The Retirement Benefits (Mortgage Loans) Regulations

Legal Notice 85 of 2009

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Legal Notice 85 of 2009
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Retirement Benefits Act
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LAWS OF KENYA

RETIREMENT BENEFITS ACT

THE RETIREMENT BENEFITS (MORTGAGE LOANS) REGULATIONS

LEGAL NOTICE 85 OF 2009

  • Published in Kenya Gazette Vol. CXI—No. 5 on 12 June 2009
  • Commenced on 12 June 2009
  1. [Amended by Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2012 (Legal Notice 55 of 2012) on 15 June 2012]
  2. [Amended by Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020 (Legal Notice 192 of 2020) on 9 October 2020]
  3. [Revised by 24th Annual Supplement (Legal Notice 221 of 2023) on 31 December 2022]

Part I – PRELIMINARY

1. Citation

These Regulations may be cited as the Retirement Benefits (Mortgage Loans) Regulations.

2. Application

These Regulations shall apply to registered retirement benefits schemes.

3. Interpretation

In these Regulations, unless the context otherwise requires—"Authority" means the Retirement Benefits Authority established by section 3 of the Act;"facility" means a retirement benefits mortgage facility or house ownership loan arrangement;"house" deleted by L.N. 192/2020, r. 2(a);"institution" means—
(a)a bank, mortgage or financial institution licensed under the Banking Act (Cap. 488) a building society licensed under the Building Societies Act (Cap. 489) a microfinance institution established and registered under the Microfinance Act (Cap. 493C), the National Housing Corporation; or
(b)any other institution, including an issuer of a tenant purchase arrangement that is specifically approved by the Authority for the purpose of providing a facility;
(c)any other entity offering a residential house for sale;
"member" means a member of a retirement benefits scheme, including any person who is entitled to a benefit under a retirement benefits scheme;"residential house" means a dwelling built wholly or in part for the provision of residential accommodation in urban or rural areas and "house" shall have the same meaning as residential house;"scheme" means a retirement benefits scheme registered under the provisions of the Act;"scheme rules" means the trust deed and rules of the scheme;"spouse" has the meaning assigned to it in section 2 of the Marriage Act (Cap. 150).[L.N. 192/2020, r. 2.]

Part II – STRUCTURE OF FACILITY

4. Assignment of benefits

(1)A member may, if the rules of the scheme permit and subject to the Act, assign a proportion of his benefits to a scheme for consideration for the purposes of furnishing a guarantee, by the scheme, in favour of an institution, in respect of a loan granted or to be granted by the institution to a member, to enable the member to—
(a)acquire immovable property on which a house has been erected;
(b)erect a house on immovable property in respect of which, the member has, or the member and his spouse have obtained ownership or have the right to ownership through a right of occupation;
(c)add, alter or carry out repairs to a house of which ownership or the right to ownership was obtained through acquisition or a right of occupation by either the member or the member and his spouse;
(d)secure financing or waiver, as the case may be, for deposits, stamp duty, valuation fees and legal fees, (but excluding arrangement and commitment fees), and any other transaction costs required in the course of acquisition of the immoveable on which a house has been erected.
(2)The furnishing of the guarantee shall be considered by the trustees of the scheme, upon formal application by the member, in the manner prescribed in the rules of the scheme.
(3)The scheme shall not issue more than one guarantee at a time in respect of an eligible member.
(4)A member of a scheme who has a mortgage existing prior to or after commencement of this subregulation, may upon formal application in the manner prescribed in the rules of the scheme, transfer the mortgage by way of assignment of benefits to an institution.[L.N. 55/2012, r. 2.]

5. Institutions

An institution that requires a registered scheme to furnish the guarantee shall—
(a)provide the relevant proof of registration, licensing or approval required under these Regulations;
(b)have an adequate operational and internal control system for the purposes of—
(i)structuring and operating a facility;
(ii)keeping and updating an accurate record of the transactions from and to a member's loan account;
(iii)generating reports as may, from time to time, be required by the trustees of a scheme.

6. Application for approval

(1)Where an institution requires the approval of the Authority to provide a facility under these Regulations, the institution shall apply in writing for approval from the Authority.
(2)An application under paragraph (2) shall be accompanied by documentation relevant to the application, including—
(i)the memorandum of association and articles of incorporation of the applicant or enabling legislation;
(ii)details relating to the capitalization and reserves of the applicant;
(iii)details relating to the professional and academic qualifications of the board of directors and top management of the applicant;
(iv)the organizational and operational structure of the applicant; and
(v)a report on the experience of the applicant in the provision of products and services relating to a facility.
(3)The Authority shall, within ninety days from the date of receipt of an application for approval, consider the application and notify the applicant, in writing, whether the application is successful, and where it is refused, the reasons for the refusal.

7. Security for a facility

(1)The scheme shall not furnish a guarantee under these Regulations unless the loan granted pursuant to the facility is secured by —
(a)a first mortgage on a house in respect of which the loan is granted, or in the case of a rural house, where a first mortgage may not be secured, the guarantee shall be considered as the primary security acceptable to the institution;
(b)an assignment to the scheme, by the member concerned, of a proportion of benefits to which the member is entitled to under the rules of the scheme.
(2)Prior to the disbursement of funds in respect of a facility, an institution shall satisfy the trustees of a scheme that adequate insurance arrangements have been made in respect of the loan and the property for which the loan is advanced.[L.N. 55/2012, r. 3.]

8. Proportion of assignable benefits

(1)A guarantee under these Regulations shall not exceed, at the time it is furnished,—
(a)sixty per cent of the accrued benefit which the member would be entitled to under the scheme rules at the time of the application for the facility; or
(b)the market value of the immoveable property, whichever is less.
Provided that the trustees may provide a guarantee to cover the initial transaction fees including purchase deposit, applicable duties and taxes, valuation and legal fees for the acquisition of the house.
(2)Where a transaction is for the purpose of providing a refinancing opportunity on the guaranteed amount in respect of a loan advanced, the accrued benefit shall be re-evaluated at intervals of not less than three years until the time of redemption of the guarantee.
(3)Where a transaction for the purchase of immovable property has not been finalised and a purchase price has been agreed upon by the parties, the value of the property shall not be fixed at an amount higher than the purchase price declared by the parties for the purposes of stamp duty.
(4)Where a transaction for a facility for the erection of, or additions or alterations to, or to carry out repairs to a house is contemplated, the estimate of the fair market value of the immovable property shall not be fixed at an amount higher than an amount equal to the cost of such erection, additions, alterations, maintenance or repairs, as the case may be.[L.N. 55/2012, r. 4.]

9. Transfers to another scheme or Institution

(1)A transfer by a member from one registered scheme to another shall not vitiate the assignment under these Regulations and the member may apply for the issuance of a new guarantee from the scheme which he has transferred to and a return of the guarantee issued by the scheme from which he transferred:Provided that the trustees of the scheme to which the transfer has been made may, with the approval of all the parties, indemnify the trustees of the scheme from which the transfer is being made to the extent of that guarantee.
(2)A transfer by a member of a facility granted under guarantee from one institution to another shall not vitiate the assignment and the trustees of the scheme shall, upon the authorization of the member, establish mechanisms for the issuance of a new guarantee to the institution that the member has transferred to and a return of the guarantee issued to the institution that the member transferred from.
(3)Where the scheme to which a member has transferred to does not provide in its scheme rules for the issuance of guarantees under these Regulations, the member shall make appropriate arrangements for the maintenance or redemption of the guarantee, and shall inform the trustees of the scheme he has transferred from of these arrangements within a period not exceeding sixty days from the date of retirement or of giving notice of withdrawal from the scheme.
(4)In the event of the winding up of a scheme which has issued a guarantee under these Regulations on behalf of a member, the member may apply for the issuance of a new guarantee from a scheme that he has transferred to and the return of the guarantee issued by the scheme which is being wound up.

10. Duties of trustees in relation to the assignment of benefits

The trustees of a scheme shall—
(a)prior to, considering the assignability of the members benefit, ensure that the agreements made between its members and institutions, in respect of any facility contemplated under these Regulations, comply with the Act and the scheme rules;
(b)consider applications for approval for assignment from the members;
(c)verify that the institutions to which the assignments are to be made have complied with these Regulations;
(d)after approval and prior to furnishing the guarantee to an institution, ensure the proper execution of the agreements and any other assignment documents;
(e)monitor the repayment by each member to whom a facility has been issued and ensure that the assignment is discharged once the facility has been paid in full;
(f)keep a record of the assignments and indemnities granted; and
(g)ensure the disclosure, in the financial statements, of the amounts assigned and the institutions to which guarantees have been furnished.
[L.N. 192/2020, r. 3.]

11. Redemption of guarantee

Provided that—(i)upon presentation of evidence of default and liability arising to trustees by an institution, the guarantee shall be redeemable on demand in accordance with its terms; and(ii)in the event of default by a member arising on account of loss of employment, the trustees shall settle the outstanding mortgage with the institution if the outstanding loan is less or equal to the permitted guarantee under regulation 8(1).
(2)Where a dispute relating to a default arises, the trustees of a guaranteeing scheme shall give the concerned member an opportunity to prove that a default has not arisen.
(3)Upon the receipt of a notification from a member authorizing the redemption of a guarantee, the trustees of a scheme shall ensure that the proportion of funds assigned to guarantee the facility is sufficient to clear the outstanding balance of the guaranteed loan:Provided that there shall be no consolidation of debts owed by the member to the institution for the purpose of redemption.
(4)The trustees of a scheme shall, by resolution, agree on the release of any payment in redemption of a guarantee.
(5)The trustees shall submit to the Authority, on a quarterly basis, a return indicating the number and amount of guarantees issued, as well as details of loans repaid and guarantees redeemed.
(6)Notwithstanding the provisions of this rctuiation an agreement entered into between parties in respect of a facility and any assignment documents that may be signed or issued shall be invalid where—
(a)the agreement or assignment document does not comply with the Act; or
(b)the facility is granted for any other purpose than as intended in these regulations.
[L.N. 55/2012, r. 5.]

12. Suits against Trustees

In the event of a dispute regarding a facility, the cost of any suit against trustees by an institution or any other party shall not be paid from the assets of the scheme, save for the portion assigned by a member, under these Regulations, that is the subject of the dispute.

Part III – PURCHASE OF RESIDENTIAL HOUSES

13. Application for approval

(1)A member may utilise a portion of the member's accrued benefits to purchase a residential house from an institution.
(2)Every scheme shall prescribe the minimum requirements to be met by their members for an application made under these Regulations.
(3)Every scheme shall prescribe the procedure to be followed in relation to the purchase of a residential house under these Regulations.
(4)A member who wishes to utilise a portion of the member's accrued benefits to purchase a residential house shall apply in writing to the trustees in the manner prescribed by the scheme.
(5)The trustees may require the applicant under paragraph (4) to supply such additional information as may be required for the processing of the application.
(6)The trustees shall determine the application under paragraph (4) within ninety days of the application being lodged, and where an application is not granted, the trustees shall notify the applicant of the reasons thereof in writing.[L.N. 192/2020, r. 4.]

14. Portion of benefits

(1)The portion available to a member for the purchase of a residential house at the time of the application under regulation 13 (4) shall be the lower of—
(a)in a defined contribution scheme, an amount not exceeding forty per cent of the member's accrued benefits:Provided that such sum shall not exceed seven million shillings;
(b)in a defined benefits scheme, an amount not exceeding forty per cent of the member's accrued benefits as determined by an actuary:Provided that such sum shall not exceed seven million shillings; or
(c)the purchase price of the residential house which shall not exceed the market value of the residential house.
(2)The member may opt to utilise the member's additional voluntary contributions to top up the portion of the benefits available to the member for the purchase of the residential house.
(3)The member's funds contained in a post retirement medical fund shall not be used to determine the accrued retirement benefits of the member or be used for the purchase of a residential house under these Regulations.
(4)Where the applicant is a member of more than one scheme that have been established by the same sponsor, the trustees shall, on the option of the member, combine the member's accrued benefits in determining the proportion available to the member.
(5)For the purpose of determining the amount available to a member, the trustees shall take into account—
(a)in the case of a defined contribution scheme, the proportion of remitted contributions; or
(b)in the case of a defined benefits scheme, the funding level of the scheme where it falls below one hundred per cent according to the scheme's most recent actuarial valuation.
[L.N. 192/2020, r. 4.]

15. General requirements

(1)Each scheme shall prescribe in the scheme rules the procedure to be followed when a member wishes to utilise a portion of the member's accrued benefits for the purchase of a residential house.
(2)A residential house eligible to be purchased under these Regulations shall only be a house that has been certified for occupation before the intended purchase.
(3)A member shall only be permitted to utilise the member's accrued benefits only once for the purchase of a residential house under these Regulations.
(4)A member who is paid a pension by the scheme, or who has taken early retirement, or has attained retirement age shall not be eligible to utilise a portion of the member's retirement benefits to purchase a residential house.
(5)Where a member and the member's spouse are both members of the same scheme or different schemes, the trustees shall prescribe in the scheme rules the manner in which the member and member's spouse may combine their accrued benefits and utilise the total amount for the purchase of a residential house.
(6)For the purpose of determining the accrued benefits of a member who has retired before attaining retirement age, the funds applied to the purchase of a residential house under these Regulations shall—
(a)in the case of a defined contribution scheme, be deemed to have been drawn from the member's contribution together with the earned investment income, and any balance shall be applied from the employer's contribution and employer's earned investment income thereon; and
(b)in the case of a defined benefits scheme, as shall be determined by an actuary.
(7)Where a member already has mortgage facility from any other institution at the time of the application under regulation 13(4), that member shall not be allowed to utilise the member's accrued benefits to offset the balance on that mortgage facility.
(8)The trustees of a scheme shall cause the title of the residential house to be encumbered so as to prevent the transfer of the house to any other person unless any of the following occurs—
(a)the member retires before attaining retirement age;
(b)the member dies;
(c)the member becomes incapacitated by ill health or permanent disablement to the extent that it would occasion the member's retirement before attaining retirement age; or
(d)the member is emigrating from Kenya to another country without the intention of returning to Kenya, and approval has been granted by the Authority for the encumbrance to be removed.
[L.N. 192/2020, r. 4.]

16. Duties of trustees in relation to purchase of residential houses

The trustees of a scheme shall—
(a)consider applications under regulation 13 and determine whether or not they comply with the provisions of the Act and these Regulations;
(b)verify the institutions from which the purchase of the residential house is to be made in accordance with these Regulations;
(c)ensure the terms of sale between the member and the vendor of the residential house are documented;
(d)retain copies of titles of all purchases of residential houses under these Regulations; and
(e)keep and maintain records of all transactions relating to the purchase of residential houses under these Regulations.
[L.N. 192/2020, r. 4.]

17. Reports

The trustees of a scheme shall submit to the Authority a report of the assignment of benefits and purchase of residential houses by members at least once in every three months from the date of the commencement of the financial year of the scheme.[L.N. 192/2020, r. 4.]

18. Liability by trustees

Where a member utilises a portion of the member's accrued benefits for the purchase of a residential house, the trustees shall be liable to the member for the portion of the member's accrued benefits that remain unutilised.[L.N. 192/2020, r. 4.]

19. Expenses

The member who wishes to purchase a residential house under these Regulations shall bear the transaction costs and taxes relating to the purchase.[L.N. 192/2020, r. 4.]

20. Appeals

Any appeals against a decision of the trustees in relation to the purchase of a residential house under these Regulations shall be heard and determined in accordance with the provisions of the Act.[L.N. 192/2020, r. 4.]

21. Approval by the Authority

The Authority may require the trustees of a scheme to submit for approval any information, rules or procedures relating to the purchase of a residential house under these Regulations.[L.N. 192/2020, r. 4.]

22. Implementation

All schemes shall amend their scheme rules to comply with the provisions of this Part within twelve months from the date of the commencement of these Regulations.[L.N. 192/2020, r. 4.]
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