The government’s plan to accelerate its affordable housing agenda has suffered a setback in court after a judge quashed a law that allows members of retirement schemes to use a portion of their savings to purchase residential houses. 

The court also stopped implementation or enforcement of the amendments introduced to the Retirement Benefits Act No. 3 of 1997, which allowed the retirement benefits industry to help fill the housing gap.

Justice Anthony Ndung’u found that the amendment to the law was achieved through an irregular and flawed parliamentary process because MPs failed to allow public participation in the enactment process.

The amendment was introduced through the Tax Laws Amendment Act 2020, which came into effect on April 25, 2020, and the objective was to cure the large housing gap.

The government’s aim in amending the law was to boost home ownership and lift the sluggish property market by enabling members of retirement schemes to purchase and own homes using their savings.

To bring the amended law into force, former Treasury Cabinet Secretary Ukur Yatani published the Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020 showing the rules and limits for accessing pension savings for home purchase. The regulations were published on September 14, 2020.

Pensioners were allowed to use up to Sh7 million or a maximum of 40 percent of their retirement savings to buy a home from an institution and real estate investors.

An institution was defined in the regulations to include banks, mortgage or financial institutions, building societies, microfinance institutions, the National Housing Corporation, institutions approved by the Retirement Benefits Authority or any other entity offering a residential house for sale. 

Homes constructed or financed by the government, saccos, insurers and entities running tenant purchase arrangements were also among those that could be purchased using retirement money.

But while ruling in a case filed by Busia Senator Okiya Omtatah challenging the legality of the amendments, Justice Ndung’u found that the changes were premised on a flawed process adopted by Parliament. At the time the suit was filed in May 2020, Mr Omtatah was a human rights activist.

The suit was also supported by the Association of Retirement Benefits Scheme and the Association of Pension Trustees and Administrators, who argued that the amendments were not sustainable considering the status of current retirement schemes.

Justice Ndung’u found that the amendments did not go through what the law requires for enacting legislation, including public participation, and was introduced in Parliament through the Committee of the Whole House, barring stakeholders from publicly participating.

“The amendment of Section 38 (1A) of the Retirement Benefits Act (1997) was an amendment impacting heavily the utilization of funds in pension schemes. It thus would call for a robust process of stakeholder engagement and public participation,” said the judge.

“The introduction of the amendment at the committee stage denied the players in the industry, stakeholders and members of pension schemes the opportunity to contribute to the content of the envisaged law.”

The judge said the amendment was flawed because Parliament failed to involve members of the public during the enactment as required by Article 118 (1) of the Constitution. 

That provision requires Parliament and its committees to conduct their business and sittings in an open manner and facilitate public participation.

Justice Ndung’u of the Judicial Review Division of the High Court said Parliament fell afoul of the constitutional provision by failing to allow public views.

“My humble view on the matter is that the court would be abdicating its constitutional role if it was to watch with inaction as Parliament conducts its constitutional mandate of lawmaking without having due regard to constitutional ethos and statute as well as its own set procedures under the Standing Orders,” said the judge.

“Such derogation must be amenable to judicial review or a declaration of unconstitutionality as the case may be.”

However good-intentioned Parliament may be in making laws, he said, if the process is legally flawed, courts must step in and defend the rule of law.

The judge barred the National Assembly, the National Treasury Cabinet Secretary, the Attorney-General and others from implementing or enforcing the law and the regulations.