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Pension for Mortgage: How Nigerians are Buying Homes with Retirement Savings

A new initiative by the pension industry allows contributors to use part of their retirement savings as equity for residential mortgages.

by Motoni Olodun

Buying a home is a dream for many Nigerians, but it can be hard to achieve with the high cost of housing and the lack of affordable mortgages. However, a new initiative by the pension industry is changing that by allowing contributors to use part of their retirement savings as equity for residential mortgages.

The initiative, which was approved by the National Pension Commission (PenCom) in September 2022, is in line with section 89 (2) of the Pension Reform Act 2014, which allows Retirement Savings Account (RSA) holders to use up to 25 percent of their RSA balance towards payment of equity for residential mortgages.

According to data released by the Pension Fund Operators Association of Nigeria (PenOp), the industry body for pension fund administrators, the initiative has gained traction among Nigerians, as 1,371 contributors have successfully secured approval for residential mortgage financing valued at N14.83 billion as at the end of November 2023.

This represents a significant increase from the 13 contributors who accessed N130.25 million in March 2023, when the initiative was first implemented.

PenOp said the industry remains steadfast in prioritizing the well-being of contributors and facilitating early homeownership.

“The recent initiative allowing contributors to utilize 25 percent of their RSA contributions for mortgages after five years of consistent contributions underscores the industry’s commitment to facilitating early homeownership,” PenOp said in a statement.

The association added that the surge in approval of applicants from 13 to 1,371 within a short period following this development is a testament to its positive impact, encouraging more RSA holders to actively participate in and join the Contributory Pension Scheme (CPS).

The CPS, which was introduced in 2004, is a mandatory scheme for all employees in the public and private sectors, where both the employer and employee contribute a minimum of 10 percent and 8 percent of the employee’s monthly emolument respectively.

The scheme aims to ensure that workers have a secure and comfortable retirement, as well as access to other benefits such as the pension for mortgage initiative.

To be eligible for the initiative, an RSA holder must be in active service, either as a salaried employee or as a self-employed person, and must have contributed for a minimum of 60 months before applying.

The applicant must also have an offer letter for the property duly signed by the property owner and verified by the mortgage lender, and the property must be for residential purposes only.

The maximum amount an RSA holder can access as equity contribution for a residential mortgage is 25 percent of the RSA balance as of the date of application, irrespective of the percentage of equity contribution required by the mortgage lender.

However, if 25 percent of the RSA balance is not sufficient for equity contribution, the RSA holder may utilize voluntary contribution or contingency portion in line with the guidelines issued by PenCom.

The initiative has been lauded by experts and stakeholders as a game-changer for the housing sector, which faces a huge deficit of over 20 million units, according to the World Bank.

The initiative is also expected to boost the mortgage industry, which has a low penetration rate of less than one percent of the Gross Domestic Product (GDP), compared to other countries such as South Africa (31 percent), Malaysia (34 percent), and the United States (63 percent).

The initiative is also in line with the government’s efforts to promote affordable housing and reduce poverty, as enshrined in the National Housing Policy and the Economic Recovery and Growth Plan.

With the pension for mortgage initiative, Nigerians can now look forward to owning their own homes and securing their future with their retirement savings.

Source: Business Day


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