Pension reform needed to allow wider home ownership and education financing

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Leading financial services provider, Zamara has proposed a radical repositioning of Kenya’s current pensions system to enable it to include savings for wider priorities, such as financing the purchase of a home and education of children in addition to retirement saving.

Speaking at the Zamara Annual Retirement Conference, Zamara CEO Sundeep Raichura said that enabling retirement fund members leverage their long term pension savings to address their immediate needs as well as retirement income would encourage Kenyans to set long term pension savings goals and in turn result in a higher level of savings in the country.

“Based on surveys we undertake, members of retirement funds have more pressing priorities, particularly housing and education that compete with pension savings. These same members indicate a desire to participate in retirement funds and a willingness to save more if a broader set of financial imperatives can be met.”

Zamara is advising the Government to permit amending of pension regulations to accommodate an expanded saving model. In explaining the new model, Mr. Raichura gave the example of mortgage financing.

“The Government has a stated commitment to build more than 150, 000 homes and widen home ownership. Pension scheme assets can be leveraged to finance home ownership for members of retirement funds.” He further said that whereas the current pension regulations have for the last five years permitted limited assignment of pension fund assets for financing a home, the legislation was restrictive and financial institutions had not responded by lowering mortgage rates and hence the take up had been negligible.

Kenya has slightly less than 25,000 mortgages despite a population of over 45 million.

“If however, the legislation can be amended to permit individual cash backed mortgages, then a member may place a portion, say up to 60 per cent, of his pension saving to earn a lower return with a financial institution, but then benefit from a lower interest rate to enable the mortgage to be affordable and meet the ‘ability to pay’ criteria of the lending institution.”

He explained that other approaches for consideration include making mortgage repayments from the pension accounts or using tenant purchase schemes. The same approaches can be used to finance education enabling retirement fund members to fund their children’s tuition fees. Mr. Raichura further added that the current pension system in Kenya had the right building blocks to enable the expanded savings objectives to be met but is just not perfectly feasible, but from a policy perspective would meet the Government’s goal of increasing long-term savings in the country.

Mr. Raichura further advocated for the Government to make pension saving in the country mandatory. “Provided such a system takes into account the desire of Kenyans to also meet their more tangible and immediate needs then it has a good chance of resonating well with Kenyans.”