One-third of Muslims in the UK do not have a pension due to the lack of sharia-compliant pension options, missing out on an estimated £12.8bn in savings for retirement, which has prompted calls for trustees to introduce Islamic funds in defined contribution schemes.
A survey published by investment advisers Islamic Finance Guru, which polled 600 Muslims, found that 30.4 per cent did not own a pension.
The Muslim population in the UK currently stands at around 3.4m in the UK, of which 20 per cent are in work, explained IFG.
This is a problem not just for the Muslims in question, but also for the wider community that they live in, and also for the taxpayer
Ibrahim Khan, Islamic Finance Guru
Considering that the average UK pension pot after a lifetime of savings stands at £61,897, Muslims have a shortfall of £12.8bn in their pensions, which ultimately will be made up from the state pension and benefits.
Among the respondents who did not own a pension, 78.1 per cent said they did not have one because of sharia compliance concerns.
This is due to not finding halal options or because they did not have the information or awareness to be able to make decisions as to whether a pension fund is sharia-compliant.
Of the 69.6 per cent of Muslims who have a pension, 39.5 per cent stated that their employer did not have an Islamic pension option.
That meant a total of 40 per cent of Muslims surveyed have their pensions invested in funds that go against their beliefs as there is no alternative, the survey concluded.
The vast majority of investment funds used by DC schemes will not be compliant with sharia, because they invest in assets that generate interest or involve industries such as alcohol, pork, gambling, weapons, tobacco, among others, which are considered unlawful and are forbidden.
Trustees can be target of discrimination claims
In alegal opinion obtained by Islamic Finance Guru in May, Paul Newman, barrister at Wilberforce Chambers, stated that it was against the Equality Act 2010 and pension trustee duties to not provide a few Islamic funds for employees to choose from.
He said that typically, such schemes offer members a range of funds in which contributions can be invested, usually based on different levels of risk.
Trustees of DC schemes are under a number of legal obligations with regard to the investment of assets — the scheme’s trust deed, the general law and a code issued by the Pensions Regulator, Newman stated.
He also noted that all occupational pension schemes are required to include a rule that requires the trustees and employer not to discriminate against another person while carrying out any of their functions under the scheme.
Newman said schemes failing to offer a Sharia option “is likely to constitute discrimination for the purposes of the Equalities Act 2010, and that the trustees of the scheme concerned will be obliged by that legislation to rectify the discriminatory conduct by offering such an option to scheme members”.
When considering halal investment choices, it is important for trustees to offer more than one fund of this type, so that members are able to diversify their investments.
Trustees who offer only one such fund, and who thereby limit Muslim members to investing in that fund, may expose themselves to claims for maladministration or breach of trust, Newman added.
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Government needs to raise awareness on the issue and make changes
Ibrahim Khan, co-founder of Islamic Finance Guru, told Pensions Expert the main issue was that “a large majority of the Muslim population in the UK will not have money to retire on”.
This is a problem ”not just for the Muslims in question, but also for the wider community that they live in, and also for the taxpayer”, he added.
Khan said: “Every large pension company needs to make it possible for everyone to have these funds available.
“This is not difficult — these funds exist, it just needs to be added on.”
He would like the government to raise awareness of this issue, and for The Pensions Advisory Service to make guidance available on its website, which would “raise a lot more awareness for Muslim consumers”.
John Wilson, head of technical, research and policy at Dalriada Trustees, said he suspected this is a topic “that will come on the radar of many trustee boards in days to come”.
He noted, however, that this was not a new problem, since “the duty of trustees — and potentially employers as well — to consider the investment options that are available in their pension scheme to ensure that they're not discriminatory was highlighted over 10 years ago, with connection with the introduction of automatic-enrolment”.
He said: “It was highlighted at the time that it could give rise to a discrimination claim, and that discrimination claim could be successful unless it could be defended on grounds of objective justification.
“Given that making a fund which is sharia-compliant available to members is fairly straightforward — most big fund managers offer them — it seems very difficult that trustees or employers would be able to justify not making these funds available.”
