The Pension Funds Act permits retirement funds to offer housing loans or guarantees to members under specific conditions. These loans or guarantees can be used for various housing-related purposes, such as repaying existing loans, acquiring property, constructing residences, or making home improvements.
To qualify for a housing loan or guarantee, the member must meet strict requirements:
- Security: The loan must be secured by a first mortgage on the property or a pledge of the member’s fund benefits.
- No Prior Loans: The member cannot have any existing housing loans or guarantees from the fund.
- Interest Rate: The applicable interest rate is determined by the relevant financial institution.
- Repayment Period: The maximum repayment period is 30 years, and the outstanding balance at retirement must be repayable from no more than one-third of the total retirement benefit.
- Loan Limit: Under the Sanlam Umbrella Fund, the total guarantee cannot exceed 50% of the member’s fund value.
Deduction of Housing Loans from Fund Benefits
- Termination of Membership: If a member leaves the fund, the fund can directly deduct any outstanding housing loan from their final benefit.
- Ongoing Membership: If a member remains in the fund, the fund can only deduct the loan as a last resort after exhausting all other repayment options. This should be a rare occurrence and only used when no other arrangements are possible.
Major changes to the treatment of housing loans and guarantees as from 1 September 2024:
- A fund may not, without the consent of the non-member spouse, grant a loan or guarantee or permit a savings withdrawal benefit to be taken by a member if the fund received written notification from the member or non-member spouse with proof that a divorce has been instituted, as defined in the Divorce Act.
- Housing loans granted by the employer may no longer be deducted from the member’s benefit. Where the employer granted a housing loan to a member, the employer must claim the outstanding housing loan amount from the member directly and it can no longer request the fund to deduct the outstanding amount from any fund benefits that become payable to the member when the member terminates his or her fund membership.[i]
- The housing loan deduction will be made proportionately from the three components, in other words the savings component, the retirement component and the vested component.
Although the Two Pot System brought changes to the way in which retirement funds may grant housing loans and guarantees or deduct outstanding housing loans from the benefits of members, it remains a valuable tool that can assist fund members to obtain a house that they can call their home.
[i] section 37D(1)(c)(iii) – the Fund can request the FSCA in writing to approve the deduction of an employer home loan.