Don't invest unless you're prepared to lose all the money you invest. This is a high risk investment. Take 2 mins to learn more.

Understanding pension types as a Muslim

Published on
February 13, 2024

Understanding the importance of pensions and the available types is essential to securing a comfortable retirement in a halal¹ manner.

Pensions are financial means designed to provide income during your retirement, typically funded by contributions from your working years and often supplemented by employers or the government.

For Muslims in the UK, making informed decisions about pensions is not only a matter of financial responsibility but also one that should align with Islamic principles and Shariah.

Our overview explores the various types of pensions available to you in the UK, with a focus on workplace pensions, personal pensions, and the state pension.

Workplace Pensions: A Valuable Benefit of Work

One of the most common types of pensions in the UK is the workplace pension. This pension scheme is typically set up by your employer, and each new job will auto-enrol you onto a new pension plan. 

There are two primary categories of workplace pensions: defined contribution schemes (DC) and defined benefit schemes (DB).

DC pensions are more prevalent, and they function by accumulating contributions from both you and your employer while you are employed. Over time, this pot of money grows, forming the basis of your retirement fund.

Unlike DB pensions, where only your employer contributes and guarantees a specific income upon retirement, DC pensions offer more flexibility and choice in how your pension pot is managed.

Personal Pensions: Taking Control of Your Financial Future

Another avenue to take control of your financial future is through personal pensions - often referred to as SIPP (self-invested personal pension). This particular pension type offers you the autonomy to set up, manage and contribute to your pension fund. 

The government supplements personal pensions by providing tax relief on your contributions, up to certain limits. People often opt for personal pensions for several reasons:

  • Supplementing Other Pensions: it can be used to save additional funds alongside workplace or state pensions.
  • Self-Employed: for those who are self-employed, personal pensions offer a structured way to save for retirement.
  • Consolidation: You can consolidate pensions into one personal pension, from all previous employment, simplifying your retirement planning.
  • Investment Control: With personal pensions, you have the freedom to make your own investment decisions, potentially increasing your returns.

The State Pension: A Government Safety Net

The State Pension, provided by the government, serves as a crucial safety net for retirees in the UK.

To be eligible for the State Pension, you must have reached the State Pension Age, and you must meet certain criteria, including the required national insurance contributions.

As of now, the State Pension Age is 66, but it is set to increase to 67 by 2028 and potentially to 68 by 2039. Therefore, it is crucial to plan your retirement finances accordingly, considering this changing landscape.

While the State Pension provides a valuable source of income in retirement, it is essential to recognise that it may not cover all of your financial needs. 

The amount you receive depends on various factors, including your personal income, circumstances, and most importantly, your history of paying national insurance contributions.

It’s quite natural to see the value of having a workplace pension or personal pension, in tandem to a state pension.

Aligning Pensions with Shariah

When it comes to pensions, it’s no different to any other aspect of finance and is essential to ensure that the investments made with your pension money is halal and Shariah-compliant.

Some pension providers offer ethical and Shariah-compliant pension investment options, providing peace of mind that your retirement savings are in line with your faith and values.

Whether you opt for a workplace pension, a personal pension, or rely on the State Pension alone, careful planning and Shariah-compliance should guide your approach.

1. The term 'Halal' denotes that it is permitted and follows Islamic law

Risk Warning: Equity investments are not readily realisable and involve risks, including loss of capital, illiquidity, lack of dividends and dilution, and it should be done only as part of a diversified portfolio. Investments of this type are only for investors who understand these risks. You will only be able to invest in the company once you have met our conditions for becoming a registered member.

Please visit for our full risk warning.

Risk Warning: As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.

Please visit for our full terms and conditions

Maydan Capital Limited, trading as WahedX, is registered in England and Wales (Company No. 13451691), registered office: 87-89 Baker Street, London, W1U 6RJ, UK. Maydan Capital Ltd (FRN: 963613) is an appointed representative of Wahed Invest Ltd (FRN: 833225), an authorised and regulated firm by the Financial Conduct Authority.Wahed Invest Ltd. is registered in England and Wales (Company No. 10829012), registered office: 87-89 Baker Street, London, W1U 6RJ, UK and is authorised and regulated by the Financial Conduct Authority: FRN 833225.

As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.

Wahed Invest LLC (Wahed) is a US Securities and Exchange Commission (SEC) registered investment advisor. Wahed Invest provides brokerage services to its clients through its brokerage partner Apex Clearing Corporation, a member of NYSE - FINRA - SIPC and regulated by the SEC and the Commodity Futures Trading Commission. Registration does not imply a certain level of skill or training. Wahed does not intend to offer or solicit anyone to buy or sell securities in jurisdictions where Wahed is not registered or a region where an investment practice like this would be contrary to the laws or regulations. Any returns generated in the past do not guarantee future returns. All securities involve some risk and may result in loss. Any performance displayed in the advertisements or graphics on this site are for illustrative performances only.

Disclaimer: Wahed Technologies Sdn Bhd ("Wahed") is a Digital Investment Manager (DIM) licensee issued by Securities Commission Malaysia (eCMSL/ A0359/2019). It is part of Wahed Inc. Wahed is authorized to conduct a fund management business that incorporates innovative technologies into automated portfolio management services offered to clients under a license issued pursuant to Schedule 2 of the Capital Markets Services Act 2007. All investments involve risks, including the possibility of losing the money you invest, and the track record does not guarantee future performance. The history of returns, expected returns, and probability projections is provided for informational and illustrative purposes, and may not reflect actual future performance. Wahed is not responsible for liability for your trading and investment decisions. It should not be assumed that the methods, techniques, or indicators presented in this product will be profitable, or will not result in losses. The previous results of any trading system published by Wahed, through the Website or otherwise, do not indicate future returns by that system, and do not indicate future returns that will be realized by you.

Wahed Invest Limited is regulated by ADGM’s Financial Services Regulatory Authority (“FSRA”) as an Islamic Financial Business with Financial Services Permission for Shari’a Compliant Regulated Activities of Managing Assets and Arranging Custody [Financial Permission No. 220065]. Our ADGM Registered No. is 000004971. Wahed Invest Limited utilises Abu Dhabi Commercial Bank as its banking partner/custodian

Wahed assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. Any strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. Furthermore, the information presented may not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance.

There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services and should seek advice from an independent advisor before acting on any information presented. Any links to third-party websites are provided strictly as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites nor do we endorse the content and information contained on those sites. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the third-party websites.

Share this post