Pension plan members who successfully secure a mortgage or home construction loan using their accrued benefits as collateral are given a 20-year period to complete repayment.
“The repayment period of a mortgage or a loan for the purchase of a dwelling house…shall not exceed 20 years,” states Clause 10 of the Pension Benefits Allocation Regulations for Uganda Retirement Benefits Regulatory Authority (URBRA) Mortgages and Loans.
Regulations issued by URBRA give people in a registered pension scheme who have been members for 10 years or who have been unemployed the green light to pledge up to 50% of their benefits as collateral for housing development.
But ahead of the two-decade assurance, eligible savers will have to go through extensive processes dictated by the regulator, pension plan and financial institutions before getting a mortgage or loan.
Details of the settlement show that eligible members will first need to obtain a letter for the loan or mortgage from a legally approved financial institution, before applying to their pension plan for permission to use their warranty services.
“A member shall, after obtaining a letter of offer for a facility, request the trustees to assign a portion of his accrued benefits as security for a mortgage or a loan for the purchase of a dwelling house “, clause 7 (1) of the regulation indicates it.
The eligible claimant will then complete a form, with details including the name of the claimant, plan and membership number, total amount of benefits accrued and percentage they wish to award and the approved financial institution that he intends to secure the loan or mortgage. This must be accompanied by a written commitment to pay the mortgage or loan according to the terms agreed with the financial institution.
On the form, the applicant must also provide proof that the loan is intended for a real estate project by indicating the location of the property. Regulation has limited lending for the purchase of a residential home, but worries of embezzlement are not absent from the minds of regulators.
Mr. Martin Nsubuga, the Managing Director of URBRA, in a telephone interview on Wednesday, said the regulations empower the scheme and financial institutions to put in place rules that will further streamline processes to protect all parties.
“It’s like getting a loan from the bank, and you give a purpose. There are challenges they face, it’s embezzlement. In this case, the trustees (board of directors) have the duty to monitor the implementation and ensure that their members use the funds for the purposes specified,” he said.
The form also contains a clause that commits the claimant to repayment, and authorizes the pension plan, in the event of default, to draw on members’ benefits to settle the obligation.
The pension plans had 30 days to consider the request. There are 64 registered pension plan providers. But at press time, members of the largest pension scheme have been barred from benefits due to a conflicting law.
In the event that one successfully obtains approval for their scheme, they will then enter a Deed of Assignment with the financial institution that they intend to secure the mortgage which states the sum to be advanced. Four members of the pension fund’s board of directors will also be required to sign as witnesses to the deed.
The regulations have also charged banks with the duty to follow, regularly updating the pension scheme on how the loan is being used.