How to Leverage your Contributory Pension – Unlocking Wealth in the Real Estate Sector

How to Leverage your Contributory Pension Unlocking Wealth in the Real Estate Sector

The National Pension Commission (PENCOM) on Friday 23rd, September 2022 issued guidelines for workers to obtain a mortgage by accessing their retirement savings account (RSA). With this development, you can now utilize a percentage of your pension contributions to finance your home thereby unlocking wealth in the Real Estate Sector.

Section 89 (2) of the Pension Reform Act (PRA) 2014 provides that a Pension Fund Administrator may, subject to guidelines issued by the National Pension Commission (the Commission), apply a percentage of pension fund assets in the retirement savings account towards payment of equity contribution for payment of residential mortgage by a holder of Retirement Savings Account (RSA).

With the recent guideline issued, it is now possible to use a percentage of your pension to acquire personal properties except for commercial use. To be eligible as an applicant, you must fulfill the following conditions:

  1. Be in active employment, either as a salaried employee or as a self-employed person.
  2. Have an offer letter for the property duly signed by the property owner and verified by the Mortgage Lender.
  3. The Retirement Savings Account of an applicant shall have both employer and employee’s mandatory contributions for a cumulative minimum period of 60 months (five years).
  4. RSA holders that have less than three years to retire are not eligible.
  5. A contributor under the Micro Pension Plan (MPP) is also eligible, provided he/she has made contributions for at least 60 months (five years) before the date of his/her application.
  6. Married couples, who are RSA holders, are eligible to make a joint application, subject to individually satisfying the eligibility requirements.
  7. RSA holders, if registered before 1 July 2019, must have their records updated through the RSA data recapture exercise.
  8. Application for equity contribution for residential mortgage shall be in person and not by proxy.

Maximum Withdrawal Percentage: The maximum amount to be withdrawn shall be 25 percent of the total mandatory RSA balance as of the date of application, irrespective of the value of equity contribution required by the mortgage lender. Where 25 percent of a contributor’s RSA balance is not sufficient for payment as an equity contribution, RSA holders may utilize the contingency portion of their voluntary contributions (if any).

The guideline also provides eligibility criteria for mortgage lenders. To qualify as a Mortgage Lender for this purpose, the company must be licensed by the Central Bank of Nigeria (CBN), comply with the Contributory Pension Scheme (CPS), and have a valid Pension Clearance Certificate (PCC). The names of the eligible mortgage lenders would then be published on the commission’s website.

Using a percentage of your pension contribution to buy properties is highly tax-efficient as the State provides tax relief on contributions made to pension schemes and the growth in their investments. This is highly recommended to workers who want to purchase properties to take advantage of the tax breaks that are on offer through their pension scheme. It is a win-win situation, partly because of the tax benefits available and also because any rent paid for the property is not lost to a third party.

Real estate investment is a handy tool for generating predictable cash flows, excellent incomes and capital gains, obtaining tax advantages and diversifying wealth with possible leverages. Billionaire Andrew Carnegie famously said that 90% of millionaires got their wealth by investing in real estate.

This initiative by the National Pension Commission is a good one and we believe a lot of Nigerians will benefit greatly from this.


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Emmanuel Agherario