Is Using Pension For Housing Purchase Discriminatory?

This week, Cytonn Investments Management released a report focusing on the proposed Retirement Benefits Authority (RBA) Regulations designed to structure the newly-passed law allowing Kenyans to utilize their pension savings to purchase a residential house.

The move by the government has been seen as an active measure to promote one of its Big 4 agendas, Housing through increasing sources of funds to be used to acquire homes. The move is also expected to incentivize workers to save in pension schemes as well.

The retirement industry plays a big role in the economy of Kenya with assets worth Kshs 1.32 trillion as of December 2019 and averaged 13.55 percent of the country’s GDP over the last 10-years; meaning that any regulations affecting the sector are likely to have ripple effects throughout the economy.

Some of the proposed regulations include:

The proportion available for the purchase of a residential house at the time of the application shall be the lower of 40% of the member’s accumulated benefit subject to a maximum of Kshs 7.0 million or the purchase price of the house.

Widening the definition of an institution that can offer mortgage facility or provide houses for scheme members by adding institutions or projects approved by the ministry in charge of matters relating to housing or licensed under the SACCO Societies Act, Insurance Act or a scheme with residential houses for sale.

A member can utilize either of the option to be issued with a guarantee to secure a mortgage loan or to utilize their benefits to purchase a house but not both. In addition, a member of a scheme can only be allowed to utilize their funds to purchase a house once.

The regulations, however, seem very punitive to real estate developers because the funds cannot be used to purchase a residential unit unless the unit is being sold by a SACCO, an insurance company, pension fund, or a project approved by the ministry of housing, according to Cytonn.

This exclusion denies scheme members their right to housing the real estate vendor they may wish to acquire a home from. There is also a call to separate the definition of an institution to properly differentiate an institution that issues mortgage loans and facilities and one that avails residential units for purchases.

The in-depth report by the alternative investment firm goes on to draw comparisons from the already inexistence mortgage facility regulations specifically that members can allocate up to 60% of the accrued retirement benefits towards guaranteeing a mortgage with no upper limit described in absolute figures.

There is a need to increase the allowable portion of a member’s benefits to buy a house from 40% to 60% to match the mortgage regulations.

The limitation to an absolute figure of seven million also seems discriminatory and once the percentage of accessible benefits has been determined, whether 40% or 60%, the percentage should determine the absolute figure.

As currently constituted, the regulations seem more inclined to members taking mortgages rather than outrightly purchasing residential units. It is not clear what is the policy intention of this inclination if anything it just saddles members with debt rather than allow them outright purchases of residences.

The report goes on to look at Singapore’s Central Provident Fund highlighting its key features and drawing lessons from their system suitable for Kenya. In order to learn more about the recently proposed RBA regulations and Cytonn’s take on them, you can visit here.

Cytonn also provides its own retirement schemes; a personal scheme that you can join with as little as Kshs 1,000, an umbrella scheme suitable for organizations and income drawdown fund for when you retire.

For now, it remains to be seen if the Ministry will take into account the views of stakeholders and change their regulations or proceed with them as is.