The number of Kenyans who use 40 percent of their retirement savings to buy homes will be known in the next two months when pension managers comply with the new law to publish data on beneficiaries.
The Retirement Benefits Authority (RBA) says they had given schemes time to familiarise themselves with the process, set up policies and begin advancing member deposits before they could track the implementation of the law.
Kenya changed the pension law in 2020 allowing pensioners to use part of their savings to buy homes as part of a move to stimulate a market for affordable homes in a country where 74 percent earn less than Sh50,000 a month.
Uptake of the pension advance has however been slow on the tedious application process, high taxes on withdrawals and caveats on the title that limit the disposal of the house once purchased.
Pension funds also say the law envisioned the houses could only be bought from institutions which have hampered uptake in rural areas where homes on sale mostly belong to individuals.
“Currently we do not have a number on the level of uptake because we were still giving pension funds time to learn the process. It is expected they will begin reporting on the number of applications and actual uptake from January,” Naomi Gichana RBA legal officer said during the Liason Group trustee forum in Diani.
Mortgage penetration in Kenya has been low with the number of mortgage accounts standing at 26,723 as at December 2021.
Central Bank of Kenya (CBK) data shows that outstanding mortgages totalled Sh245.1 billion by December 2021, up by Sh12.4 billion during the year.
The government wants to stimulate the market through several interventions including offering banks long-term cheap financing through Kenya Mortgage Refinance Company for onward lending at single-digit rates.
Kenya has also issued developers incentives to trigger the construction of affordable housing.
To stimulate demand, the government introduced a provision allowing pensioners to use 60 percent of their savings as guarantees to access mortgages.
The move failed to attract much traction with lenders showing little interest in taking up the guarantees.
RBA says that less than 0.1 percent of members of retirement benefits schemes took advantage of the provision.
Treasury then changed the law to allow pensioners access to 40 per cent of savings towards the purchase of their residential homes.
Members could access savings up to a maximum Sh7 million in a bid to safeguard pension schemes against cash flow challenges.
Pension funds were wary that the law would spark outflows bleeding the Sh1.5 trillion savings in schemes.
RBA said this is unlikely since nearly 80 percent have savings below Sh2 million.
About 11 percent have saved up to Sh4 million and three per cent have saved up to Sh7 million.
Only 4 percent of savers have put away more than Sh7 million.
The uptake has however been slow due to the fact the withdrawal attracts a tax charge discouraging homeowners.
Pension scheme trustees say the prices are also long and tedious requiring a lot of documentation to buy the house.
The housing unit is also encumbered, meaning the owner cannot sell off the property once bought through the pension advance.
The advance cannot also be used to cover stamp duty and legal fees which means the buyers will need additional resources to make the buy.