Pension funds mortgage initiative commendable

The lead story in The Citizen on Friday was on how to go about using pension scheme savings to secure mortgages in the home-building stakes.

This comes on the back of new regulations deliberately formulated to ‘enable’ pension schemes to enter into agreements with mortgage institutions, including commercial banks.

The underlying and overriding objective for this is to facilitate the provision of mortgages that go far in aiding members of the pension schemes to build homes for themselves and their loved ones.

Sometimes called a ‘personal pension plan, (PPP), a ‘personal pension scheme’ (PPS) is an untaxed individual investment vehicle whose primary purpose is to build capital from which to provide retirement benefits for the ‘pensioner.’

And, a mortgage is, of course, a legal agreement under which a bank, a building society, etc. lends money at interest in exchange for ‘taking’ title of the debtor’s property. But, this is on the condition that conveyance of the title becomes void upon repayment of the debt in full and on time.

Published in the Government Gazette of August 17 this year, the new regulations come in the wake of the recent merger, streamlining and reconstitution of several pension schemes – the PPF Pension Fund, Public Service Pension Fund, Local Authorities Pension Fund, and Government Employees Provident Fund – into the Public Service Social Security Fund (PSSSF) and the National Social Security Fund (NSSF).

While PSSSF is public sector-oriented, the latter caters for the private sector. But, the general idea is for both Funds to adopt short-term mortgage arrangements whereby members who have dutifully contributed to any of the Pension Funds for at least ten years in a row qualify toaccess credit on the basis of their ‘savings’ as collateral.

For that,the pension schemes are required to enter into formal agreements with prospective creditors – including especially commercial banks – for the provision of mortgage facilities to the pension scheme members. If and when the ‘arrangements’ are translated into credit on the ground, then the loans must be repaid within the borrowing member’s compulsory retirement age.

Shortage of housing units is 3 million

Fair enough, we at The Citizen say. This is especially taking into account the fact that housing shortage is a major challenge in Tanzania, bordering on the overwhelming.

The shortage is currently estimated at 3 million housing units countrywide, while the annual demand for 200,000 houses is no doubt growing with the passage of time.

This is then wherein comes ‘new hope’ – in the name and style of‘pension-savings-turned-mortgage-enabler.’

As the pertinent regulations read in part: “… a member (of any of the pension schemes) may use part of his (her) benefits entitlement as collateral for home mortgage…”

Admittedly, the arrangements are not comprehensive or all-inclusive. This is if only because the Pension Funds boasted a relatively measly 2.1 million members out of Tanzania’s 26.3 million-strong workforce, with total assets of Tsh8.87 trillion ($4.4 billion) as of November 2017.

But, it is a good start that should be emulated by other ‘membership’ institutions across the land.