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REGULATIONS

Pension members to draw 40% of savings to buy homes - Treasury

Every scheme shall prescribe the procedure and minimum requirement to be met by members in relation to the purchase a residential house.

In Summary
  • The move offers incentives for pension members to own houses and boost Uhuru's agenda on housing
  • Accumulated benefit refers to the total pension contribution over the years plus interest earned.
The almost completed housing units by NHC in Langata . Jack Owuor
The almost completed housing units by NHC in Langata . Jack Owuor

The National Treasury plans to amend the law to grant pension scheme members up to 40 per cent of their savings for home purchases.

This is a departure from the norm where money under pension schemes is only released at retirement or in part when a member leaves employment midway.

The Retirement Benefits (Mortgage Loans) (Amendment) Regulation, 2020 is an upgrade of the Retirement Benefits Act, 1997 that allowed retirement schemes’ members to allocate up to 60 per cent of their benefits towards securing a mortgage loan.

 
 

However, the loan was never used as banks preferred to have the actual house as security rather than the pension savings.

The new regulations aim to provides incentives for workers to save in retirement benefits schemes as well as boost President Uhuru Kenyatta’s agenda on housing, aimed at  affordable housing.

''The proportion available for the purchase of a residential house at the time of the application shall be the lower of 40 per cent of the member’s accumulated benefit subject to a maximum of Sh7 million or the purchase price of the house,’’ the new regulations reads in part.

Accumulated benefit here refers to the total pension contribution over the years plus interest earned.

According to the proposals signed by Treasury cabinet secretary Ukur Yatani, a member who wishes to utilise a portion of accrued benefits to purchase a residential house will apply in writing to Trustees of the pension fund, who will respond within 90 days.

Where the applicant is a member in several schemes established by same sponsor, trustees shall on the option of the contributor, combine member’s accrued benefits in determining the proportion available for the member.

A member who is paid a pension by the scheme or has taken early retirement or has attained retirement age will not be allowed to utilise his/her savings to purchase a house.

 

Every scheme shall prescribe the procedure and minimum requirement to be met by members in relation to the purchase a residential house.

 

The trustees will also conduct due diligence for any property to be bought by a member and be party to the contract to ensure no one abuses the facility aimed at benefiting the saving public.

pension schemes will be tasked with playing an oversight role where they will retain the property ownership documents eternally until a member retires or dies, in which case it will be released to his family.

The regulations have been hailed by pension members as a step in the right direction, with those who spoke to the Star saying the amendment was long overdue.

''The main intension of a pension plan is to help contributors have an easy life after retirement. Giving a 60-year-old money after retirement is quite an insult. Do they even have strength to invest,’’ a pension scheme member Tom Masinde said.

Another contributor Charles Mwau applauded the move but urged Treasury to increase access rate to 70 per cent.

 Cytonn fund managers want the  amendment to be appropriately descriptive, suggesting it to be called “The Retirement Benefits (Mortgage Loans and Residential Purchases) Regulations”, so that it is clear the regulations are equally about both getting mortgages and purchasing residential units.

''Leaving the name of the regulation to be about mortgages only makes it look like it is about mortgages, yet it is equally about mortgages as it is about residential purchases,'' Cytonn said in its weekly bulletin. 

They also want the amount set to  buy a house also be set 60 per cent of members' benefits, arguing that the limitation to 40 per cent  as opposed to 60 per cent when borrowing seems skewed towards favouring borrowing rather than buying.

They also want contributors to be free to chose the kind of homes they want and from whom they wish to buy from.