Pension-backed housing starts dimly amid calls for its overhaul

Kisumu County Governor Anyang' Nyong'o accompanied by LAPTRUST and County Pension Fund officials at Anderson Estate in Kisumu on December 10, 2020, where they launched an affordable housing project. [Denish Ochieng,Standard]

Access to affordable housing is a challenge to many public and private sector employees who retire without a home, despite having worked and saved towards a pension.

One of the initiatives by the government to increase access to housing was by amending the Retirement Benefits Act (RBA) to allow pension funds to be used as collateral for the purchase of a home.

The move was billed as a silver bullet in enabling civil servants and workers to own homes.

And two years ago, the Retirement Benefits (Mortgage Loans) - (Amendment) Regulations were enacted allowing members to now redeem up to 40 per cent or Sh7 million of their accumulated benefits to buy a ready residential house from an institution.

However, a study by the Retirement Benefits Authority (RBA) shows that less than 0.1 per cent of members of retirement benefits schemes have taken advantage of the provision.

Despite the amendments, the uptake of Pension Backed Mortgages by employees in Kenya remains low.

But what is holding them back?

Players in the pensions sector believe a host of regulatory and operational hurdles have held back the scheme despite its noble intentions.

The experts argue the uptake of pension-backed mortgages has not significantly contributed to the provision of affordable housing in Kenya in line with their vision.

They recommend vigorous public sensitisation and legal reforms aimed at enhancing and streamlining the use of pension funds for wider access to affordable housing among public sector pensioners in Kenya.

"The tax burden is high," Naomi Gichana, legal officer at RBA told Real Estate in an interview.

According to her, there has been low uptake by the targeted group because a majority of the members have also not accumulated enough or have already accessed their benefits.

She further cites stringent rules by schemes which discourage members from applying.

Ms Gichana also points out that financial institutions have been declining to give additional funding if the title is encumbered by the other party. "We have proposed a reduction of the tax burden," she says.

Her comments are backed by the Head of Pensions at Liaison Group Michael Mitau. According to him, while reducing the tax burden is crucial, more awareness on the part of members would come in handy.

"We have embarked on awareness of the opportunities in the programme," Mr Mitau said, citing a recent forum organised by the Liaison Group to sensitise pension trustees on the low-lying untapped opportunities.

Liaison Group has so far received 20 applications. He says the low figure underlines the grey areas in the pension-backed mortgage plan. "That's why we want to have a conversation on end to the grey areas," Mitau says. "These reforms are necessary."

Through the Finance Act, 2021, the government amended the Retirement Benefits (Mortgage Loans) Act, Regulations Amendment, 2020 allowing members of pension schemes to utilise up to two-fifths of their accrued pension benefits as a down payment for a home.

The changes in law while beneficial to pension members with enough contributions, do not take care of a lot of Kenyans whose retirement savings are inadequate.

Pension scheme members can purchase a developed property anywhere in Kenya with a ready title deed or certificate of the lease, provided that the house is a residential property for their occupation.

Mortgage loans

The application can be done by an individual pension scheme member or jointly with a spouse, thereby consolidating their pension benefits to access a higher amount.

Data from the Central Bank of Kenya (CBK) shows there were 26,723 mortgage loans in the market as of December last year, down from 26,971 in December 2020.

"This was a decrease of 248 mortgages or 0.9 per cent - mainly due to a higher number of mortgage loans that were repaid as compared to the number of new mortgage loans granted in the year," says CBK.

The average mortgage loan size increased from Sh8.6 million in 2020 to Sh9.2 million in 2021 mainly due to higher values of mortgage loans advanced in the year.

The value of mortgage loans outstanding was Sh245.1 billion as of December 2021 compared to Sh232.7 billion in the same period in 2020.

This represents an increase of Sh12.4 billion or 5.3 per cent. The increase was due to higher values of mortgages granted in 2021, notes CBK.