Issue: June/August 2008
We conclude our series on formulation of the Investment Policy Statement and the FSB’s good governance requirements for retirement funds with a look at benchmarks, reviews, communication and training. Our guest columnist is Scott Harvey, head of STANLIB’s Institutional Client Service Department.*
A housing solution
With interest rates high, many existing and aspirant homeowners are uncertain about the sizes of mortgages they can afford to pay off. To assist, First National Bank offers the FNB Smart Housing Plan.
It allows any permanently-employed individual who has either a pension or a provident fund to secure housing finance. If permitted by the fund’s rules, members can use their saving reserves as security against a home loan.
How’s it done? FNB enters into an agreement with the fund (and, if necessary, the employer) to link bank and borrower. The plan allows for prospective homeowners automatically to qualify for a discount on the interest rate that the fund has negotiated on behalf of its members.
Monthly repayments are then made via payroll deductions or a debit against the fund member’s personal bank account. Because the loan is secured by the member’s savings in the fund, the bank is able to charge rates lower than it would normally charge for loans that aren’t similarly secured.
The size of the loan is limited to an amount not exceeding 80% of the member’s withdrawal benefit in the fund. Both bank and borrower must feel comfortable that the monthly installments are affordable. Many pension funds do allow members to withdraw a predetermined percentage of their savings for housing. Amounts will differ in terms of the particular fund’s rules. These limits are in place to protect borrowers and ensure that there will always be a remaining balance should there be a default.
To qualify for the loan, the individual must have a minimum monthly take-home pay of R500 after all expenses including the proposed loan repayments. The loans can also be used for home improvements, alterations or extensions – and for informal housing.
For more information on how this initiative can help you as a fund member or trustee, please contact us on 0860 762 278.