The high price of buying housing in Nigeria and irregular remittance of pensions by many employers, particularly in the private sector, are major hurdles facing many who want to use their retirement savings to secure residential mortgages.
Many contributors, otherwise called Retirement Savings Account (RSA) holders, complain that available houses for sale are costly, compared to the amount of money they can access from their pensions and this has made it difficult for them to take advantage of the pension-for-mortgage initiative.
Some are not able to benefit from the housing plan because their pension remittances are irregular.
The National Pension Commission (PenCom) had on September 23, 2022 approved the issuance and immediate implementation of the guidelines on Accessing Retirement Savings Account balance towards payment of equity contributions for residential mortgage.
According to the commission, the approval is in line with Section 89 (2) of the Pension Reform Act 2014, which allows RSA holders to use 25 percent of their RSA balance towards payment of equity for residential mortgage.
Cecilia Nwoji, a contributor with one of the pension fund administrators, described the initiative as a welcome development, but lamented that it did not take into cognisance the realities in the environment.
Nwoji said the way the guideline is structured, it is meant to favour the upper class that do not even need the mortgage because “they are the only people who can have such required amount in their RSA for equity deposit, and who can as well have the capacity to pay up the remaining balance in the long run”.
According to her, the essence of the residential mortgage arrangement will be defeated if it does not favour the middle-income class who need such housing but cannot afford it based on what is available in the primary mortgage space.
For Babatunde Opeyemi, who works with a private firm, his frustration is that his remittance is not regular and what would happen if he cannot pay up the balance in the long-run.
“You know that nobody can predict job security in Nigeria now; so I am thinking how I will pay up the mortgage loan should I lose my job,” Opeyemi said.
Ibrahim Kangiwa, head of Investment Department at PenCom, said for contributors under the Contributory Pension Scheme (CPS) to be eligible to use their RSA balance for acquisition of residential mortgages, they must have contributed for five years (60 months) cumulative of employer and employee’s mandatory contributions.
He said the same thing was applicable to the contributors under the Micro Pension Plan.
Section 2.1 of PenCom’s guidelines says: “The maximum amount to be applied as equity contribution for residential mortgage shall be 25 percent of the total RSA balance as at the date of application irrespective of the percentage of equity contribution required by the mortgage lender.”
“Notwithstanding 2.1 above, where the value of 25 percent of RSA balance is more than the required equity contribution, the RSA holder can only access an amount equivalent to the equity contribution required by the mortgage lender,” says Section 2.2.
According to Section 2.3, where the value of 25 percent of the RSA is lower than the equity contribution required by the mortgage lender, the RSA holder shall deposit the difference with the mortgage lender before 25 percent of his/her RSA balance can be applied as equity contribution.
Pius Apere, chairman/CEO of Achor Actuarial Services Limited, said some of the challenges contributors would have include having the required amount in their savings and being in position to pay up the balance in the long- run.
Apere said it is obvious that many RSA holders, particularly micro pension contributors, may not have other personal savings elsewhere or other investment options in place (e.g. equities, fixed interest securities etc.) which would generate income to meet their short-term or long-term financial needs prior to retirement.
He said these RSA holders would not be qualified to access the authorised limit for equity contribution because of their inability to source for external funds to finance the deposit payment specified in section 2.3 of PenCom Guidelines.
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“In the same vein, many other RSA holders who are only able to borrow external funds or have limited personal savings to meet the deposit payment required in section 2.3 of PenCom Guidelines are likely to default in their mortgage repayments, leading to repossession of the property by the mortgage lenders, which means a total loss of capital borrowed,” he said.
Olusakin Labeodan, group chief marketing officer of Leadway Assurance, said allowing contributors to use their pension for residential mortgage “is a big success for the CPS”, adding that feedback from stakeholders was being taken by the authorities.
“It may not have been perfect as it were, but it’s advancement in making contributors benefit more from their pensions in the form of residential housing,” he said.
Labeodan said with time, many contributors will begin to benefit from the policy, particularly the younger contributors who will still have a long time in employment.
