Hope for residential mortgage coming for pension contributors

The Pension Reform Act 2014 has expanded the benefits of the Contributory Pension Scheme (CPS), providing opportunity for contributors (workers) in the scheme to withdraw from their retirement savings (RSA) towards equity contribution for payment of residential mortgage.

Here, the industry regulator, the National Pension Commission (PenCom) releases a draft guideline to enable take-off of the scheme, while stakeholders make contributions that would result in final guidelines.

1.0 Introduction

1.1 Section 89 (2) of the Pension Reform Act (PRA) 2014 provides that a Pension Fund Administrator may, subject to guidelines issued by the National Pension Commission (the Commission), apply a percentage of pension fund assets in the retirement savings account towards payment of equity contribution for payment of residential mortgage by a holder of Retirement Savings Account (RSA).

1.2 Pursuant to the referenced Section 89(2), these guidelines provide the framework for its implementation. The Guidelines seek to provide the operational modalities for Pension Fund Administrators in determining the eligibility requirements, procedures and documentation required to enable RSA Contributors to access and utilize part of their RSA balances towards equity contribution in respect of first home ownership mortgages.

2.0 Stakeholders and their roles

The main parties involved in the process and their roles are outlined as follows:

2.1 RSA Holder: A RSA holder shall satisfy the eligibility criteria and shall make a formal application to his/her PFA requesting for a portion of his/her RSA balance as equity contribution, based on a valid and approved Mortgage Loan by a Primary Mortgage Bank (PMB) or Deposit Money Bank (together, Mortgage Lending Institutions) licensed by the Central Bank of Nigeria (CBN).

2.2 Eligible Licensed Institutions: A Primary Mortgage Bank (PMB) or Deposit Money Bank (DMB) licensed by the CBN, shall grant mortgage loans to qualifying RSA holders as well as provide the required documentation to PFAs to facilitate remittance of the approved portion of the RSA balance to be utilized as equity contribution.

2.3 Nigerian Mortgage Refinance Company Plc (NMRC): The NMRC was established to encourage home ownership in Nigeria by providing long term and relatively cheaper refinancing facilities to the PMBs and DMBs, thereby increasing the availability and affordability of mortgage loans to RSA holders and other Nigerians.

2.4 Pension Fund Administrators (PFA): The PFA shall process the application by an eligible RSA holder to access a percentage of his/her RSA balance for mortgage loan; forward such processed application to the Commission for approval and ensure that the required documentation are provided to support the application.

2.5 Pension Fund Custodian (PFC): The PFC shall on behalf of the RSA holder remit to the licensed PMBs and DMBs, the approved portion of the RSA balance, based on instructions from the PFAs and approval by the Commission.

2.6 Central Bank of Nigeria (CBN): The Central Bank of Nigeria is the regulator and supervisor of the entire banking system under which DMBs and PMBs operate. It shall provide on its official website, the updated list of licensed PMBs and DMBs, and other relevant information on their financial stability, from time to time.

2.7 National Pension Commission: The Commission, as the regulator and supervisor of all pension matters in Nigeria, shall ensure that licensed Pension Operators and other relevant parties comply with the provisions of these guidelines.

3.0 General principles

3.1 All applications by RSA holders to access and utilize a percentage of their RSA balances as equity contribution for mortgage loans shall be approved by the Commission.

3.2 A RSA holder shall access a portion of the RSA balance as equity contribution for residential mortgage, only once in a lifetime.

3.3 A RSA holder shall make a formal application to the PFA requesting for a portion of the RSA balance as equity contribution for a mortgage loan.

3.4 A RSA holder that has utilized a portion of the RSA balance as equity contribution for residential mortgage may not be entitled to a lump sum payment at retirement.

3.5 An eligible RSA holder shall be allowed to access a maximum of 25 percent of the RSA balance as equity contribution for a mortgage loan.

3.6 The RSA balance shall be the Value of an Accounting Unit of the Fund (VAUF) of the RSA Fund multiplied by the accounting units held by the RSA holder as at the date the application was received by the PFA.

4.0 Eligibility criteria for rsa holder

In order to qualify to access the RSA balance as equity contribution for a mortgage loan, the following eligibility criteria shall apply:

4.1 The RSA holder shall be in active employment, either as a salaried employee or self-employed person.

4.2 The RSA holder shall have been contributing consistently for a minimum of 10 years, prior to the application for drawdown.

4.3 The RSA holder’s Debt to Income ratio shall not exceed 33.33% of his/her net monthly income at the time of applying for the mortgage. The RSA holder’s debt shall be the sum of the monthly mortgage repayments and other personal debt obligations that impact on his monthly income.

4.4 The RSA holder shall provide the required documentation as required under Section 5.0 and/or other additional documentation requested, from time to time.

Continued from next week