State allows access of 40pc on the pension savings for house purchase

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Pension savers are now free to access a maximum of 40 percent (7 million) of their retirement savings to purchase a residential home according to the new law on homeownership. 

The draft regulations containing the rules and conditions of accessing the retirement savings for home purchase were gazetted on Tuesday.

The law is meant to ease workers’ reach in getting their first residential home, which will see tens of billion freed up for homeownership, considering Kenya’s pension scheme controls Sh 1.2trillion.

The early access to pension savings runs the risk of heightening old-age poverty in Kenya. In the current law, retirement contributions offer pension savers an average of 34 percent of their income during the working years, against the new target of 75-80 percent.

According to asset manager Cytonn citing the Kenya National Bureau of Statistics (KNBS) data, the majority of Kenyans in the formal work (74.5%) earn Sh50,000 and below per month, making it unaffordable for that bracket. 

“With the average mortgage size in Kenya at Sh10.9 million, interest rate at 13.6 percent and an average tenor of 12 years, an average Kenyan household earning Sh100,000 per month…is required to part with monthly repayments of Sh153,905, which is unaffordable to this income class, he said in a research.

“However, using 40 percent of their gross income on monthly mortgage payments under similar conditions, the household can afford a Sh2.8 million home.” He added.

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Anthony Kiratu is the Founder of Finsolutions. He is a financial analyst with over 5 years experience in research, investment advisory, valuation and financial modelling. Anthony is a member of the Institute of Certified Investment and Financial Analysts and Institute of Certified Public Accountants of Kenya. He is passionate about development of African Capital Markets through training of investors and dissemination of information for sound financial and investment decision making process. He is also a part-time lecturer in the Certified Investment and Financial Analyst course in the subjects of International Finance, Portfolio Management, Equity Investment Analysis, and Fixed Income Securities. Email: anthony@finsolutions.co.ke Contact: +254 780216631

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