Contributed by Vincent Shimutwikeni, Manager: Legal Support Services, RFS Fund Administrators
Background
The Namibian government has recently approved a reduction in the interest rate pension funds must apply when they provide housing loans to members. This decision has sparked national discussion, as it directly impacts the interests of members of both public and private pension funds who may want to utilise their retirement savings towards securing a home.
Pension-backed housing loans are not a new phenomenon. The Pension Funds Act No. 24 of 1956, as amended, has long made provision for such loans under Section 19(5) (a), together with Section 37 D of the Act. Most private occupational pension funds converted from the defined benefit to the defined contribution (or money purchase) structure around Namibia’s independence and have since offered these types of loans to their members, in accordance with their fund rules.
What is new, however, is the growing national interest, and in particular, the advocacy by government employees, and the renewed commitment to implement these schemes at scale. This shift in momentum has been sparked by the recent announcement by the Government Institutions Pension Fund (GIPF) to roll out a pension-backed housing loan scheme, backed by members’ interest in the fund. For many years, the GIPF has provided funds to lending institutions, enabling them to offer loans to its members.
As with any other fund that makes provision in its rules, qualifying GIPF members will now be able to borrow up to one-third (1/3) of their pension benefit. The loan will be repayable at an interest rate of the repo rate plus 2.5%.
According to Section 19(5)(b)(iii), and regulation 43 of the Pension Funds Act, such loans may not be granted at an interest rate lower than that prescribed by regulation. Until recently, the minimum allowable rate was the repo rate plus 4%. However, with effect from 1 July 2025, the Minister of Finance has amended Regulation 43 to reduce the prescribed minimum rate to repo rate plus 2.5%, as officially published in the Government Gazette.
There are two alternative and distinct mechanisms allowed by the Pension Funds Act for funds to grant housing loans to their members:
- Direct Housing Loans from a Pension Fund: This is when a pension fund, if its rules allow, provides a loan directly to a member from its own assets for housing-related purposes and administers the loan. The contractual relationship is between the member and the fund, and the member repays the pension fund over time, but not later than their retirement date. These loans are secured by the member pledging their pension benefits. Such loans are mostly funded from the borrower’s investment in the fund but could also be untied. In the first case, the borrower takes the money from his fund investment and earns the housing loan interest. In the second case, the borrower’s investment is not affected by the loan, and the fund earns the interest.
- Pension Backed Housing Loans: In this case, the fund provides a guarantee to the lending institution (usually a bank), which provides and administers the loan to the member. The contractual relationship is between the fund and the lending institution. The member pledges their pension benefit to the fund to serve as security for the fund’s guarantee to the lending institution. The pension fund assets or member savings are not withdrawn. The member repays the financial institution over time at an interest rate determined by the bank from time to time. The Pension Funds Act does not regulate the interest rate and is usually significantly higher than the rate under Regulation 43 of the Act.
In response to these developments and with a commitment to enhancing financial literacy, this Q&A series unpacks the provision of housing loans from pension funds in Namibia. It aims to provide different stakeholder perspectives, including those of members, employers, pension funds, and administrators.
From a Pension Fund Act Perspective
What does the law say about housing loans from pension funds?
The Pension Funds Act No. 24 of 1956, specifically Section 19(5), allows funds to provide loans for housing purposes if permitted by their rules. Section 37D permits the fund to deduct the outstanding loan amount from the member’s benefit when they leave the fund.
Where can one build or purchase a house under these provisions?
A loan may be granted for a property in an urban or communal area, provided the member holds a valid right of ownership or entitlement.
Can pension funds lend directly to members?
Yes, if the fund’s rules permit, a fund may grant a Direct Housing Loan (see 1.) to the member.
How much of the pension benefit can be used as collateral or for a direct loan?
The law says that a fund may lend up to the benefit a member would be entitled to receive in cash when they leave the fund. Usually, this is thus a maximum of one-third (33.3%) of the member’s benefit.
Does the law protect members from losing all their savings?
Yes, safeguards limit exposure and ensure pension fund housing loans are repaid.
Who oversees compliance with the Act?
NAMFISA supervises funds and ensures compliance.
What is Section 37D about?
It allows deductions from pension benefits for housing loans granted to members by a fund, the employer or by a financial institution.
What is Section 19(5) about?
It details the conditions under which funds may grant housing loans, which are to:
- Redeem an existing housing loan granted by another lender.
- Purchase a dwelling or land to erect a dwelling for occupation by the member or dependents.
- Make additions, alterations, or repairs to an existing dwelling.
- Redeem or secure loans relating to housing on communal land under the Communal Land Reform Act, 2002.
- Erect or improve a dwelling on communal land under a valid customary or leasehold right.
Is this a new law?
No, the provisions have existed since 1956; the focus is now renewed with recent policy actions.
From a Member’s Perspective
How much can I borrow?
The law says that a fund may lend up to the benefit a member would be entitled to receive in cash when they leave the fund. Usually, this is thus a maximum of 33.33% (i.e. one-third) of your pension benefit, depending on fund rules.
What can I use the loan for?
For buying, building, or making fixed improvements to a home.
How do repayments work?
A loan granted by the fund directly to you (see 1.) must be repaid by the time you retire at the latest. A loan given by a bank (see 2.) has to be repaid over the term the bank determines. The repayments are deducted monthly, usually via employer payroll.
What interest rate applies?
For direct loans (see 1.), the rate is the Repo rate plus 2.5% per the Act. However, banks (loans in 2.) may set higher rates.
What if I resign or retire early?
Any outstanding balance on a loan is deducted from your benefit when you exit the pension fund.
Can I build on communal land?
Yes, if you have a valid customary or leasehold right.
Will this affect my retirement savings?
It depends on who granted the loan, i.e., the pension fund or another financial institution. If another financial institution gives the loan (see 2), the member's savings are not affected. However, if the pension fund grants the loan (see 1), depending on the fund’s rules, the money may be taken from your fund investment, in which case the loan will earn Repo plus 2.5% interest.
Can I take a loan for a rental property?
No, loans are not allowed for rented property.
What happens if I default on repayments?
The outstanding loan is settled from your pension benefit when your membership terminates.
How long does approval take?
Please approach your fund regarding this matter; the requirements and process may differ from fund to fund.
From a Pension Fund Administrator’s Perspective
What documents are required?
Required documents typically include a copy of a title deed or proof of a customary leasehold under the Communal Land Reform Act, building plans, employer confirmation, and application forms. However, this varies across funds, and the list is not exhaustive. For projects above a certain threshold, additional documents such as three detailed quotes and supplier registration certificates may be required. Note that each fund has its own housing loan policy and procedure.
How are applications submitted?
Through HR offices and forwarded to the administrator
Does the administrator pay directly to the member?
It varies from fund to fund. In most cases, payments go directly to service providers or the transferring attorney.
How is risk managed?
Through strict compliance checks and pension collateral.
What happens in the case of default?
The loan is recovered from the pension benefit.
Do funds provide education?
Yes, to ensure members understand their obligations, funds usually provide education through their consultant or administrator.
How is fairness ensured?
Equal access is provided based on each member’s savings in the pension fund.
What timelines are expected for disbursement?
The requirements and process may differ from fund to fund. Usually, it takes a month or longer, depending on the fund’s policy and procedure.
How does NAMFISA oversee funds?
This is achieved by requiring reporting, audits, and compliance monitoring.
From an Employer’s Perspective
What role do employers play?
They verify employment and affordability, facilitate the application process, the property valuation, and administer the payroll deductions. Employers may also conduct credit checks and, in some cases, must confirm that the loan is used as intended by submitting a certificate after six months.
Are employers liable for loans?
No, loans are secured by the borrower’s pension benefit.
Do PBHLs affect staff retention?
Yes, they may encourage employees to stay longer if another employer does not offer any housing loan arrangement.
What must HR staff do?
They must process applications, verify employment, and ensure deductions are made upon termination.
Does this increase employer workload?
Slightly, but it supports staff welfare.
How do PBHLs affect payroll systems?
Employers must set up and manage deduction codes.
Do employers gain any benefit?
Yes, employees with housing security are often more productive and better settled.
What challenges do employers face?
Managing administration and ensuring compliance under an agreement with the bank or the fund.
How can employers prepare?
By engaging with the fund and its administrator early and by educating HR teams.
From a Pension Fund Perspective
Why do funds allow PBHLs?
To support housing security and national development.
Do PBHLs reduce fund sustainability?
Not if well-managed; loans are either collateralised, or in the case of direct loans, the loan is still part of the fund’s investment until fully repaid.
How do funds balance housing and retirement?
By capping loans and requiring repayment before retirement.
Are loans fund investments?
Yes, in the case of direct loans, they are secured investments.
Do all funds offer housing loans?
No, it depends on each fund’s rules.
What governance frameworks apply?
Funds must amend rules, seek NAMFISA approval, and comply with the Pension Funds Act, Section 19(5).
How do housing loans align with development goals?
They promote housing, stability, and economic activity.
What risks do funds face?
Operational risks, default management, members misusing loans for other purposes and ensuring member literacy. In the case of loans granted by a bank, a fund may not be able to recover its bank guarantee from a member’s benefit if certain adverse circumstances coincide.
Do funds lose returns by offering loans?
In the case of direct loans, either the fund or the member will earn Repo plus 2.5% on the loan. This rate will at times be higher or lower than the returns the money would have earned, had it been invested normally and not been used to grant the loan.
What are the long-term benefits?
Greater member satisfaction is achieved by providing a benefit (a house to live in) without requiring fund withdrawal, while also contributing to housing development. Since house prices typically rise faster than inflation, a member would pay less if they secure a loan to purchase a house today, rather than waiting until retirement to use their retirement benefit.
Other Relevant Perspectives
What role does government play?
It sets policy and ensures alignment with national housing strategies. The government also prescribes the interest rate.
What about the housing sector?
Loans will boost the construction sector and create jobs.
Are communal land residents included?
Yes, with valid rights under the Communal Land Reform Act. However, this depends on the rules of the individual funds, as some funds exclude loans in communal areas.
How can awareness be created?
Through campaigns, media, and funding for education initiatives.
Can private pension funds grant housing loans?
Yes, if their rules allow it.
What is the role of NAMFISA?
To supervise compliance and protect members.
How does this benefit Namibia overall?
By improving housing security, economic activity, and social stability, we can enhance overall well-being.