Making sure workplace pensions are halal
Have you ever stopped to think about where your hard-earned money is being invested?
Beyond the ISA or GIA you may be managing already, we’re referring to the money invested on your behalf. Workplace Pensions.
It’s an important topic and one which requires an effort to understand, planning for and acting accordingly.
Firstly, what is a workplace pension?
It is a long-term investment vehicle provided by your employer, where you and your employer make regular contributions.
Before your salary is paid, a minimum of 5% is allocated to your pensions, topped up a further 3%, at minimum, by your employer, assuming you’re over 22 and earning above £10,000 per annum.
These contributions accumulate over time, and upon retirement, you receive a steady income to support your lifestyle - in addition to state pensions, if you qualify.
The idea is to maintain your financial well-being during your golden years when you may not be working anymore.
Where is that pension going?
This is the critical question to ponder over.
When you contribute to your workplace pension, your money is typically invested in various financial assets, such as stocks, bonds, real estate, and more. These investments are managed by fund managers, aiming to generate returns for your pension fund.
Currently, the average pension fund at retirement is £69,481; significantly below the recommended £285,000. However, that’s a separate issue.
The issue at hand is uncovering the possibility of being invested in industries and companies that conflict with Islamic beliefs.
It’s not uncommon for conventional pension funds to invest in companies involved in activities like alcohol, gambling, pork, and even weapons manufacturing. Needless to say, impermissible.
To ensure that your workplace pensions are shariah-compliant, you should investigate where your money has and is being invested. Practically, here’s what to do:
Investigate current pensions
If you already have a workplace pension, you can review its holdings. Contact your pension provider or HR department to inquire about the investments in your pension fund.
If you find any investments conflicting with Islamic principles, consider switching to a Shariah-compliant option, where available.
Investigate past pensions
If you’ve moved jobs, it’s likely that your past employers had varying pension providers. You may know who they are and at the very least, you receive annual statements from them.
If that’s not the case, you can search for who your past employer's pension provider was, using the government’s pension tracing service. From there, you can reach out and make necessary arrangements
Moving to Shariah compliant pensions
While it’s not possible to withdraw your pensions until you’re 55 (increasing to 57 in April 2028), it’s certainly possible to dictate where it’s invested.
Ideally, in asset classes which follow a criteria in their investment choices to ensure that your money is invested in a halal¹ manner.
Through your pension provider(s), you may be able to access Shariah-compliant funds, such as HSBC Islamic Global Equity Index, iShares MSCI World Islamic, amongst others.
In the case where the options don’t exist, you can explore consolidating your pensions with a provider who offers shariah-compliant options or opening a SIPP.
1. The term 'Halal' denotes that it is permitted and follows Islamic law
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