Parliament's finance portfolio committee has approved draft legislation that seeks to allow pension funds to provide guarantees for their members as security for home loans.

Financial Services Board spokesperson Russel Michaels says the measure can pave the way for banks to offer favourable interest rates to pension fund members by relying on the security of the guarantee from their funds.

“The Pension Funds Amendment Bill also aims to allow the fund to deduct benefits while the member is still in employment, should he or she default on the housing loan.

“According to a memorandum attached to the bill, the measure seeks to empower the Minister of Finance to prescribe further conditions and regulations for housing loans and guarantees.

“Currently, a registered pension fund may grant a home loan to a member if the rules of the particular fund allow this.

“The memorandum says, however, that specialised institutions, such as banks, are better equipped to administer housing loans than the pension funds.

“It says the funds also want the option of giving guarantees for existing loans, rather than financing and administering the loans themselves. Joint ownership of the property is also recognised.

“The loan from an institution has no prescribed minimum interest rate as in the case of a loan directly from the fund.

“The loan is also limited to not exceed one third of the pension benefit outstanding at retirement date.

“Property reference to Blacks (urban areas) Consolidation Act, 1945, is scrapped, and is defined in the Upgrading of Land Tenure Rights Act, 2001.

“When a member defaults on a housing loan or guarantee, the fund has the right to exercise its rights under the pledge if the member’s resignation benefit, at the time of the default, settles the debt to the fund and income tax payable on the benefit collected.”

Michaels added that all members should be able to apply for housing finance assistance from a fund.

“Although we encourage preservation of pension benefits until retirement by tax deterrents, in terms of the Pension Funds Act, preservation is still voluntary.

“According to the memorandum, the maximum period of 30 years for repayment of the loan has been proposed on condition that the loan does not exceed one third of the total value of the member's benefits on retirement.”

Michaels added that the main aim of the Bill is to make home loans work, and work better. “A survey of lower income groups by a financial services institution showed that:

● 12 000 home loans are granted monthly;

“Home ownership, which is part of retirement planning, is a great hedge against:

“The Bill will now be referred to the National Assembly for debate, and should be approved by Parliament before the end of the year,” Michaels concluded.