Education needed on using pension contributions for mortgage

Financing is one of the most important factors to guarantee sustainable housing production to bridge the housing gap. Mortgage finance is one of the instruments that can provide continuous and reliable finance for housing production and consumption. However, access to this type of housing finance is limited.

In Ghana, the growing economy and an expanding middle class in the last few decades have enhanced opportunities for mortgage lending. But short to medium macroeconomic shocks in the last few years have had a monumental impact on the growth of mortgage markets, making the growth of the mortgage market unimpressive, with the mortgage-to-gross domestic product ratio being less than one per cent.

Several factors constrain the development of a mortgage market, broadly reflecting macroeconomic challenges. They include affordability problems resulting from macroeconomic challenges such as high and volatile inflation, high interest rates, excessive exchange rate movements, low income levels and declining real incomes, lack of long-term loanable funds and the dearth of a loan repayment culture.

Recently, the National Pensions Regulatory Authority (NPRA) encouraged pension contributors to take full advantage of the Pensions Act, 2008 (Act 766) to secure mortgages for the acquisition of houses. This is to help bridge the huge housing deficit in the country.

The pensions regulator is of the view that although the act allows benefits accrued to be used to secure mortgages for the acquisition of a primary residence after over a decade, the funds contributed remain largely unutilised.

Sections 103 and 144 of Act 766 provide for contributors to use accrued tiers Two and Three benefits to secure mortgages for the acquisition of their primary residence through a mortgage agreement without tax implications.

The Daily Graphic finds the call by the NPRA timely, especially in view of the worsening housing deficit which is denying potential homeowners the opportunity to own houses.

The sad reality now is that many build their homes when they retire, using their lump sum earned from their contributions for such projects. In the end, they are left with nothing to depend on and eventually pass away, without being able to enjoy their property.

Presently, the quantum of pension funds being managed offers a reliable supply of financing for major long-term investments. One of these long-term productive investments is mortgage financing, which has the potential to reduce the housing deficit, while offering appreciable value to the contributors of the pension schemes.

It must be said that this practice is not new because, globally, it is the norm that pension funds are used to finance mortgages for the purposes of creating value and making a real impact on the economies of nations.

To be specific, Section 103 (1) states: “A contributor may pledge or create a charge in respect of a part or all of the contributor’s accrued benefits.”
This clause is explicit enough and must be explored.

We prevail on the NPRA to begin intensive education on these aspects of the act as a way of sensitising contributors to enable them to make use of this unique opportunity.

As it stands now, it is quite obvious that the act is not being explored because many contributors are not aware of their rights as far as the law is concerned. Once they are educated, we trust that many will explore that opportunity.

By this, the Daily Graphic is urging financial institutions that are offering mortgage products to help the process by joining the educational campaign to create awareness of this act.

What is the use of the law if the people who are supposed to protect and benefit from it are ignorant of it? We think the NPRA, as a regulator of the pensions industry, must lead in informing and educating pensions contributors about it, so that they can take advantage of it.

The time has come for the country to bridge the housing gap to make people comfortable and move away from renting homes, a practice which takes a chunk of their earnings and renders them poor or financially insufficient.

There is nothing like owning a home because it brings about peace of mind which can impact on one’s productivity. If the law is there, the people must know and take advantage of it to improve on their standard of living.