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Wednesday 10th August 2022

Does your employer offer appropriate pension options for Muslim employees?

The options for Muslims looking to invest their workplace pensions in a halal fashion are limited. Mouthy Money speaks to three people who want more options for their long-term savings.

Almost one in three (30.4%) Muslims in the UK say they don’t have a pension according to A survey by investment advisers Islamic Finance Guru. Of the respondents who don’t have a pension, a whopping 78.1% don’t have it due to Sharia-compliance concerns.

Those figures are alarming but unsurprising. Muslim workers often find out they don’t have any halal options or assume their workplace pensions are not sharia compliant, therefore they wouldn’t be able to invest their money as their retirement fund would essentially not be permissible for them to use.

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Employers frequently don’t offer Islamic workplace pension options, leaving Muslims unable to contribute to a pension pot and also losing out on thousands in employer contributions.

Islamic Finance Guru says it looked into the legal responsibilities and rights of not offering Islamic pensions. According to a legal opinion from Paul Newman, barrister at Wilberforce Chambers, it is against the Equality Act 2010 to not offer halal investment options to employees.

In the opinion, Newman stated that and that it is important to offer more than one Islamic fund, so that Muslim employees are able to have a choice and the opportunity to diversify their investments too.

Mouthy Money wanted to dig more into this issue, which is clearly costing the UK’s significant Muslim community potentially millions in missed retirement funds.

We’ve spoken to three young Muslim professionals who shared their thoughts on pensions, plus whether they themselves had pensions and what their retirement planning look like.

Fatma, primary school teacher

Fatma, a primary school teacher said initially she had an idea of what pensions were: “money that’s available for you to use 60 or so years from now.”

Although she didn’t quite understand the ins and outs or how it worked, she also didn’t consider that it could not be shariah compliant. She admitted she did have a lack of awareness when it came down to it. But a conversation with her brother made her realise she needed to look deeper into the money she would later use for her retirement.

As Fatima is a teacher, and teaching is a public sector job, she is on a defined benefit (DB) pension which she believed was halal as it’s not invested into anywhere and doesn’t depend on fund performance, it is therefore permissible for her to use when she does retire.

This is however not correct, as even though a DB pension offers guaranteed income, the manager of the scheme still has to make active investment decisions.

Maryam, social media manager

Maryam who works in advertising as a social media manager was better informed about her pension. Maryam said she just knew her workplace didn’t offer halal options before even checking, and almost immediately after joining requested to opt out.

She said she had no qualms of doing it so abruptly because retirement seems so far away and felt as though she had time to look into her options and decide what to do.

Maryam also expressed her lack of awareness and knowledge on pensions and retirement planning: “You hear of pensions and retirement, but no one really highlights your options, nor do they discuss the technicalities”.

As a Muslim she said she’s always conscious of making the right and permissible choices with her money and is very sceptical of whether the options she sees are halal and sharia complaint.

As it stands, she hasn’t asked her employer to look into alternative Islamic pension options for her as she’s considering using an inheritance for retirement, which she said is currently illiquid. But also added that she doesn’t know what kind of options she may be exposed to if she was to start a new job elsewhere, so she’ll remain open-minded and see.

Yasmin, engineer

Yasmin works in engineering, she too opted out of her workplace pension as she asked her workplace if it was sharia compliant and they confirmed it wasn’t.

She expressed that at the time she just knew it wasn’t halal for her to contribute and for that it was a no brainer to opt out.  Although Yasmin has a professional job in a field she likes, she does also have entrepreneurial goals of fully running her own small business.

To her, having the extra money in her paycheck is helping her achieve that goal quicker and she is making headway. She said she’ll depend on her business for retirement as she’s confident that it will be sharia complaint.

Yasmin did mention that she’s fortunate to have this option, but for those that don’t, something needs to be done about the lack of options and awareness available.

What can Muslims do to bridge the halal pension gap?

Thinking of other ways to save for retirement as well as starting the conversation to be provided with an Islamic pension option from an employer can be a stressful process and is unfair as others don’t have to do the same.

It’s clear there is a concern and a lack of options available when it comes to sharia complaint pensions for Muslim workers. There are a few unfortunate realities that could be present after you choose to opt out and look to save long-term by yourself via alternative means.

For one, you essentially lose out on the free money from your employer which would have contributed towards your retirement savings. Similarly, if you were to use your net pay salary to save, as that’s been taxed and won’t be credited back.

However, carrying out your own investment activity would present itself a permissible way to save for retirement as long as you do your due diligence in ensuring wherever you invest your money is sharia compliant certified. 

Another viable option would be to set up a self-invested personal pension (SIPP) as it would allow you to be more hands-on with your investments and you would be entitled to the 20% relief that you get with workplace pension contributions.

Employers are not required to contribute towards your SIPP, but it still could be worth asking as they might surprise you. Again be sure to verify any investment offerings are sharia complaint certified before investing. 

Photo by Christopher Bill on Unsplash

Amani Keynan

Amani Keynan works in communications across the asset management and institutional investing industry, but has a personal interest in watching the sharia-complaint investing sector and its development as a viable way for the Muslim community to access better savings growth.

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