HomeOp/EdEditorials Editorials It’s a boon for people living with disability

The government’s move to raise the retirement age for its workers living with disabilities from July 1 is commendable.

Allowing them to retire at 65 years, five more than their able-bodied counterparts, will offer them a chance to enjoy quality life for a longer period in paid employment when they would otherwise languish in poverty.

Although the government has yet to effect the much-touted contributory pension scheme that would have allowed civil servants and teachers to earn better pay-outs upon retirement, this move on the disabled will certainly sort out a group that has for too long been neglected.

It, however, galls that the government had to be petitioned by people living with disabilities before implementing the policy.

Given that the new Constitution and the Persons with Disabilities Act are expressly clear on the rights the affected citizens should be enjoying, the government must not wait for lobby groups to remind it of its role.

For instance, it must insist that imported appliances meant for the disabled are tax-free.

It must also develop rules that ensure buildings are friendly to people living with disabilities. We must not continue having storeyed buildings that lack functional elevators.

In a nutshell, deliberate measures must be taken to make it easier for this group of people, estimated to comprise 4.6 per cent of Kenya’s population, to enjoy quality life like their counterparts.

With the rising numbers of ageing people, many of who develop disabilities as the years get on, the government must move to put in place structures that will guarantee they lead a decent life.

Pension-backed mortgages a good idea, but...

The Retirement Benefits Authority (RBA) amended the Retirement Benefits Act in 2009 to allow members to use up to 60 per cent of their contributions as guarantee or collateral for home loans.

Under this arrangement, mortgage seekers can borrow 100 per cent mortgage (the full open market value of the property one is purchasing), thus removing the need for the borrower to raise the deposit, which has been a major hindrance to the growth of the country’s mortgage sector.

It also covers upfront closing fees such as stamp duty, valuation fees, legal fees, arrangement fees and mortgage protection fees. In total, one can borrow up to 115 per cent of the property value.

This is what the whole idea boils down to: Any borrower (of course one with accrued retirement benefits) who is unable to service his or her mortgage can fall back on their accrued retirement benefits to offset the outstanding balance.

A few days after Finance minister Njeru Githae read this year’s budget statement, RBA put newspaper adverts that highlighted “budgetary changes affecting the retirement benefits industry”. In the advert, there was nothing new concerning the use of one’s benefits to guarantee mortgage, but what struck me most was this statement:

“In the event of default by a member owing to loss of employment... the trustees shall settle the outstanding mortgage... as long as the outstanding loan is equal to or less than 60 per cent of the accrued benefit.”

This is generally a good idea, but one which is both poorly structured and timidly executed.

First, why restrict it only to loss of employment when we know there are many reasons that can make a borrower default on mortgage repayment? But that could be just a scope issue, which is not quite a big problem.

Early this year, I got information that the uptake of pension-backed mortgages was dismal. When I shared this with a seasoned mortgage player, the response was: “I didn’t expect it to go far. It can’t do fine because of the way it was structured.”

The idea of pension-backed mortgages is noble, the expert told me, but it needs to be structured in such a way that it enables the pensioners to use the money to pay part of the mortgage.

The main problem, the expert pointed out, was that as it is now, would-be pension-backed mortgage beneficiaries are actually using their pension funds to guarantee mortgage without actually getting the funding.

“The only thing it does is that it removes you from 85 per cent or 90 per cent to 100 per cent financing (because deposit is taken care of).

At the same time, it puts both your mortgage and pension at risk. Should you default, it is your pension that will pay for the mortgage. Personally, I don’t feel someone should put their pension at risk for a mortgage,” the expert said, adding:

“You don’t actually get the benefit of the funding. I wish it could give you the actual cash so that you can borrow cheaper.”

This is especially crucial, when you consider that those who use their pension to guarantee a mortgage do so after giving the property they are buying as the first charge.

In other words, while the “ordinary” borrower only uses the property they are buying as a charge, the pension-backed mortgage beneficiary risks both property and his or her lifelong savings. As a borrower, I would find this very scary.

Also, pension

The other problem that has been cited by industry players is the “long and tedious process” of having to write to the Retirement Benefits Authority to be allowed to use one’s pensions as collateral.

It is worth repeating that it is a good idea, but one which must be well thought out, structured properly and executed carefully.

My suggestion: Allow pensionable employees to use part of their savings as deposits on the house they are buying, not as collateral.

This will heavily reduce their monthly repayments, and even the number of years they take to fully own the property.

-backed mortgages hardly provide any meaningful incentive to borrowers. Covering both the deposit (which is usually a major entry barrier) and closing costs (on request, though) is well and good, but we already have some lenders in the market providing 100 per cent mortgage.

A serious borrower who gets a 100 per cent home loan would find it prudent to borrow closing costs from other sources like Saccos and bank personal loans rather than risk a life-time of pension savings.

RBA keen on pension regulatory body

The retirement authority is considering putting up a regulatory body that will oversee micro-pension activities in the country.

According to Retirement Benefits Authority (RBA) research and development manager Nzomo Mutuku, the sector is plagued with inconsistencies that have contributed to low pension savings from workers in the informal sector.

“The current schemes have questionable structures and governance resulting in diminished confidence by clients. A body is needed to regulate the activities in this sector and increase its uptake,” he said when he received research findings from United States International University (USIU) in Nairobi.

The findings, dubbed ‘Critical Success Factors for a Sustainable Micro-Pension Scheme’, have indicated that less than one per cent of workers in the informal employment are saving for retirement, compared to 15 per cent of those who have been employed formally.

Hurdles alienating the informal sector to contribute to pension scheme include low incomes, temporary nature of their employment and negative perception they have on financial institutions according to Amos Njuguna, the assistant professor at USIU’s Chandaria School of Business.

“The informal sector has the ability and willingness to save but they lack competence and saving avenues to transform these savings into substantial retirement income,” he said.

Mr Njuguna, who was also the principal investigator in the report, said the percentage penetration was alarming as the sector employs 80 per cent of the workers in the country.

The research, which was done from July last year to January, covered 1093 respondents, mainly members of the Kenya National Jua Kali Cooperative Sacco.

RBA rolled out Mbao Pension Scheme last year on July to target the low-income earners in the country. Workers would voluntarily remit a minimum daily contribution of Sh20 using mobile money services for the retirement savings plan.

The findings shows that the RBA Act does not fully accommodate micro-pensions in areas of corporate governance, its investment of the funds collected, the risk management, taxation benefits and the rules of withdrawal.

A regulatory body for the schemes would guard the funds from unscrupulous management and would increase confidence of pension savings in the sector.

Pension-backed mortgages to open up rural property market

When we critiqued pension-backed mortgages in this column a few weeks ago, little did we know that the market had since become enthusiastic about the whole idea of people using their accumulated savings as collateral.

The perspective of mortgage players seems to be slowly shifting after the Treasury introduced some amendments to the Retirement Benefits Act, which was first amended in 2009 to allow trustee members to use up to 60 per cent of their contributions as collateral for a mortgage.

This shift came after Finance minister Njeru Githae read this year’s budget statement in June.

Last week, Housing Finance managing director Frank Ireri told journalists he was happy with the new changes, which he said would boost mortgage uptake.

The amendments came after the players lobbied the government out of concern that there was low uptake of pension-backed mortgages.

So, what were the main challenges? The law then required the trustees to amend their trust deeds to allow the 60 per cent assignment of the benefits.

However, the speed of getting this done is dependent on the trustees and so far not many have amended the trust deed accordingly.

The other challenge has been that the market is generally not aware of what pension-backed mortgage can do for them.

In addition, the trustees also still don’t appreciate the benefits members can gain from this product.

This is not good for the idea given that they are the key to unlocking the barriers being experienced currently and ensuring success of the product.

So, what has changed? First, Regulation 4 has been amended to allow for a member to transfer an existing mortgage to an institution — in other words, you can use your pension as a collateral on an existing mortgage.

Previously, only those applying for new mortgages could assign their benefits.

So what? The provision makes it possible for persons taking equity release to assign their pension for further funding.

Regulation 7 has also been amended to allow use of pension as the primary security for rural property acquisition.

Previously, regulations strictly provided for the pension to be a secondary security with the primary security being the property being purchased.

The effect of this is that it opens up the market of rural property where some lenders have traditionally not accepted such property as a security for lending.

Regulation 8 has also been amended to provide for a guarantee for the initial closing costs. The old rules required the primary security to be in place before release of the guarantee.

Players like Housing Finance say that this decision had already been adopted by the business and blends well with what had initially been intended for the product.

AG to hasten Sh17bn pay for ex-teachers

Attorney General Githu Muigai. Photo/FILE 

By BENJAMIN MUINDI bmuindi@ke.nationmedia.com

In Summary

• Githu says state has set aside money in current budget for payment of the pension dues

The Attorney-General has stepped in to ensure that a group of retired teachers are paid their long-awaited Sh17 billion pension.

Prof Githu Muigai told the ex-teachers he would facilitate a meeting with Finance minister Njeru Githae next week to ensure the matter was resolved soon.

“The State Law Office has considered the import of the decision of the High Court and that the government was duty-bound to comply with the court order and pay up the teachers’ pension dues,” said Prof Muigai.

“I have advised that the Director of Pensions, Controller of Budget and the permanent secretary, the Ministry of Finance must pay the teachers,” Prof Muigai said after meeting representatives of the retired teachers.

The group was following up on their pension dues awarded to them by the High Court in Nakuru. They told the AG that they had been misled into thinking that his office was the stumbling block in the payment of their dues.

But Prof Muigai promised to expedite the process, saying the government was committed to sorting out the issue since it had included these dues in the current budget.

The retired teachers were awarded Sh17 billion after their employer, the Teachers Service Commission (TSC), told the High Court in Nakuru that it was willing to pay the money early this year.

The group sued TSC in 2006 claiming unpaid lumpsum salary increments and accrued pension from July 1997. They had moved to court seeking permission to commence a judicial review to compel TSC to pay them Sh17 billion as part of their pension dues.

In their application, the former teachers asked the court to grant them leave to file a review to command the commission to pay part of the unpaid pension up to 2003 plus costs taxed, which stand at Sh382.6 million.

They also wanted the court to order TSC to pay legal fees to their lawyer, Mr Dominic Mukui Kimatta.

The High Court ordered TSC and the Director of Pensions in the Ministry of Finance to pay the pensions backdated to 1997.

The respondent was also ordered to liaise with the Director of Pensions to review the former teachers’ current pension to reflect the new rates.

The teachers won the case before Mr David Maraga of the High Court in Nakuru.

The judge ruled that all retired teachers covered by the agreement between TSC and the Kenya National Union of Teachers were entitled to their retirement benefits.

Reprieve for pensioners as state agrees to pay up

The attorney general Githu Muigai. PHOTO / FILE  

By Benjamin Muindi bmuindi@ke.nationmedia.com
Posted  Thursday, July 19  2012 at  12:43

A group of retired teachers can breathe a sigh of relief after the Attorney General pledged to expedite payment of their Sh17 billion pension.

Prof Githu Muigai told the teachers he will facilitate a meeting with the Finance minister Njeru Githae next week to ensure that the matter is resolved.

“The State Law Office has considered the import of the decision of the High Court and that the government was duty bound to comply with the court order and pay up the teachers’ pension dues,” Prof Muigai said.

“I have advised the Director of Pensions, Controller of Budget and the Permanent Secretary, Ministry of Finance must pay the teachers,” Prof Muigai said after meeting a group of the teachers.

The group was following up on their pension dues awarded to them by the High Court in Nakuru.

They informed the AG that they had been misled into thinking that his office was the impediment or stumbling block to payment of their dues.

But Prof Muigai said he will expedite the process as the government was committed to sorting out the issue, since it had already included these dues in the current budget.

The retired teachers were awarded Sh17 billion pension arrears after their employer - The Teachers Service Commisssion (TSC) - told the High Court in Nakuru that it was willing to pay the money early this year.

The teachers sued TSC in 2006 claiming unpaid lump sum salary increment and accrued pension from July 1997.

They had moved to court seeking permission to commence a judicial review to compel TSC to pay them Sh17 billion as part of their pension arrears.

In their application, the former teachers asked the court to grant them leave to file a review to command the commission to pay part of the unpaid pension up to 2003 plus costs taxed, which stand at Sh382.6 million.

They also wanted the court to order TSC to pay legal fees to their lawyer Dominic Mukui Kimatta.

The High Court ordered TSC and the Director of Pensions in the Ministry of Finance to pay them pensions backdated to 1997.

The respondent was also ordered to liaise with the Director of Pensions to review the former teachers’ current pension to reflect the new rates.

The teachers won the case before Nakuru High Court judge David Maraga.

The judge ruled that all retired teachers covered by the agreement between the TSC and Knut were entitled to their retirement benefits.

Mbao pension plan registers 149pc growth

 

Retirement Benefits Authority CEO Edward Odundo. Photo/FILE 

By JOHN NJIRU jnjiru@ke.nationmedia.com
Posted  Monday, August 6  2012 at  17:45

0inSha

The retirement scheme targeting the informal sector more than doubled its membership growth during the first six months of this year, according to the latest report by Co-op Trust Investment Services.

The report shows that Mbao Pension Plan registered 32,879 members in June, compared with 13,200 who joined the fund in January — a 149 per cent growth.

This has been attributed to positive reception of the scheme by the informal sector, according to Retirement Benefits Authority (RBA) chief executive Edward Odundo.

“The fund is doing well with commendable returns because of improved knowledge on savings among the informal sector,” he said.

During this year’s financial period, the fund value of Mbao Pension recorded exponential growth to record Sh19.5 million at the end of June, compared with Sh9.1 million in April and Sh3.5 million in January.

According to a risk consultant, Mr Kariithi Murimi, the intensive marketing awareness by the retirement authority was bearing fruits.

Mr Murimi urged RBA to push for higher investment savings from the current Sh20 to facilitate better returns and benefits to members.

He asked the retirement authority to explain to benefactors the type of investments undertaken to prevent conflict when the pension date falls due.

Members should also be sensitised on the expected returns in relation to savings, the impact of the returns compared with inflation rates and the long-term objectives for the funds.

“If the inflation rate is higher than the percentage returns, the benefits will be swallowed up and the savings will register negative figures,” he explained.

Some Sh3 million of the micro-pension funds are invested in cash and call, Sh5.5 million in government treasury papers, and Sh10.9 million in fixed deposits, resulting in capital gains of Sh368,291 during the half-year period.

Research on the country’s micro-pension scheme tabled last week by the US International University indicated that less than 1 per cent of workers in the informal employment were saving for retirement, compared with 15 per cent of those in formal employment.