There are opportunities and challenges in accessing equity contribution for residential mortgage under the recently released guidelines for the Contributory Pension Scheme, NIKE POPOOLA reports

The National Pension Commission’s guidelines on equity contribution for residential mortgages are expected to enable workers under the Contributory Pension Scheme to own residential properties without having to pay complete cash.

This is gradually advancing the country into what is obtainable in many developed economies of the world with developed mortgage system.

Recently, PenCom released the guidelines, which were in line with the provisions of Section 89 (2) of the Pension Reform Act (PRA 2014). The guidelines allow RSA holders to utilise part of their retirement savings as equity contribution for the purpose of securing residential mortgage.

According to the guidelines, the RSA holder must be in active employment, either as a salaried employee or as a self-employed person.

The RSA holder, if registered before 1 July 2019, must have updated his records through the RSA data recapture exercise. Application for equity contribution for residential mortgage must be in person and not by proxy; and he can only access the savings once for the purpose of equity contribution for residential mortgage. Also, the RSA holder and the mortgage lender must indemnify the PFA on the exclusive use of the funds released from the RSA for payment of equity contribution.

It added that where an RSA holder had accessed his RSA balance for residential mortgage and 25 per cent due to loss of job, he would access a lump sum at retirement in line with section 7(1)(a) of the PRA, 2014 subject to guidelines issued by the commission.

Where an RSA holder had accessed his RSA balance for residential mortgage, he must sign consent with his PFA before accessing 25 per cent due to loss of job. Where an RSA had accessed his RSA balance due to loss of job, he must sign consent with his/her PFA before accessing his RSA balance for residential mortgage.

Other criteria

The guidelines stated that the RSA holder must have an offer letter for the property duly signed by the property owner and verified by the mortgage lender. The RSA of the applicant must have both employer and employee’s mandatory contributions for a cumulative minimum period of 60 months prior to the application for the RSA holder to access his RSA balance for the purpose of equity contribution for residential mortgage.

According to the guidelines, married couples, who are RSA holders, can be eligible to make a joint application, subject to individually satisfying the eligibility requirements.

Approved mortgage lender

The Central Bank of Nigeria’s list of primary mortgage lenders showed that 34 operators had operating licenses as of the end of June 2021.

However, PenCom, under its mortgage guidelines, had stated that the names of mortgage lenders that met the eligibility criteria of its guidelines would be published on the commission’s website on a bi-annual basis or when any new license was issued by the CBN.

PenCom stated that it would liaise with the CBN on an annual basis to determine the mortgage lenders meeting the stipulated minimum requirements of the guidelines and other conditions as might be specified by the CBN regularly.

It stated that the mortgage lender must be licensed by the CBN to provide residential mortgage and must have met the minimum capital requirement as prescribed by the CBN from time to time.

The mortgage lender must have a valid pension clearance certificate issued by PenCom in line with the PRA, 2014, which mandates it to have pension and group life insurance for its workers.

Application procedure

According to the guidelines, the applicant must obtain a property offer letter from the property owner or approved agent and approach a mortgage lender. He must fill an application for a mortgage, which must be provided by the mortgage lender and should attach the property offer letter. Also, the mortgage lender will review the application form and verify the genuineness of the property offer and will do due diligence to ensure that the property has a valuation report. Upon confirmation of the property offer letter, the applicant will approach his Pension Fund Administrator and request his RSA statement for the purpose of accessing the 25 per cent of his RSA balance for payment of equity contribution.

Also, in a joint application, each party must apply to their respective PFAs with copies of the verified property offer letter. The PFA must issue a duly endorsed RSA statement to the applicant, which the applicant must forward to his mortgage lender. Similarly, the PFA must update records on applications for equity contribution for residential mortgage upon issuing the RSA statement to the RSA holder.

Upon receipt of the duly endorsed RSA statement, the mortgage lender will verify if the 25 per cent of the applicant’s RSA balance will be sufficient as equity contribution.

Where 25 per cent of the RSA balance is sufficient as equity contribution, the mortgage lender will issue a mortgage offer letter to the applicant. Where 25 per cent of the RSA balance is not sufficient, the mortgage lender will request the payment of supplementary equity contribution from the applicant, and upon confirmation of payment of supplementary equity contribution, the mortgage lender will issue a mortgage offer to the applicant. The applicant may, after two working days of receiving his/her mortgage offer letter, approach his PFA to request payment of his equity contribution for the residential mortgage.

Those exempted from the initiative, according to the guidelines are RSA holders that have less than three years to retirement; exempted persons under the PRA 2014 and RSA holders who do not have both employer and employee’s mandatory contributions for a cumulative minimum period of 60 months.

The equity contribution is also not for refinancing existing mortgage, outright purchase of property and purchase of land, and the property must be for residential purpose only.

The Chief Executive Officer, Pension Fund Operators Association of Nigeria, Oguche Agudah, said the policy would be net positive for the pension industry and the economy as a whole.

The effects, he said, were catalytic and would help to galvanise various sectors of the economy.

He noted that over the years, the pension industry had played a significant role in the local debt and equity market, financing national and sub national projects and debt programmes, including transformational companies and projects.

Agudah stated, “The homeownership ratio and first-time home buyer statistics in Nigeria is very low and we believe that this policy will help to improve this and also provide increased benefits to RSA holders in the immediate.

“This policy is very catalytic in nature and has the potential to spur growth in other sectors of the economy. It should boost the mortgage finance and home loan sector, in addition to having a positive effect on the construction value chain and building materials sector.

“We believe it will create massive jobs for artisans and blue-collar workers involved in the construction value chain and also further open up the wealth management and financial planning industry.

“RSA holders will now begin to plan towards a target RSA balance because they have a goal of owning a home.”

While noting that there might be some initial teething problems, he said the pension operators were excited and were primed to partner with PenCom, RSA holders and other stakeholders to ensure that the policy actualised the reason for why it was set up.

The Chairman/Chief Executive Officer, Achor Actuarial Services Limited, Dr Pius Apere, said the residential mortgage was a welcome development in the right direction as it would create a unique selling proposition, leading to deepening of financial inclusion in the Nigerian pension industry.

He said there would be high demand for payment of equity contributions from RSA holders because of the popularity of the residential mortgage arising from their desire to have personal homes.

Apere said, “The demand would result in putting severe pressure on PFAs in terms of documentation and transfers of huge sums of money to mortgage lenders, leading to limited funds available for investments towards providing adequate and sustainable retirement incomes for RSA holders.

“Furthermore, the funds withdrawn from RSA balances for payment of equity contribution would not yield investment returns, thereby limiting the growth of RSA and the overall asset under management in the pension industry.”

Speaking on some of the challenges, he said it was obvious that many RSA holders, particularly micro pension contributors, might not have other personal savings or other investment options in place which would generate income to meet their short-term or long-term financial needs prior to retirement.

The 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, he said.

He added that many other RSA holders who were only able to borrow external funds or have limited personal savings to meet the deposit payment required in section 2.3 of PenCom guidelines were likely to default in their mortgage repayments, leading to repossession of the property by the mortgage lenders, which would mean a total loss of capital borrowed.