Loans for retrenched contributors

age, which is normally 60 or, for those retiring later, 65.
However, NSSA decided in August to make funds available to FBC Bank and Metropolitan Bank for on-lending at 10 percent interest to contributors who have been retrenched and need finance for existing or new business projects.

It made US$5 million available for this purpose, which is a considerable sum but only sufficient for a limited number of people. Individual loans that can be obtained may vary from US$500 to US$5 000. They are repayable over periods of between six months and 12 months.
Every employer is obliged by law to make a deduction of 3 percent from every employee’s wage, up to a maximum wage of US$200 per month and to remit that contribution together with an equal employer’s contribution to NSSA by the 10th of each month.

This means that the employer must pay to NSSA a total of 6 percent of each employee’s wage up to a maximum insurable salary of US$200. Six percent of US$200 is US$12.
Because this is a facility for people who are not yet pensioners, it was initially decided on an upper age limit for the retrenchee loans of 55, since there are some employees who are eligible for an early retirement pension at the age of 55.

However, the number of such employees is small, since an early retirement pension can only be paid where a person was employed for at least seven of the 10 years before he turned 55 in a restricted category of employment categorised by NSSA as arduous.
NSSA has, therefore, following representations from contributors aged 55 or older who will only be eligible for pension at age 60, asked the two banks to relax this requirement and consider applications from former contributors up to the age of 59, provided they are not receiving a NSSA pension.

Because the banks are carrying the risk of these loans, meaning they are responsible for ensuring NSSA is repaid the funds in full, they vet loan applicants in terms of their normal loan criteria. They have to be satisfied that the applicant is creditworthy and that the project for which he or she requires the funds is viable.
The funds made available by NSSA are funds that emanate from contributors. NSSA has to ensure, therefore, the security of any funds it lends. It is for that reason that NSSA does not lend money directly to individuals or individual businesses.

The primary responsibility lies with the bank. However, should the bank find itself in difficulties and unable to repay money deposited with it, the individual borrower becomes liable to repay the amount.
The funds may be lent to those with existing businesses and those who plan to start a business. However, it would be hardly surprising if a bank more readily approved a loan to an existing business with a proven record and properly presented accounts than someone who only has an idea for a project on which no work has yet been done.

Applicants would be well advised, therefore, if the project they want financed is a new one, to ensure their project proposal is well presented and viable. The bank is obviously going to favour projects where the likelihood of repayment obligations being met is greatest.

NSSA has already been providing on an on-going basis funds to banks for on-lending to businesses, in order to contribute to the success of businesses and help ensure they are able to continue in business and continue employing staff or better still expand and take on more staff.

In July this year NSSA advised banks that it would in future only continue to make such funds available on the understanding that the loans did not cost the borrowing company more than 15 percent, including handling charges.

How much is deposited with each bank for these on-lending purposes depends on NSSA’s own risk assessment of the bank. The amount to be lent is determined by a computer program, after information on the bank has been fed into the computer.

• The Talking Social Security Column is published each week by the National Social Security Authority as a public service. Readers who have any questions are welcome to e-mail their questions to [email protected] or send an SMS to 0772 469 801. Those who have individual queries they would like addressed directly should contact their local NSSA office or telephone NSSA on (04) 706517-8 or 706523-5.