Pension-backed lending

What is Pension Backed Lending?

Pension Backed Lending (PBL) is a way of financing your home through your retirement fund - rather than through a mortgage bond.

Home Loans are not always readily available for various reasons. This is an alternative home finance lending method. Instead of securing the risk through a mortgage bond, the savings you have built up in your pension or provident fund is used as security for the loan. If anything goes wrong, you will not lose your home.

This does not mean your pension or provident fund is depleted once you apply for the loan, it only means that if you stop paying back the loan, the savings you have built up in your retirement fund will be used to settle the outstanding balance on your loan.

Who can apply?

We offer a pension-backed loan to employees who have built up sufficient collateral in the way of retirement fund withdrawal benefits, and who can afford to make the monthly repayments.

An agreement between Standard Bank, their employer and their pension or provident fund must be in place before we can make any loans to individuals.

How does it work?

By signing the above-mentioned agreement, your employer confirms and agrees that they will ensure that the monthly repayments for your loan are deducted straight from your salary or wages through the company's payroll - which means less worry for you.

With the Standard Bank Pension Backed Lending loan scheme, you and your colleagues can borrow a determined percentage of the value of your retirement fund withdrawal benefit. This percentage is determined by your retirement fund.

For example, if you have saved up R50 000 in your pension or provident fund, and the fund has agreed that loans can be given up to 70% of withdrawal benefits, then we will lend you R35 000 to buy a home or utilize it for housing purposes. This limit depends on the consent of the fund, and monthly installments must be no more than 25% of your monthly income.

Home Loan installments are fixed as far as possible. If there is an upward change in the interest rate, we extend the number of months over which you pay as far as possible - we don't increase the monthly repayment amount unless we cannot extend the loan term any further. This will help you with your monthly budgeting and makes it easier for your employer to manage the payroll deductions. The interest rate is prime-linked.

The minimum monthly repayment is set at R100. The maximum loan term is 30 years or up to your normal retirement date (whichever is the lesser number of years), and where possible it should be less than this. The retirement fund can also determine the maximum loan term that is less than the one stipulated above.

What can I use the loan for?

The Pension Funds Act allows you to borrow funds for housing purposes only, using your withdrawal benefit in the fund as security. The home must be owned by yourself or your spouse. The following fall within the definition of "housing purposes":

  • Buying an existing home
  • Building a new home
  • Improving an existing home

Can I sell the house?

Yes, but the loan should be repaid from the proceeds of the sale. If not, monthly repayments would have to be maintained.

What happens if I change jobs?

Should you change jobs, the home loan would have to be repaid. This could happen in a number of ways, for example:

  • You can arrange with your new employer to continue with the payroll deduction of the loan and, where applicable, to arrange with your new fund to stand surety for the loan; or
  • Request your fund to settle the loan in full, from your withdrawal benefit, upon your termination of your membership; should you not succeed to secure the above arrangement.

As an employee, what are the benefits?

  • Additional option to housing loan finance;
  • Competitive interest rates;
  • No bond registration or property valuation fees;
  • Negotiable installments;
  • Monthly repayments done through payroll deduction ; makes budgeting easier

As an employer, what are the benefits?

Assisting staff in housing initiatives will improve employee well-being which in return improves relationships and performance, and builds company loyalty

A PBL loan scheme adds value to the range of employee benefits you can offer.

Effective scheme management by the bank means minimal impact on the company's administration.

How is a PBL scheme established?

The company and fund negotiate and conclude an agreement with us, which is reviewed each year.

We explain the scheme to employees through presentations.

Individual loans within the scheme are approved, in principle, by all parties however we reserve the right for final approval (credit and affordability assessment is conducted).
Employees sign an instruction for a payroll deduction with regard to loan repayments.
Individual loan applications are processed for approval.

Approved loans are paid out in one of three ways:

  • electronic credit to the employee;
  • electronic credit to a third party, borrower to provide consent and indemnify us; or
  • electronic cheque made out to the employee.

How is a PBL scheme maintained?

The employer deducts monthly installments from members salaries/wages through payroll and deposit a lump sum payment to us.

Monthly reports are sent to the employer for ongoing scheme management, including:

  • a list of all new loans;
  • a list of the total loans;
  • a list of accounts in arrears;
  • a list of all closed loans; and
  • quarterly statements for each loan are sent to employers for distribution to employees where this arrangement exists.

What other benefits are there?

We have developed, in conjunction with Liberty Active, a PBL life assurance product for complete employee protection. This policy will settle the outstanding balance on death which means the retirement fund is protected

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