Many employees want to own a house before they leave active employment. However, an important limitation for most employees is their inability to contribute equity in order to obtain a mortgage loan to purchase a home.
Given this, the Pension Reform Act of 2014 (PRA 2014) allowed holders of Retirement Savings Accounts (RSAs) to use a portion of their retirement savings as equity contributions for residential mortgages.
The National Pension Commission (PenCom) issued Guidelines on Accessing Retirement Savings Account (RSA) Balance to Pay Equity Contribution for Residential Mortgage by Retirement Savings Account (RSA) Holders in 2022. This article explains the application, documentation, and remittance procedures that RSA holders must follow if they want to use their accounts to pay equity contributions for residential mortgages.
To begin, the Guidelines state that an interested applicant must obtain an offer letter for the property from the owner or an approved agent and then approach a Mortgage Lender to complete an application form. The Mortgage Lender examines the application form and confirms the authenticity of the property offer.
The PFA is required to issue a duly endorsed RSA statement to the applicant, which the applicant forwards to the Mortgage Lender. Upon receipt of the RSA statement, the Mortgage Lender verifies if 25% of the applicant’s RSA balance will be sufficient as an equity contribution. Where 25% of the RSA balance is acceptable as equity contribution, the Mortgage Lender issues a mortgage offer letter to the applicant. If, on the other hand, 25% of the RSA balance is insufficient, the Mortgage Lender is required to request the payment of supplementary equity contribution from the applicant. Upon confirmation of the additional equity contribution payment and meeting other requirements, the Mortgage Lender shall offer a mortgage loan to the applicant.
Consequently, within two working days of issuing the mortgage offer letter to the applicant, the Mortgage Lender must forward to the applicant’s PFA copies of the mortgage offer letter, the mortgage application form, and the verified property offer letter. Additional information required includes the loan amount, equity contribution required, bank account details of the Mortgage Lender and indemnity by the Mortgage Lender to the PFA on the use of the equity contribution. In addition, the Mortgage Lender is also required to provide evidence of payment of difference where 25% of RSA cannot cover the needed equity.
On receiving a mortgage offer letter, the applicant must approach his PFAs to request payment of his Equity Contribution. The applicant shall obtain and fill out an Application Form for 25% of his RSA balance and provide an indemnity to the PFA. The PFA also computes and validates that the requested amount is not more than 25% of the RSA Balance. In a joint application, each party shall apply to their respective PFA with a copy of the mortgage offer letter.
The PFA shall forward all applications that pass its review to the Commission within two working days of successful review and validation. If the PFA identifies any exceptions or discrepancies during the documentation review, the PFA shall communicate the exceptions to the Mortgage Lender within two working days.
The Commission shall review all applications submitted by PFAs and approve or reject the applications. Where the Commission declines to approve an application, it shall communicate the reason(s) for its decision to the PFA.
Upon receiving the Commission’s approval, the PFA issues a payment instruction to its Pension Fund Custodian (PFC) to remit the approved amount to the Mortgage Lender within two working days. The PFC must pay the approved amount for equity contribution to the Mortgage Lender within two working days of receiving the PFA’s instruction.
Primarily, PFAs are obligated to ensure that all applications for equity contribution by RSA holders meet the requirement of the Guidelines. PFAs are also mandated to maintain a Record of Applications received from RSA holders for payment of equity contributions for residential mortgages. Additionally, for transparency and ease of supervision, PFAs and PFCs are required to make periodic reports and returns to the Commission on payments made in respect of equity contributions for residential mortgages.
In conclusion, interested RSA holders should contact their PFAs for more information and guidance. PenCom remains committed to the effective regulation and supervision of the pension industry in Nigeria.