Economy

Workers can now access pensions to buy house

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National Treasury Cabinet Secretary Ukur Yatani. FILE PHOTO | NMG

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Summary

  • Pension schemes have until September 14, 2021 to amend their rules to allow their members early to access their savings for house purchase.
  • The law is meant to boost home ownership in a market where most people employed in the formal sector are unable to raise the deposit or afford the typical monthly mortgage payments.

Workers can now access up to Sh7 million or a maximum of 40 percent of their retirement savings to buy their first residential house after Treasury Secretary Ukur Yatani signed the amended regulations.

Pension schemes have until September 14, 2021 to amend their rules to allow their members early to access their savings for house purchase.

The law is meant to boost home ownership in a market where most people employed in the formal sector are unable to raise the deposit or afford the typical monthly mortgage payments.

“A member may utilise a portion of the member’s accrued benefits to purchase a residential house from an institution,” reads part of The Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020.

“The portion available to a member for the purchase of a residential house at the time of the application shall be … an amount not exceeding forty percent of the member’s accrued benefits: Provided that such sum shall not exceed seven million shillings.”

Trustees of the various retirement schemes will lay out the rules to be followed before one can access their pension to fund his or her home purchase.

Title kept

The trustees will also make sure the houses are priced at market value and their ownership will only be transferred under special circumstances, including death of a member, in measures aimed at preventing abuse of the incentive.

The title of the residential house will be kept by the trustees to prevent its transfer to other parties, except in the special circumstances outlined in the law.

Withdrawing pension savings for buying a house will be allowed only once. Those who have already taken mortgages will not be allowed to offset their outstanding debt using their pension resources.

Couples can pool their retirements savings, boosting their ability to buy a house.

“Where a member and the member’s spouse are both members of the same scheme or different schemes, the trustees shall prescribe in the scheme rules the manner in which the member and the member’s spouse may combine their accrued benefits and utilise the total amount for the purchase of a residential house,” the regulations say.

Taxes and transaction costs of buying a house will be borne by the member.

In a defined contribution scheme, where employers match workers’ deductions, the amount accessible for buying a residential house is capped at 40 percent of the employee’s accrued benefit, subject to a maximum of Sh7 million.