The large housing gap (shortage of basic housing) in Kenya stood at two million units in the year 2019 and has been a perennial issue that the government has sought to cure over the years. The most recent attempt at doing so saw the government launch the ‘Big 4 Agenda’ with affordable housing being one of the key agenda items with a goal to provide 500,000 housing units by the year 2022. The country’s private sector has not been left behind in efforts to fill the gap and stakeholders from different industries from the financial to the manufacturing sector have over the years developed tailor made products aimed at filling the gap.

With the recent amendment to the Retirement Benefits Act No. 3 of 1997 (the ‘Act’) through the Tax Laws Amendment Act, 2020 which came into effect on 25th April 2020, the retirement benefits industry is now also seeking to have a greater contribution towards filling this housing gap as members of pension schemes will now be allowed to purchase homes using their savings.


The aforementioned amendment to the Act adds to the progress that the retirement benefits industry has been making towards providing members of its schemes with access to numerous benefits including housing. These developments begun in 2009 with the introduction of the Retirement Benefits (Mortgage Loans) Regulations, 2009. These regulations allowed retirement benefits schemes to permit the use of retirement benefits funds to guarantee housing loans for their members from authorized institutions. Until then, members of retirement benefits schemes were expressly restricted from assigning their benefits under the scheme for whatever purposes.

The introduction of these regulations, despite being a step in the right direction was still considered inadequate by most industry stakeholders since the regulations only allowed members to assign a prescribed portion of their benefits in consideration for the scheme furnishing a guarantee in favour of an authorized institution. As a consequence, utilization of this guarantee’s by member’s has been dismally low since the introduction of the regulations.

Status in other African Jurisdictions

Pension-backed mortgages are common in a few other African countries such as South Africa, Namibia, Mauritius and Botswana which have over time made key amendments to laws allowing members of pension scheme the option to be issued with a guarantee to secure a mortgage loan or to utilize their benefits to purchase a house. In South Africa for example, the Pension Funds Act   permits a retirement fund to grant a direct loan to its members or to furnish a guarantee for a member’s loan from an authorized third party.

Uptake of pension backed mortgages is also fairly high in South Africa and amounted to roughly 120 Billion Kenyan Shillings in 2010. According to the Centre for Affordable Housing Finance in Africa, there are about 850,000 outstanding pension-backed loans in the country.

Amendment to Section 38 (1A) of the Act and the publication of the Draft Regulations

The recent amendment to Section 38 (1A) of the Act is therefore being viewed as a second lease of life to the retirement benefits industry mortgage uptake in Kenya. Critically, the amendment states that in addition to securing a mortgage loan, a member’s benefits can now be utilized to purchase a residential house from authorized institutions. Shortly after the amendment came into effect, the Retirement Benefits Authority, as the industry regulator published the final draft Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020 [ the ‘ Draft Regulations’] after inviting comments and public participation on the same and it is believed that the Regulations may soon be gazetted as they are.

The Regulations seek to amend the Retirement Benefits (Mortgage Loans) Regulations, 2009 and also to operationalize the amendment to the Act by introducing a raft of key provisions.

Highlights of the Draft Regulations

Some of the highlights of the Draft Regulations are as follows:

  • Eligibility – A member earning a pension from the scheme and/or who has attained normal retirement age shall not be eligible to apply to utilize or assign their benefits;
  • Proportion Available - The proportion available for the purchase of a residential house at the time of the application shall be the lower of an amount not exceeding forty per cent (40%) of the member’s accrued benefit or Kenya Shillings seven million (7,000,000). There has been some criticism of this provision with some industry stakeholders faulting the regulator for capping the proportion available. They argue that the portion available should not be capped to a monetary amount but instead should relate to the percentage of savings available. Further, they argue that the 40% cap should be increased to the mortgage industry standard of 60%.
  • Utilization of funds available – Members are only allowed an option to either be issued with a guarantee to secure a mortgage loan or to utilise their benefits to purchase a house but not both;
  • Market value and transaction costs – the purchase price for the house shall not exceed the market value provided that the amount to be paid from the scheme may include, transaction costs and applicable taxes.
  • Requirements and procedure – Every duly registered retirement benefits scheme is required to ensure that it provides the minimum requirements to be met by members and the procedure to be followed in relation to purchase of the house;

Summary and Conclusion

The amendment to the Act and the draft Regulations are a step in the right direction towards enabling members of retirement benefits schemes to purchase and own homes by utilizing their savings and is a change that was long overdue.

In the meantime, and in order to increase uptake and utilization of the new changes, schemes should sensitive their members of the impending changes and also ensure that once the Draft Regulations are gazetted, they update their scheme’s trust deed and rules to set out the requirements and procedures that members should follow to fully enjoy this benefit.

Monthly Insight by Jeff Njaungiri, Lawyer at MMAN Advocates.

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