Why Kenya's Sh2.5 trillion pension funds hold key to increased home ownership

For a sector whose assets under management will soon be hitting Sh3 trillion, one intriguing question emerges – where has the pension industry failed in aiding Kenyans to own homes?

By June this year, assets under management in the pension industry as regulated by the Retirement Benefits Authority (RBA) stood at Sh2.5 trillion. This figure stood at Sh2.25 trillion in December 2024.

The enhanced statutory contributions to the National Social Security Fund (NSSF) in 2023 is a key factor of this exponential growth, which, on the other hand, has squeezed workers’ incomes.

And in addition to other enhanced taxes – such as the affordable housing levy at 1.5 per cent of basic pay and the Social Health Insurance Fund (SHIF) at 2.75 per cent – many Kenyans are scrapping for survival.

Owning a home, as such has become a mirage. But according to Zamara, a financial services firm with an interest in pension administration, these trillions in savings by Kenyans hold the key – literally – to their new homes.

The November 2025 report by the firm in collaboration with the Centre for Affordable Housing Finance (CAHF) and Financial Sector Deepening (FSD) Kenya, notes that despite regulations to facilitate home ownership through pension, there has been no progress.

The market also has no products for this purpose. “Kenya’s challenge is not a regulatory vacuum, but a failure of imagination and product design,” the report says.

The report titled, The Role of Pension Funds in Addressing Kenya’s Affordable Housing Crisis, cites the 2009 provision that allows a pension scheme member to assign up to 60 per cent of their accrued benefits as collateral to a housing loan.

This is as presented in the Retirement Benefits (Mortgage Loans) Regulations, legal notice No 85 of 2009.

The funds, while not withdrawn, serve as a guarantee to the lender. This reduces default risk while theoretically expanding access to credit for individuals who may lack formal deeds or other conventional collateral.

“In theory, this was a transformative innovation – a dream between long-term savings and the dream of home ownership. However, the reality has been far less effective,” the report says.

“Uptake remains negligible, largely because financial institutions have layered the provision onto traditional, high-value mortgage products, which remain out of reach for 89 per cent of pension scheme members.”

The outcome, the report says, has been a regulation designed to enable inclusion has instead reinforced exclusion.

In 2020, there was an amendment to the Retirement Benefits Regulations proposed to allow members of pension schemes to withdraw up to 40 per cent of their savings (which was capped at Sh7 million) to purchase a home.

“The intent was clear and commendable - to break the deposit barrier that locks out many potential homeowners. Yet, this approach comes with inherent risks. Critics warned that such early access could erode long-term retirement adequacy, defeating the core purpose of pension savings,” the report says.

This amendment was later nullified in 2022 by the High Court on the argument that public participation was not procedurally done.

“While the decision halted its implementation, it also underscored a legitimate concern: short-term housing relief should not come at the expense of long-term financial security,” the report says.

Zamara cites Singapore, Malaysia, South Africa and Namibia as some of the countries which have been able to seamlessly integrate pension assets into housing.

Singapore has the Central Provident Fund, where the mandatory pension contributions are split into specialised accounts. One of them is an ordinary account where the deposits can be used to pay for down payments and mortgages for government-built units.

Malaysia allows withdrawal from the Employees Provident Fund (EPF) specifically for purchasing, building, or offsetting a housing loan.

Canada has the Home Buyers Plan, where first-time homeowners can withdraw funds tax-free to buy a home, provided they repay the amount in 15 years.

Both Namibia and South Africa have a pension-backed loan system where members use a portion of their benefits as collateral for housing loans.

“Pensions are not viewed as isolated retirement accounts, but as dynamic, multi-purpose financial tools that support lifelong asset creation. Each model is designed within a protective regulatory framework, ensuring that the immediate benefits of housing do not undermine the long-term goal of retirement security,” the report says.

In light of these innovations, Zamara says Kenya can come up with pension-backed incremental housing loans in partnership with Saccos and commercial banks. This is a loan product that allows members to use a portion of their savings as collateral without withdrawing it to financial home construction or purchase.

“The loan is released incrementally to match construction progress (foundation, walls, roofing, finishing). This lowers credit risk and supports gradual homeownership for low – and middle-income earners,” the report says.

Additionally, pension funds could be directed into the financing and construction of affordable housing projects countrywide.

This is to be done through real estate investment trusts (Reits). Pension funds will then become active institutional investors in the projects.

The report says that by repositioning pension funds from passive savings vehicles to active catalysts of economic transformation, this strategy ensures that long-term savings serve dual purposes, securing members’ futures while driving national progress.

“Through Pension-Backed Incremental Housing Loans, members gain affordable access to homeownership, while pension investments in affordable housing and infrastructure stimulate job creation, urban development, and long-term economic resilience,” the report says.