but should be valued actuarially with reference to the annuitant’s life expectancy and drawdown patterns.

This case is expected to put a stop to divorcing spouses transferring assets into a living annuity to reduce the value of their estate ahead of a divorce.

It is possible that the Montanari case has implications for accrual calculations and divorce settlements in cases where a retiree is receiving an income from a guaranteed life annuity, but no such cases have come before the courts yet.

Valuing the income stream

The court in the Montanari case did not give explicit guidance on how to determine the fair value of the future income and the Actuarial Society of South Africa (ASSA) has described valuing this income stream as notoriously tricky.

In valuing the income, it is expected that calculations will take into account:

• The income that is expected to be drawn from the annuity;
  
  
• The expected remaining value when the annuitant dies that is not part of the income stream;
  
  
• The expected investment return (interest) to be taken into account for the calculation of the annuitant’s future right; and
  
  
• The taxes payable on the income drawn.

Estimating the income is difficult because the annuitant can choose an income of between 2.5 percent and 17.5 percent of the investments in the living annuity each year and can change the percentage drawn each year.

In addition, the annuitant chooses the investments which influence the returns earned on them.

And the amount drawn will affect the tax that is deducted from the annuity. The tax should be taken into account, as the marital estate should be what is left after all liabilities, which include taxes, are deducted, ASSA points out.

A divorcing spouse could pick a low percentage or rate to draw as a pension (the drawdown rate) and argue that this is the future value of the income, prejudicing the other spouse.

Reasonable drawdown rate

ASSA is of the view that arriving at a reasonable drawdown rate on which to base the valuation is riddled with individual and subjective factors.

It points out that using the maximum drawdown (17.5 percent) is not a good idea, as for most annuitants such a high drawdown rate will compromise the period for which the annuity will provide a growing income.

ASSA suggests the mid-point between 2.5 percent and 17.5 percent could be considered or the current average annuity drawdown rate of between five and six percent, adjusted annually to increase the Rand amount in line with inflation.

The annuitant and spouse’s financial position may need to be considered as well as the annuitant’s access to liquid assets to pay the spouse their share of the estimated income stream, ASSA suggests.

Different withdrawal rates

Actuary Eddie Theron presented at the ASSA conference in 2025 suggesting the use of one of four withdrawal rates to value the income:

• The withdrawal rate that maximises the inheritance;
  
  
• The highest withdrawal rate that can increase by inflation each year without the withdrawal rate ever reaching the maximum withdrawal rate of 17.5 percent of the capital even if the annuitant has an extremely long life expectancy;
  
  
• The highest withdrawal rate that can increase by inflation each year without the withdrawal rate reaching the maximum withdrawal rate of 17.5 percent of the capital during the annuitant’s statistically expected lifespan; or
  
  
• The maximum rate the annuitant could get as a guaranteed annuity.
  
  

This article was written by Smart About Money editor Laura du Preez and reviewed Hettie Joubert, a director of J Law Consulting, who has served as a legal adviser to the retirement fund industry for many years.

Source on valuing an annuity: 2025-ASSA-Theron-FIN.pdf