A fund member is not automatically entitled to a pension-backed housing loan simply because the loan is sought for a permitted housing purpose, the Pension Funds Adjudicator has found.
Lebogang Mogashoa dismissed a complaint by a Cape Municipal Pension Fund member whose application for a loan to complete her family home was declined after the fund’s affordability assessment found that her expenses exceeded her income and that her overdraft indicated negative cash flow.
The fund said an overdraft was not an automatic ground for exclusion but one factor in assessing household affordability and the potential for over-indebtedness.
The member applied for the loan in August 2025. She alleged it was declined because she and her spouse frequently used an overdraft facility, which she said the fund had treated as an automatic ground for refusal.
She maintained that the decision was unfair and inconsistent with the fund’s rules and the National Credit Act (NCA) because a proper affordability assessment had not been conducted.
According to the member, the assessment prepared by the fund administrator included irregular expenses and debts that had been settled and inaccurately reflected her overdraft position. It also failed, she said, to account for savings held in a separate account at the same bank.
She said temporary construction-related expenditure had been treated as permanent monthly commitments. Expenses for dining out, takeaways, and entertainment arose, she said, because the family had been living in a friend’s garage without proper cooking facilities for more than eight months.
The member said she submitted evidence of paid-up debts, an improved overdraft position, a good credit record, and the other financial information requested by the fund and its administrator.
Fund relied on household affordability
The fund denied that overdraft use automatically disqualified a member from obtaining a loan.
It said the application was assessed using standardised criteria applied consistently to all members. Its assessment found that the member’s monthly expenses exceeded her income and that her frequent reliance on the overdraft indicated negative cash flow.
The fund said it also had to consider the couple’s combined financial position because of their matrimonial property regime. It concluded that the household faced heightened financial risk and potential over-indebtedness.
In the fund’s view, granting the loan in those circumstances would amount to reckless lending under section 80 of the NCA.
Although the fund acknowledged the inconvenience and distress experienced by the member, it said her circumstances could not override the statutory lending requirements. It advised her that she could reapply after three months if updated documents showed an improvement in her financial position.
The member maintained that delays in dealing with the application forced her to exhaust her savings and rely more heavily on an overdraft, credit cards, and borrowed funds to continue construction.
She said she later obtained bank funding at a higher interest rate, resulting in additional costs and delays that she attributed to the fund’s handling of the application.
She sought compensation or other remedial action for the alleged prejudice. She also asked to terminate her membership and transfer her retirement benefit to another fund because she considered the relationship of trust to have broken down.
Fund’s power to grant loans was conditional
Mogashoa said a retirement fund’s rules constitute its constitution and that it may exercise only the powers those rules confer. The Adjudicator therefore considered the conditions attached to the Cape Municipal Pension Fund’s power to grant housing loans.
Section 19(5) of the Pension Funds Act permits a registered fund, if its rules so provide, to grant a loan or provide a guarantee for specified housing purposes. These include acquiring property on which a residence will be erected, erecting a residence, and making additions or alterations to, or maintaining or repairing, a residence.
Rule 12.2.10 authorised the fund to grant a loan to an active defined-contribution member for a purpose contemplated in section 19. This power was subject to the Pension Funds Act, the NCA, and any limitations and conditions imposed by the trustees.
The fund was therefore not free to grant the loan merely because the member wanted to complete her home.
Its housing loan policy required an assessment of the member’s ability to repay the loan within its term. This involved considering the member’s income, existing financial commitments, repayment history, and future repayment capacity.
The policy also required the fund to ensure that the member understood the repayment amount, associated costs, and financial impact of the loan.
Section 80 of the NCA provides that a credit agreement is reckless if the credit provider fails to conduct the required assessment or concludes the agreement despite information indicating that it would make the consumer over-indebted.
Mogashoa noted the fund’s affordability findings and concluded that section 80 supported its duty to avoid reckless lending. The complaint was dismissed.
Disputed expenses not individually determined
The housing loan policy allowed the fund to request additional information when assessing affordability.
Mogashoa said that although the fund could verify the information supplied, the member remained primarily responsible for ensuring that the documents she submitted were accurate, complete, and valid.
The determination does not set out an independent recalculation of the member’s income and expenses or findings on each disputed item. Mogashoa instead focused on the fund’s powers under its rules, the applicable statutory requirements, its housing loan policy, and its duty to avoid reckless lending.
It therefore should not be understood as an independent finding on whether every expense, debt, or asset was correctly treated in the fund’s affordability calculation.
Fund cautioned over service delivery
The member also complained about the fund’s handling of the application and the time it took to communicate its decision.
The fund said it communicated the outcome and reasons verbally before providing them formally in writing on 7 October 2025. The member maintained that the written decision was not provided timeously and alleged that she received the applicable fund rules and housing loan policy only after lodging her formal complaint.
Although the complaint was dismissed, Mogashoa cautioned the fund about its service delivery.
“The fund is therefore cautioned against poor service delivery, as such conduct may prejudice members,” the determination states.
Mogashoa said the fund must ensure that it communicates with members timeously.
No compensation was awarded, and the determination did not make a finding that the fund’s conduct caused the financial losses alleged by the member.
Member must approach employer about transfer
Mogashoa said the member would have to approach her employer about terminating her membership before her benefit could be transferred to another fund.
Rule A14.5 placed responsibility on the employer to request the termination of the member’s membership. Any subsequent transfer would be subject to the Registrar’s approval and the requirements of section 14 of the Pension Funds Act.
The complaint was dismissed in a determination dated 31 July 2026.
