Retirements Benefits for Mortgages and Loans
Did you know that you can use a portion of your accrued retirement benefits as security to secure a mortgage or a loan to purchase a residential house? Regulation 6 of the Uganda Retirement Benefits Regulatory Authority (Assignment of Benefits for Mortgage and Loans) Regulations, 2022 provides that accrued benefits can be used as security to secure a mortgage or loan.
In this article, I will discuss this more in detail.
Purchase of Residential House.
According to the interpretation section of the regulations, purchasing a residential house means acquiring a residential house, constructing a residential house or renovating or altering a residential house. This forms the spirit of the legislators in making these well thought regulations.
Who is eligible to apply to use a proportion of his/her benefits to secure a mortgage or a loan for purchasing a residential house?
Under Regulation 5, persons that have been members of a retirement benefits scheme for not less than ten years but it will not apply to a member who has left employment or has attained retirement age.
However, it is pertinent to note that a member who prior to the commencement of the regulation had acquired a mortgage or loan for the similar purpose can equally apply to the trustees to assign their accrued benefits to the institution as security for the loan, following a review of the loan or mortgage terms by the Trustees of the retirement scheme as provided under Regulation 6(3) and (4) to the Regulations.
How does a member apply to assign a portion of their accrued benefit as security to secure a loan from a financial institution?
First, obtain a letter of offer of facility from an institution, Secondly make an application (see the form in the second schedule to the Regulations). Lastly execute a deed of assignment in the prescribed form with the institution, which deed of assignment will be executed by the Trustees, in the event the application is granted.
What considerations do the trustees put into regard before arriving at the decision to grant or not to grant the application?
These are provided for under Regulation 8(1), which include;
- The fact that the purpose of using the portion of the benefits is for purchasing a residential house
- The facility doesn’t exceed 50% of the accrued benefits of the member
- The member has made a written commitment to pay the facility be the terms and conditions
- The member is in gainful employment or has sufficient income which can be used to pay the facility.
The Trustees have a period of 30 (thirty) days to review the application and communicate to the applicant in writing about the decision taken of whether to grant or reject the application.
What remedies are available to an applicant when the application is rejected?
The member has a remedy of appealing to the Authority (Uganda Retirement Benefits Regulatory Authority) within a period of fourteen (14) days from the date of receiving the decision as per Regulation 26.
What institutions are provided for by the Regulations to offer loan or mortgage facilities which can be assigned to the accrued benefits?
Per the interpretation section, only financial institutions registered under the Financial Institutions Act, 2003; Institutions registered under the Micro Finance Deposit Taking Institutions Act, 2003 and other institutions providing residential house facilities. This excludes money lenders as they are regulated and registered under the Tier 4 Micro- Finance Act.
The regulations accord various duties to institutions offering the loans/mortgages, to Administrators and to the Trustees. Key to note under this aspect is that the Trustees have a duty to undertake onsite inspection after granting the assignment and given power to withdrawal the assignment when the inspection report reveals that the member used the facility for purposes other than prescribed in the regulations. Thereafter the Trustees will notify the Institution of the withdrawal of assignment and the member shall find appropriate financing for the facility.
This raises the question of what happens when the Trustees withdrawal the assignment, does the loan or mortgage remain unsecured and what happens when the member defaults in the terms and conditions of the loan or mortgage?
Regulation 12(2) puts an obligation on institutions to take out adequate insurance arraignments in respect of the facility. On the second limb, about a member defaulting in payments, Regulation 16, the trustees are empowered to independently investigate on whether the member defaulted, and if yes, then pay the outstanding proportion of the facility to the institution using the portion of the accrued fees.
The regulations also provide for redemption of the assignment which can be done when a member has fully paid the facility; or where the institution presents evidence of the member defaulting on the terms of the facility; or where the institution or scheme is being wound up, as provided under Regulation 21. However, it is intriguing to note that when the assignment has been redeemed, the financial institution is required to submit the certificate of title of the residential belonging to the trustees to hold the title in trust for the member until they attain retirement age.
Lastly, Regulation4 requires all retirement benefits schemes to ensure rules that permit members to assign their accrued benefits as security for mortgage or loans from purchasing residential houses. This is meant to remove all regulatory clogs so to the attainment of the desired spirit of the Regulations.
