Borrowing against your pension to finance a home requires more than having sufficient retirement savings. Your monthly cash flow must be healthy, with your income covering your expenses and enough financial stability to meet your repayment obligations.
Regular reliance on an overdraft, particularly when expenses exceed income, can signal financial distress and undermine an application for a pension-backed housing loan.
A pension fund declined a member’s application for such a loan after determining that her monthly expenses exceeded her income and that her regular reliance on an overdraft facility indicated a negative cash flow. The loan, applied for in August 2025, was intended to finance the completion of the member’s family home.
The member challenged the decision by the Cape Municipal Pension Fund, arguing that the refusal was unfair and prejudicial and that the fund had failed to conduct a proper affordability assessment in line with its own rules and the National Credit Act (NCA).
She said she had informed the fund and Alexander Forbes, the fund administrator, that she had sufficient pension savings, that the overdraft had been used to manage construction costs and that she no longer had an active bond obligation because the relevant bond had been settled.
She also provided proof of a good credit record, paid-up debts, an improved overdraft position and additional financial information when requested. Despite this, her application was again declined on the same grounds.
The matter was subsequently escalated to the Principal Officer, followed by further meetings and assessments. According to the member, the affordability assessment prepared by the fund administrator contained several errors, including irregular expenses, debts that had already been paid and an incorrect reflection of her overdraft position.
She also questioned the relevance and consistency of some of the enquiries made during the assessment, including the focus on a religious donation. She considered the repeated requests for extensive financial information disproportionate and suggestive of unequal treatment.
The member claimed that the refusal and delays caused serious personal and financial prejudice. She said construction of her home was delayed, costs increased and her savings were depleted. She was forced to rely on overdraft facilities, credit cards and borrowed funds to continue the construction and prevent the unfinished property from being damaged or vandalised.
Her family, she said, was also forced to live in temporary accommodation, including a friend’s garage, resulting in significant emotional and mental stress. She subsequently obtained alternative funding from a bank under the same NCA framework, but said this resulted in avoidable costs, delays and additional stress.
The fund defended its decision, saying the application had been assessed in accordance with Section 19(5) of the applicable Act, which permits housing loans only under defined conditions, as well as its Housing Loan Policy, which sets out mandatory exclusions and lending criteria.
The fund said its assessment found that the member’s monthly expenses exceeded her monthly income, resulting in a negative affordability position. It also found that her bank account showed frequent reliance on an overdraft facility, which indicated negative cash flow.
Taking into account her matrimonial property regime, the fund said the household’s financial position demonstrated heightened financial risk.
On this basis, the fund concluded that granting the loan would amount to reckless lending under the NCA, which it was prohibited from doing.
The fund also rejected the suggestion that an overdraft automatically disqualified a member from obtaining a housing loan. It said an overdraft was not an automatic exclusion but was a legitimate indicator of financial risk under the NCA and had to be considered together with the applicant’s total household affordability.
In his determination, the Adjudicator lebogang Mogashoa said the fund was not free to approve the loan simply because the member wanted to complete her home. The fund was required to satisfy itself that the proposed loan complied with the applicable Act, the NCA and the conditions imposed by its trustees through the housing loan policy.
The Adjudicator referred to Clause 4.2 of the housing loan policy, which requires an affordability assessment to be conducted before a housing loan is granted. Clause 6.1.1 further provides that, before granting a loan, the fund must assess whether a member can repay it within the loan term. This includes consideration of the member’s income, existing financial commitments, repayment history and future ability to meet the repayments.
The Adjudicator said the fund’s position was that the member’s expenses exceeded her income and that her bank account was in overdraft, indicating negative cash flow. The fund relied on Section 80 to justify its decision, arguing that the member’s expenses exceeded her income and that her overdraft usage demonstrated negative cash flow. According to the Adjudicator, Section 80 supported the fund’s duty to avoid reckless lending.
The complaint was, therefore, dismissed.
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