I was approached by a reader who is trying to get her employer to loan her money from her retirement fund.
Thus far she has made calls to different representative bodies that deal with retirement funds, including the Pension Funds Adjudicator, the Financial Services Board and other accredited financial service providers.
They have all referred her to the retirement fund rules, which, according to her, does not allow for any loans against the fund.
She was eventually referred back to her employer, who won’t accommodate her request for a loan against the fund.
In her mail, she mentions Section 19(5) of the Retirement Fund Act, which states that a registered fund may – if its rules so permit and subject to the regulations – grant a loan to a member by way of investment of its funds or furnish a guarantee in favour of a person other than the fund in respect of a loan granted or to be granted.
Her question is whether her employer is obliged to grant her a loan against her pension fund. She would like to use the loan to settle outstanding debt and use the balance as a deposit to invest in property.
It must first and foremost be made clear that the authority to lend money out of a pension fund scheme does not lie with the employer, but with the pension fund manager and/or the trustees of the fund.
As stipulated by the reader, the rules of her fund do not allow her to loan from it. This is often the case with pension funds, as they act in the best interest of their members, which is to make provision for old age.
Some pension funds will be more willing to loan members some money, especially when funds are to be used to improve an existing property.
Failing to secure a loan from her pension fund, the reader may consider to use the fund as surety for payment of a loan obtained from a financial institution, although she will need to comply with the requirements of the National Credit Act in order to qualify for such a loan.
Whatever route she takes, she needs to bear in mind that she will need to repay the loan. If she invests in property, her return over the short term will probably be much less than the interest she will need to repay in terms of a loan agreement.
In order to settle her debt, she may consider obtaining a consolidation loan. This will mean that she will only be paying off one account and possibly at a better interest rate.
If her total debt is less than R50 000, she may want to have herself put under administration. In terms of the court order in this regard, her administrator – usually an attorney – will need to repay a fixed monthly amount on her behalf to her creditors.
If she is placed under administration, her debt collectors won’t be able to sue her for outstanding monies. It must however be noted that she will not be able to incur any more debt until all her debt has been settled in full.
There is not much the reader can do regarding her pension fund loan. It would in any case only have been a situation of robbing Peter to pay Paul and therefore her debt position would not really have improved.
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Wikus van Rensburg is a well-respected labour law attorney in Port Elizabeth in Nelson Mandela Bay.
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