It is amazing the way Kenya’s bureaucracy works painfully slowly with decisions supposed to have been implemented at least a decade ago only showing bright signs now. One such case was the question of whether pension schemes should allow members to use part of their contribution to fund housing needs.
It has been discussed year in year out with the Treasury indicating willingness to allow use of the regulated private funds to finance housing. Well, the Treasury has at last taken the first serious measure to actualise this intention with a draft law aimed at amending the pension rules.
Perhaps this has only been given impetus by the need to kick-start the economy in the wake of the global coronavirus pandemic besides the long-term goal of housing the nation.
The most notable bit of the law is the proposal to put a ceiling of 40 percent on the funds to be accessed or alternatively Sh7 million.
The changes are progressive for a number reasons, besides spurring the economy and the construction sector. For one, when contributors funds their own home, they are likely to get even better returns than if they maintain cash in most of the schemes that hardly beat inflation at the end of the year.
As well, a comfortable employee is more productive in the long run. Secondly, when most employees or self-contributors pay into schemes, they might be left with insufficient funds with which to build houses. With the current economic woes, the prospects of realising this dream grow even dimmer.
Thirdly, contributors need some democratic leeway on how their funds are used. Pension schemes can’t continue investing other people’s funds especially where the only justification is making management fees out of the exercise. Indeed, the silver lining here is that the schemes would need to justify their retention under the new regime.
Previous rules allowed savers to use the funds to secure a mortgage but now they can fund houses — including those built by Saccos.
Trustees will draft rules for such purchases to avoid chaos should the system be implemented. Here is where the government needs watertight rules to ensure that fly-by-night housing developers don’t connive with trustees to divert funds without contributor knowledge.
But overall, let the draft rules be strengthened through consultations to make sure the concept comes to fruition for the benefit of contributors and the economy.