New law to allow use of retirement funds to buy homes

Regulations guiding the implementation of a law that will allow Kenyans to use part of their retirement benefits to obtain mortgages could soon be unveiled.

Officers from the ministry of Finance and the office of the Attorney-General are reviewing a final draft of the Retirement Benefits Mortgage Regulations before Treasury gazettes them.

“I have been reliably informed that the ministry of Finance and the Attorney-General are in the process of finalising the regulations which are expected to be gazetted soon,” Fred Nyayieka, a pensions consultant, told the Sunday Nation.

The regulations are supposed to operationalise an amendment to the Retirement Act 1997 that became law when President Kibaki signed the Finance Act 2007 on October 22, 2007.

Before then retirement benefits could not be assigned for any other purpose.

“We will soon publish them now that we have a substantive minister (Uhuru Kenyatta),” a senior Treasury official involved in the exercise confirmed on condition of anonymity because he is not mandated to speak on behalf of the ministry.

Following the resignation of then Finance minister Amos Kimunya over the Grand Regency (now Laico Regency) saga, the regulations could not be published while the Environment minister John Michuki was acting as the Finance minister because where an Act of Parliament (law) or the Constitution empowers a minister to prescribe regulations or make appointments, such powers cannot be delegated to another party unless the same Act is amended.

In any case, the relevant Acts would define the “minister” and that definition does not include “acting or assistant ministers”.
For instance, under Section 55 of the Retirement Benefits Act, only the minister of Finance has powers to prescribe the regulations.

The amendment, which was announced in the 2007/08 Budget by Mr Kimunya - now the Trade minister - will allow the assignment of retirement benefits for purposes of accessing housing mortgages.

“It will only be possible for members of retirement schemes to assign their benefits for mortgages once the minister publishes the regulations,” said Mr Nyayieka. Once published, the regulations will establish the operational framework for implementation of the scheme.

They will prescribe the portion of benefits to be assigned, who qualifies as a mortgage institution for purposes of the Act, what such institutions must offer and what they cannot do and the kind and location of the property that will qualify.

“The regulations will enable us to assess and understand how to apply the new scheme,” said Frank Ireri, the managing director of mortgage financier, Housing Finance.

The draft regulations propose assignment of up to 75 per cent of accumulated benefits to mortgage access. Retirement savings have been used as security for obtaining mortgages in other markets such as South Africa and Britain.

The process of assigning retirement benefits can be considered a mid-term benefit of retirement savings in the sense that a member can utilise them before they mature for payment.

Over Sh200 billion

The country’s retirement benefits industry, including the National Security Fund (NSSF), is estimated to be worth over Sh200 billion.

Once the regulations are published, use of the benefits to obtain mortgages will boost the local housing sector by providing a new source of funds for property development. However, as in any other new development, the main issue will revolve around affordability because not all Kenyans belong to occupational schemes.

Dominic Kiarie, the managing director of British-American Asset Managers, points out that only 16 per cent, or about 300,000 Kenyans, have formal pension arrangements of an estimated two million people working in the formal sector.