Employer action code: Act
The recently approved 2018 Finance Act will create a new housing fund — the National Housing Development Fund (NHDF) — to be managed by the National Housing Corporation (NHC). The NHDF is intended to help individuals earning up to 100,000 Kenyan shillings per month with the purchase of their first home via one of three new affordable housing plans sponsored by the government. The act amends existing employer mandates to provide or subsidize employee housing under the Employment Act and will apply to all employees age 18 or older and all employers. The NHDF provisions of the Finance Act have a target launch date of January 1, 2019, subject to gazetting of the implementing regulations and establishment of the fund.
- Employers and employees will each be required to contribute 1.5% (3% in total) of covered monthly gross pay (capped at 166,000 Kenyan shillings a month) to individual accounts referred to as Housing Fund Credit accounts. For individuals paid at or above the monthly cap, the total monthly contribution would equal 5,000 Kenyan shillings. Employees will have the option of contributing in excess of the statutory minimum to their accounts, but not employers.
- Contributions must be paid by employers within nine days following each month. Employers are subject to late payment penalties of an additional 5% of the total outstanding amount due.
- The accounts are intended to be used for qualified housing purposes through tenant purchase plans or as collateral for a mortgage under the affordable housing plans for first-time home buyers, provided the account has at least five consecutive years of contributions. Qualified account holders will have the option to take out a home loan from the NHC at a subsidized interest rate no greater than 7% per annum.
- Investment returns on money in the accounts will be determined on an annual basis by the NHC.
- Individuals who are ineligible for the affordable housing plans or who don’t use their accounts for qualified housing purposes for whatever reason will be entitled to a lump sum settlement of their account (plus accrued interest) after 15 years of contributions or on retirement, whichever occurs first. Such payment will be subject to personal income tax. Alternatively, it will be possible to transfer the balance to a registered pension scheme (RPS) or to the account of another person registered with the NHDF (provided that the individual is eligible for affordable housing) on a tax-deferred basis.
- In the event of death, the account balance will be payable to dependent relatives (as designated by the account holder), divided evenly among the beneficiaries as a lump sum survivors’ benefit.
The NHDF is intended to help fund the creation of 500,000 housing units for low-income families. According to the World Bank, Kenya has a housing deficit of two million units while the capital, Nairobi, is one of the most expensive cities in Africa. Most of the population in formal employment will be eligible to participate in one of the affordable housing plans, but as access to the funds requires a minimum of five years of contributions, it will be some time before the NHDF becomes fully operational. While a significant portion of staff employed by multinationals are not likely to qualify for housing assistance, they will benefit from the additional savings and survivorship benefit. In addition, if they have not received NHC benefits, they may also elect to transfer their savings to a RPS after 15 years on a tax-favored basis. Among companies surveyed by Willis Towers Watson, roughly half have supplemental occupational retirement defined contribution plans in place.