DEFINED CONTRIBUTION

HOUSING LOANS

Disclaimer: The following is a summary of the main provisions that apply to taking a housing loan from the Fund. In the event of a difference between this summary and the Fund's official policy, the Fund's official policy will apply.

Housing loans are issued in terms of section 19(5) of the Pension Funds Act of 1956, which allows Trustees to assist members in financing their genuine housing needs.

You may borrow part of your Member Credit for the purposes of housing. The conditions relating to such loans are strict and are prescribed by the Pension Funds Act and the National Credit Act. The National Credit Act places further obligations on the Fund, as a licenced credit provider, to ensure that the member can afford the loan.  Housing loans may only be made in the circumstances described below:

  1. To repay an existing loan in respect of a property that belongs to the member or his/her spouse or both on which a residence has been erected (or will be erected) and which the member or a dependant will occupy.
  2. To buy property on which a residence has been or will be erected that will be owned by the member or his/her spouse or both and which the member or a dependant will occupy.
  3. To make additions or alterations or to maintain and repair a residence owned by the member or his/her spouse or both and which the member or a dependant occupies.

It is clear that any such loan may only be used for housing purposes and the Fund has the right to verify that the loan is being applied in this manner. The Fund has the right to reject any application for a housing loan if it is of the opinion that the conditions of the Pension Funds Act are not being complied with.

Amount you can borrow

You may borrow the lesser of:

  • The market value of the property or alternations you wish to do; and
  • 60% of your Member Credit after allowing for the tax you would need to pay on exit. 

The application form for a housing loan is available in the Forms section (login required).

Interest payable

The registrar of Pension Funds, in 2011, linked the interest rate that applies to housing loans related to members' retirement benefits to the repo rate, as determined by the South African Reserve Bank. Up until 2017, the applicable housing loan interest rate was the repo rate plus 5,5% per annum. In 2017, the Registrar of Pension Funds issued a notice amending the interest rate to the repo rate plus 2% per annum. Since October 2017, the interest rate on housing loans issued by the Fund is the repo rate plus 2% per annum.

Repayment conditions

The loan you take must be repaid in full by the time you reach age 65. The Pension Funds Act prescribes a maximum repayment period of 30 years. The Act also requires that the repayment be made in equal instalments.

Filling in an Investment Choice form

If you elect to take a housing loan directly from the Fund, you need to fill in an Investment Choice form to indicate from which portfolio the Fund must invest money in order to finance your housing loan. Your housing loan will not be granted unless you complete this option form.

It is important to note that:

  • Because part of your Member Credit needs to be disinvested to finance your housing loan, you are affecting a switch of your money. As such the switch fee will be payable (unless this is your first switch in the calendar year). 
  • If market conditions are poor a "penalty" may apply to any amount you switch out of the Stable Portfolio (also see fact sheet).

    As part of the process of stating which part of your Member Credit should be disinvested to finance your housing loan, you may also state the manner in which the capital component of your repayment should be invested.

    If you do not state the manner in which your capital repayments are to be invested, these repayments will be invested in the same way as your on-going contributions.

Additional administration costs

There are certain additional costs associated with obtaining a housing loan, as the administration implications for the Fund are onerous, namely:

  • You need to pay a once-off amount of R517.50 (Inc VAT) for the Fund to process you application.
  • A monthly administration fee of R34.50 (plus VAT) is payable monthly.

Impact on pension savings

If you elect to take a housing loan from the Fund, you will in effect be investing your pensions savings in a separate investment channel.

The loan that you are granted will be financed by disinvesting this amount from the portfolio(s) in which your Member Credit is invested. In return a new portfolio is created, namely your housing loan account.

You must repay this loan from your Member Credit at the rate of interest specified in the Pension Funds Act (currently the repo rate plus 2% p.a.). 

 An example

  • Let's assume your Member Credit is currently R100 000 and this is invested entirely in the Market Portfolio.
  • You now decide to take a housing loan from the Fund for R50 000 and the Fund approves your application. 

The following diagram shows how your money is invested before and after the loan.

Impact of homeloan




PENSION FUND RULE BOOK

The registered rules of the Fund contain everything you need to know about your Fund, its Governance, Management, Investments and Benefits. The Fund is bound by the Rules of the Fund. In the event of a dispute between any information provided and the Rules of the Fund, the rules will apply.

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