Housing finance through pensions - Part 2
What does the law say about housing loans from pension funds?
The Pension Funds Act No. 24 of 1956, specifically Section 19(5), allows funds to provide loans for housing purposes if permitted by their rules. Section 37D permits the fund to deduct the outstanding loan amount from the member's benefit when they leave the fund.
Where can one build or purchase a house under these provisions?
A loan may be granted for a property in an urban or communal area, provided the member holds a valid right of ownership or entitlement.
Can pension funds lend directly to members?
Yes, if the fund's rules permit, a fund may grant a Direct Housing Loan (see 1.) to the member.
How much of the pension benefit can be used as collateral or for a direct loan?
The law says that a fund may lend up to the benefit a member would be entitled to receive in cash when they leave the fund. Usually, this is thus a maximum of one-third (33.3%) of the member's benefit.
Does the law protect members from losing all their savings?
Yes, safeguards limit exposure and ensure pension fund housing loans are repaid.
Who oversees compliance with the Act?
NAMFISA supervises funds and ensures compliance.
What is Section 37D about?
It allows deductions from pension benefits for housing loans granted to members by a fund, the employer or by a financial institution.
What is Section 19(5) about?
It details the conditions under which funds may grant housing loans, which are to:
I. Redeem an existing housing loan granted by another lender.
II. Purchase a dwelling or land to erect a dwelling for occupation by the member or dependents.
III. Make additions, alterations, or repairs to an existing dwelling.
IV. Redeem or secure loans relating to housing on communal land under the Communal Land Reform Act, 2002.
V. Erect or improve a dwelling on communal land under a valid customary or leasehold right.
Is this a new law?
No, the provisions have existed since 1956; the focus is now renewed with recent policy actions.
From a Member's Perspective
How much can I borrow?
The law says that a fund may lend up to the benefit a member would be entitled to receive in cash when they leave the fund. Usually, this is thus a maximum of 33.33% (i.e. one-third) of your pension benefit, depending on fund rules.
What can I use the loan for?
For buying, building, or making fixed improvements to a home.
How do repayments work?
A loan granted by the fund directly to you (see 1.) must be repaid by the time you retire at the latest. A loan given by a bank (see 2.) has to be repaid over the term the bank determines. The repayments are deducted monthly, usually via employer payroll.
What interest rate applies?
For direct loans (see 1.), the rate is the Repo rate plus 2.5% per the Act. However, banks (loans in 2.) may set higher rates.
What if I resign or retire early?
Any outstanding balance on a loan is deducted from your benefit when you exit the pension fund.
Can I build on communal land?
Yes, if you have a valid customary or leasehold right.
Will this affect my retirement savings?
It depends on who granted the loan, i.e., the pension fund or another financial institution. If another financial institution gives the loan (see 2), the member's savings are not affected. However, if the pension fund grants the loan (see 1), depending on the fund's rules, the money may be taken from your fund investment, in which case the loan will earn Repo plus 2.5% interest.
Can I take a loan for a rental property?
No, loans are not allowed for rented property.
What happens if I default on repayments?
The outstanding loan is settled from your pension benefit when your membership terminates.
How long does approval take?
Please approach your fund regarding this matter; the requirements and process may differ from fund to fund.
The Pension Funds Act No. 24 of 1956, specifically Section 19(5), allows funds to provide loans for housing purposes if permitted by their rules. Section 37D permits the fund to deduct the outstanding loan amount from the member's benefit when they leave the fund.
Where can one build or purchase a house under these provisions?
A loan may be granted for a property in an urban or communal area, provided the member holds a valid right of ownership or entitlement.
Can pension funds lend directly to members?
Yes, if the fund's rules permit, a fund may grant a Direct Housing Loan (see 1.) to the member.
How much of the pension benefit can be used as collateral or for a direct loan?
The law says that a fund may lend up to the benefit a member would be entitled to receive in cash when they leave the fund. Usually, this is thus a maximum of one-third (33.3%) of the member's benefit.
Does the law protect members from losing all their savings?
Yes, safeguards limit exposure and ensure pension fund housing loans are repaid.
Who oversees compliance with the Act?
NAMFISA supervises funds and ensures compliance.
What is Section 37D about?
It allows deductions from pension benefits for housing loans granted to members by a fund, the employer or by a financial institution.
What is Section 19(5) about?
It details the conditions under which funds may grant housing loans, which are to:
I. Redeem an existing housing loan granted by another lender.
II. Purchase a dwelling or land to erect a dwelling for occupation by the member or dependents.
III. Make additions, alterations, or repairs to an existing dwelling.
IV. Redeem or secure loans relating to housing on communal land under the Communal Land Reform Act, 2002.
V. Erect or improve a dwelling on communal land under a valid customary or leasehold right.
Is this a new law?
No, the provisions have existed since 1956; the focus is now renewed with recent policy actions.
From a Member's Perspective
How much can I borrow?
The law says that a fund may lend up to the benefit a member would be entitled to receive in cash when they leave the fund. Usually, this is thus a maximum of 33.33% (i.e. one-third) of your pension benefit, depending on fund rules.
What can I use the loan for?
For buying, building, or making fixed improvements to a home.
How do repayments work?
A loan granted by the fund directly to you (see 1.) must be repaid by the time you retire at the latest. A loan given by a bank (see 2.) has to be repaid over the term the bank determines. The repayments are deducted monthly, usually via employer payroll.
What interest rate applies?
For direct loans (see 1.), the rate is the Repo rate plus 2.5% per the Act. However, banks (loans in 2.) may set higher rates.
What if I resign or retire early?
Any outstanding balance on a loan is deducted from your benefit when you exit the pension fund.
Can I build on communal land?
Yes, if you have a valid customary or leasehold right.
Will this affect my retirement savings?
It depends on who granted the loan, i.e., the pension fund or another financial institution. If another financial institution gives the loan (see 2), the member's savings are not affected. However, if the pension fund grants the loan (see 1), depending on the fund's rules, the money may be taken from your fund investment, in which case the loan will earn Repo plus 2.5% interest.
Can I take a loan for a rental property?
No, loans are not allowed for rented property.
What happens if I default on repayments?
The outstanding loan is settled from your pension benefit when your membership terminates.
How long does approval take?
Please approach your fund regarding this matter; the requirements and process may differ from fund to fund.
