What is a SIPP — and Why Does It Matter for Muslim Investors?

A clear, factual guide to understanding halal pension options in the UK

Many Muslims in the UK want to build long-term financial security while remaining faithful to Islamic principles. Yet mainstream pension products often include interest-bearing bonds or exposure to prohibited sectors such as gambling, alcohol, pork-related businesses, or conventional financial institutions. Research conducted by the Chartered Institute of Payroll Professionals and Islamic Finance Guru found that around 30% of British Muslims have no pension at all, largely due to concerns about Shariah compliance and limited halal options.

This challenge is reflected in wider trends. An analysis by the Institute for Fiscal Studies found that Muslim-majority groups have higher opt-out rates from workplace pensions compared to the national average. The report highlighted that avoiding pensions can significantly reduce retirement income — in some scenarios by around 60%, or roughly £16,500 per year, due to missed employer contributions and tax relief.

A Self-Invested Personal Pension (SIPP) offers a structure that may help address these concerns. Because a SIPP allows individuals to decide exactly where their pension contributions are invested, it becomes possible to construct a retirement portfolio that aligns closely with Islamic values.

1. What is a SIPP?

A Self-Invested Personal Pension is a type of UK personal pension that provides more control and flexibility than standard workplace schemes. It is authorised and regulated by the Financial Conduct Authority, registered with HMRC, and benefits from the same pension tax rules as other personal pensions.

A SIPP is best understood as a neutral pension “wrapper.” It does not determine whether the pension is halal or not — the investments inside it do. This structure allows Muslim savers to choose investments that meet Shariah screening criteria rather than relying on default funds that may include interest-based or unethical holdings.

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2. How a SIPP Works

The mechanics of a SIPP follow the same core principles as any defined contribution pension.

Contributions and tax relief

Contributions typically receive tax relief from the government. According to GOV.UK guidance, basic-rate relief is generally added automatically by the provider, while higher-rate relief is claimed through HMRC. Because this relief is simply a refund of tax paid on earnings, Islamic scholars generally view it as permissible rather than interest-based.

Investment growth

MoneyHelper, the UK’s official pension guidance service, explains that investments within a SIPP grow free from capital gains tax and dividend tax. While this can support long-term compounding, it does not remove investment risk. Values may fluctuate based on market conditions.

Investment choice

SIPPs allow access to a broad range of eligible investments. For those seeking Shariah compliance, this may include:

• Islamic equity funds screened using Shariah financial ratios
  
  
• Sukuk funds, which use profit-sharing structures rather than interest
  
  
• Shariah-compliant global ETFs
  
  
• Gold or commodity-based investments
  
  
• Diversified halal multi-asset portfolios
  

Retirement access

Funds can normally be accessed from age 55 (rising to 57 in 2028). Up to 25% can typically be taken tax-free, with the remainder treated as taxable income in line with HMRC rules.

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3. Why SIPPs May Be Valuable for Muslim Investors

3.1. Flexibility to avoid non-compliant sectors

Many default pension funds invest in conventional equity indices or bond products. Market reports from Pensions Age and Mallowstreet highlight that these standard allocations can create challenges for Muslim workers who wish to avoid interest-bearing or prohibited sectors. A SIPP enables the selection of funds that apply clear Shariah screens.

3.2. Ability to avoid riba (interest)

Traditional pensions typically include corporate or government bonds. Islamic finance principles prohibit earning interest, which makes such allocations unsuitable. A SIPP allows the use of sukuk instead — instruments structured around asset-backed profit-sharing rather than lending at interest. Islamic finance experts cited by Islam Channel and Qardus note that sukuk provide a compliant alternative for income-oriented allocation.

3.3. Participation in long-term saving

The Institute for Fiscal Studies found that higher opt-out rates among Muslim workers contribute to significantly lower retirement balances over time. A halal-aligned SIPP gives Muslim investors a way to participate in long-term saving without compromising their values, potentially helping to close this participation gap.

3.4. Halal access to pension tax relief

Christine Hallett of Options Pensions noted that many British Muslims are unaware of the generous tax advantages available through pensions. Because tax relief is considered a return of tax and not interest, it is widely accepted as halal. When applied consistently over decades, it can materially support retirement savings efficiency.

3.5. Transparency and accountability

A SIPP provides full visibility into holdings through online dashboards. This helps investors monitor compliance continuously. Providers offering Islamic portfolios — including those with scholar-led Shariah governance — often publish purification reports and screening methodologies, adding an additional layer of assurance.

3.6. Alignment with long-term Islamic financial ethics

Islamic teachings encourage responsible planning, stewardship, and reducing future dependency. A halal-structured SIPP supports these values by helping savers prepare for later life in a manner aligned with their ethical beliefs.

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4. What Makes a SIPP Halal?

Islamic finance screens typically require that investments:

• Exclude interest-based products such as gilts or conventional bonds
  
  
• Avoid prohibited industries including alcohol, gambling, pork products, adult entertainment, and conventional banking
  
  
• Pass financial ratio filters to limit excessive leverage and interest income
  
  
• Undergo purification for incidental non-compliant income
  
  
• Are overseen, where possible, by a qualified Shariah advisory board
  

Shariah-compliant funds and sukuk ETFs available on UK markets already apply these methodologies, as described in reports by Qardus and in Islamic pension guidance published by various scholars.

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5. Where Wahed Fits In

Wahed offers a Personal Pension (SIPP) built entirely around Shariah-compliant portfolios. Contributions are invested into screened and monitored halal portfolios that include global Islamic equities, sukuk, and sometimes gold. According to Wahed’s partnership announcements with Options Pensions, these portfolios are overseen by a recognised Shariah board, and purification is handled automatically.

Wahed’s SIPP is designed for individuals who prefer not to manage screening, rebalancing, or compliance checks themselves. As with any pension, individuals should consider fees, risk tolerance, and suitability before making decisions.

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6. Common Misconceptions About SIPPs

Several misunderstandings may discourage savers from exploring SIPPs:

• “SIPPs are only for experts.”
  Modern providers offer guided or managed portfolios, including Shariah-compliant options.
  
  
• “SIPPs are inherently risky.”
  Risk depends on the chosen assets. As the FCA notes, SIPPs range from conservative portfolios to high-risk options.
  
  
• “Opening a SIPP means losing employer contributions.”
  Individuals can keep their workplace pension to receive employer contributions and open a SIPP for additional voluntary saving.
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• “Halal pensions always perform worse.”
  Research from Islamic index providers and sukuk analysts shows no consistent evidence of underperformance relative to conventional benchmarks. Performance depends on market conditions and asset allocation rather than religious screening alone.

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7. Risks to Consider

SIPPs carry investment risk, including market volatility and potential loss of capital. Pension rules and tax legislation can change. Fees vary widely between providers and should be reviewed carefully. Those constructing their own halal portfolios should monitor ongoing compliance. Using a regulated provider with Shariah oversight can help reduce this burden.

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8. Is a SIPP Suitable for You?

A SIPP may be considered by individuals who want:

• More control over their pension investments
  
  
• The ability to avoid interest-bearing assets and prohibited sectors
  
  
• Transparency over holdings
  
  
• A structured way to make voluntary contributions
  
  
• A pension option that aligns with their Islamic values
  

Whether a SIPP is appropriate depends on personal circumstances, goals, and comfort with investment risk. Those unsure may wish to seek professional guidance or Islamic financial advice.

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Required Disclaimer

This article is used for informational purposes only – not financial advice or recommendation.  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. If you are unsure about whether investing is right for you, please seek expert financial advice. 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.

SIPP investors should ensure that they are happy to make their own investment decisions and understand that all investments can rise and fall in value. Your capital is at risk and you may get back less than you pay in. You’ll need to be at least 55 (rising to 57 from 2028) before you can access the money in your pension. Pension and tax rules can change and any tax relief and benefits will depend on your personal circumstances. If you’re not sure what’s best for your situation, you should seek professional financial advice.

Past performance is no guarantee of future results. Historical returns, expected returns, and probability projections are provided for informational and illustrative purposes only and are not an indication of future performance. All investing involves risk and you could get back less than you have invested.