I would like to know under the new pension regulations, are we able to borrow money on our provident fund?
Thank you for your question regarding the new Pension Fund Act regulations.
Section 19 of the Pension Funds Act has not been changed by the new regulations and still provides the following:
Section 19(5) of the Pension Funds Act permits the granting or guaranteeing of housing loans. The purpose of this section is to enable trustees to assist members to finance their genuine housing needs. Under this section, you can borrow funds to buy a property, renovate a property or pay off a housing loan. Alternatively, it can be used to guarantee a housing loan.
You cannot use the funds for any other purpose.
The intention of a retirement fund is to provide a savings vehicle whereby funds can be saved for retirement. The government provides you with an income deduction of up to 27.5% for the contributions that you make to the retirement fund. The government wants fewer individuals to be dependent on it once they reach retirement age. For this reason, they have created retirement plans and offer a huge tax saving should you invest in them.
A provident fund or any retirement fund is registered as a retirement fund with the Financial Sector Conduct Authority and the South African Revenue Service. This is a requirement of the Pension Funds Act under which retirement funds fall.
Each retirement fund has its own set of rules applicable to that fund. Your provident fund and all other retirement funds are governed under the rules registered for them.
In closing, there has been a proposed amendment to the Pension Funds Act to enable a registered fund to furnish a member of the fund with a guarantee to secure a loan, of which the guarantee may not exceed 75% of their share in the value of the fund to support the member in times of crisis like the Covid-19 outbreak.
Each retirement fund can incorporate the provision of Section 19(5) as it is into their retirement fund rules.
If the provision is not made in your company’s retirement fund rules, you cannot make a housing loan against your provident fund.