Primary mortgage coming from your pensions

In advanced economies where pension has been described successful, monies generated from pensions are always a good source of long terms funding for primary mortgage acquisitions. In such jurisdictions, there are always little challenge on housing, as the gap is always small because pension funds has been used to bridge the gap making life more decent and comfortable.

With the growing success of Nigeria’s Contributory Pension Scheme (CPS) increasing at almost 30 percent annually, and pension assets currently standing at N4.6trn equal to N28.2bn dollars and six million contributors as at June 2014, and a projection of over $100bn in two decades, there is a major discussion along utilising the pension funds for primary mortgage in the near future.

So, congratulations if you are a contributor in the scheme, either as federal government employee, private sector employee or employee in states that have adopted the contributory pension scheme.

But, if your State is yet to adopted the scheme, sorry, because you may not have the opportunity to be part of the ‘pension-mortgage plan’ when it become realistic.

It’s soon because States that have complied will be allowed to raise bonds for housing development and part of regulatory motivation, and workers in such States would be the beneficiaries.

So, with the ongoing discussion on utilising the pension funds for primary mortgage, contributors in the scheme could be allowed to pay for mortgage with part of the balance in their Retirement Savings Account( RSA) managed by the Pension Fund Administrators.

Mortgage is of different classes and this also, is a function of what you can afford. So, the balance in your Retirement Savings Account (RSA) would determine whether you are qualified for mortgage in Lekki, Ikoyi, Victoria Island, Garki, or in Mushin, Iyana- Ipaja or Okokomaiko areas.

What this means is that a contributor with N60 million in his Retirement Savings Account would afford a quality mortgage than the person with N30 million, so also with persons having N10m and N4m. While the person with higher amount would also have more choices to make as to where and what quality of mortgage to take, the person with smaller amount would have less choices.

This again brings to relevance, the need for the employee contributor to consider making Additional Voluntary Contribution (AVC). This will give him the opportunity to increase his pension package over time and enhances his chances for choice mortgage when the programme commences soon.

Apart from what the employer has provided there is an opportunity for people to enhance their pension savings through this platform so that by the time they are due for retirement, there would be substantial amount of money to make the person retiree comfortably.

It also has implication in the interim, if for example it become possible to buy mortgage with pension savings because the larger the amount you have in your RSA balance, the larger the amount you can use as a proportion of it for collateral.

And part of that additional amount could have come from voluntary contribution, so it becomes an incentive to save more because I know that when I get to a certain threshold it affords me the opportunity to qualify for a particular mortgage and if I don’t I many not qualify.

So, far and above what my employer is putting down for me I could decide to make additional contributions. It has far reaching implications, not just at the point of retirement but also in the interim.

Pension Reform Act 2014 provides that any employee to which this Act applies may, in addition to the total contributions being made by him and his employer, make voluntary contributions to his retirement savings account.

In this case, the employee wanting to make additional voluntary contribution would liaise with his employer to remit a certain additional amount of money alongside the statutory pension contribution to his chosen Pension Fund Administrator (PFA). The money is invested by the PFA and returns generated are credited into the contributors Retirement Saving Account. Mortgage expert says pension money are mostly long-term funds and are the most qualified to support the mortgage industry in attaining its millennium development goals. But
these funds, understandably, are mostly locked up in government treasury bills and bonds.

These (pension) funds have to be unlocked and made available for the real estate sector. This is because the funds are basically, according to the expert long term and won’t have problem in terms of mismatch in the maturity profile of the loans presently granted by mortgage institutions in the country, because “mortgage loans are long term, as against  the deposits we take that are mostly short tenured,”
says the expert.

If you do an actuarial valuation of the pension funds managed by the PFAs (Pension Fund Administrators), the minimum average number
of years the money will remain with the PFAs is about 20 years. This is what we call long term money. This is the kind of money you expect should go into the housing and mortgage sector.

Today, the pension industry has the largest pool of long term investible funds in Nigeria, it is the largest investor in the capital market combined industry strength, and in the average contributes between 10 and 20 percent of free floating issued share in the capital market.