The National Pensions Regulatory Authority (NPRA) has encouraged pension contributors to take full advantage of the Pensions Act, 2008 (Act 766) to secure mortgages for the acquisition of houses to help address the housing deficit in the country.
This is because although the Act allows benefits accrued to be used to secure a mortgage for the acquisition of a primary residence, after over a decade, it remains unutilized.
The Deputy Chief Executive Officer of the authority, David Tetteh-Amey Abbey, who made the call, explained that section 103 and 144 of the Act provided for contributors to use accrued Tier Two and Three benefits respectively, to secure mortgages for the acquisition of their primary residence through a mortgage agreement without tax implications.
At the first edition of the Ghana Pension and Alternative Investment Summit in Accra yesterday, he said the implementation of the new pensions regime had accumulated GH¢40 billion in 12 years.
Out of that asset value, the private pension funds hold GH¢29.6 billion as of the first quarter of the year.
The value of assets under the management, Mr Abbey said, offered a reliable supply of funding for major long-term investments.
“One of these long-term productive investments is mortgage financing which has the potential of reducing Ghana's housing deficit whiles offering appreciable value to the contributors of the pension schemes,” Mr Abbey said.
Globally, he added, it had been the practice that pension funds targeted and participated in long-term productive investment for the purposes of creating value and real impact on the economies of nations.
Section 103 (1) states that “A contributor may pledge or create a charge in respect of a part or all of the contributor’s accrued benefits”.
Yesterday’s summit in Accra was dedicated to exploring the country’s pensions and investment opportunities.
Held on the theme: Leveraging on pensions for mortgage financing, the summit brought together the senior executives and trustees from leading corporate and government pension schemes and corporate trustees, workers and union leaders to discuss opportunities around the country’s pension ecosystem.
Speaking on the topic ‘Perspectives on policy implications: Pension and Mortgage financing,’ Mr Abbey explained the benefits of Act 766 and what the various contributions meant.
He said contrary to the perception that pensions were only beneficial to contributors only after retirement, the Act had also made it beneficial for contributors during their active working period.
“For instance, sections 103 and 144 of the Act provide for contributors to use accrued Tier Two and Three benefits respectively, to secure mortgages for the acquisition of their primary residence through a mortgage agreement without tax implications.
“Additionally, Tier Two benefits could also be used as security for the acquisition of a primary mortgage. Unfortunately, that aspect of the act remains largely unutilised in spite of it being a laudable innovation,” the NPRA Deputy CEO said.
Mr Abbey said the Ghana Statistical Service reported a housing deficit of about 1.8 million in its recent report.
Thus to help resolve this dire challenge, the NPRA as a pensions industry regulator, has put together, a favourable and conducive legal framework through the Investment Guidelines for private pension schemes in line with the government's objective of reducing the deficit further.
“The National Pensions Act 2008, Act 766 has the potential to transform primary mortgage ownership in the country. The opportunities presented by the act are enormous.
“Pension contributors can take full advantage of the act to facilitate the acquisition of a property through a mortgage.
“Pension Fund Managers can take advantage of the investment guidelines to enhance the returns on their assets under management,” Mr Abbey explained.
Pension act background
Giving a background to the act, the NPRA Deputy CEO said in 2004, the government established the Presidential Commission on Pension (PCP) to evaluate the existing pension system at the time and to propose reforms.
The PCP, he said, did extensive consultations both locally and internationally, resulting in the promulgation of the current National Pensions Act, and the establishment of the NPRA, among others.
The Chief Financial Officer of Metropolitan Pensions Trust Ghana Ltd, Daisy Adjei-Boadi, stated that the housing situation in the country was still alarming in spite of efforts by successive political regimes to improve it.
The GSS, she said, had projected the current 1.8 million deficit to further escalate to two million, with an annual requirement of about 170,000 housing units.
Ms Adjei-Boadi said the country’s rapid growth in population was, therefore, not supported by a corresponding increase in the supply of housing units and the situation was further aggravated by a myriad of challenges, chief among them being mortgage financing.
She said pensions and mortgages had an intrinsic interrelationship.
“Not only do they both provide long-term financing, but essentially, they have a connection with human survival,” Ms Adjei-Boadi added.
Good idea but...
Some of the participants lauded the Pensions Act 766 which supports home ownership using one’s pension, describing it as a brilliant innovation.
However, they said it required some unorthodox financial engineering due to the issues with land ownership, the present financial and economic situation.
They said it called for strategic partnerships between the relevant service providers, including land owners with the support of the NPRA, to come up with workable plans to help workers, given the important link between safety, security of homes and productivity.
Pension Act 766 Tier Two
Section 103(1) of Act 766, allows the worker to assign the lump-sum benefit under any occupational pension scheme to secure a mortgage for the acquisition of a primary residence with the operative word being “assign” not transfer.
Any mortgage product should be based on the fact that the worker, the mortgagee, will still have the investment with the pension trustee but assigned to the bank, the mortgagor.
Tier Three linked Mortgage
Tier 3 is mainly the contributions for provident fund and personal pension schemes, to secure mortgages for primary residence.
Section 103 (2) states that “A beneficiary who enforces a pledge or charge created by a contributor is liable for any tax applicable to withdrawals under a scheme”.
Section 114 (2) states that “Despite subsection (1) a scheme may allow a member to use that member’s benefit to secure a mortgage for the acquisition of a primary residence but a member is not liable to pay tax on any withdrawal under this section.