Islamic Invitation Centre
Pension Schemes
VOLUNTARY PENSION SCHEMES
In a voluntary pension scheme the worker and the company are the contracting parties. In lieu of his contributions he will receive a certain sum of money when the scheme matures either at a certain pre-arranged age or after his death his beneficiaries will receive the money. This will always be in excess of his contributions. Thus, such a pension scheme is a riba contract, hence not lawful in the Shariah.
In addition to riba, the element of qimaar is also present in view of the fact that the payment of the pension is suspended to a future uncertain event, i.e. uncertainty of its exact date of occurrence. That future event is death or a stipulated age which he may or may not reach.
COMPULSORY PENSION SCHEMES
If the pension scheme is compulsorily imposed by the employer, the contract will be between the employer and the pension company. In worker will not be a party to the contract although he is cited as t as his heirs may be cited as beneficiaries.
Since the contributions made to the pension scheme are deducted by the employer prior to payment of wages, the deducted contributions will not be considered to be part of the worker's wages. His actual wages will be the sum he obtains after the deductions.
Since the scheme is compulsory one, the employer will not be regarded as the wakeel of the worker in the act of making payment or contribution pension scheme.
when the worker or his heirs receive any monies from the pension fund, it will be said that the receipt of such monies is by the instruction of who employer who had entered into the pension scheme with the company. Thus monies the worker or the heirs of the worker obtain from the pension fund in a compulsory scheme will be regarded as gifts. It will therefore, be permissible for the worker or his heirs to accept such gifts. If the employer is a Muslim, then the worker cannot accept the gi~ from the pension fund on account of it being the proceeds of riba which are not lawful for the Muslim employer.
The Muslim employer will be able to accept only the exact amount which he had paid into the fund by way of contributions, the excess being riba which cannot be accepted. If it was accepted it has to be given into charity without a niyyat of thawaab.
In a compulsory pension scheme when the employer is a Muslim, it should be ascertained how much the employer had paid into the fund by way of contributions. when the pension fund pays out to the beneficiaries, only the amount paid by the employer (i.e. the Muslim employer) will be lawful for the worker or his heirs. the excess is riba.
If the employer is a non-Muslim, then as mentioned earlier, the worker or his heirs may accept all the money paid by the pension fund in the compulsory scheme since the money thus acquired belongs lawfully to the non-Muslim employer who makes a gift of it to the worker or his heirs.
THE PROPERTY OF THE BENEFICIARY
Money paid by the fund in a compulsory pension scheme belongs to the beneficiary to whom the award is made. It does not necessarily belong to the worker. Thus, if the money is paid to the heirs of the worker after his death, the Islamic law of inheritance will not apply to such money. The money will belong to whomever it is given to by the fund.
ZAKAAT ON PENSION MONIES
In a compulsory pension fund Zakaat on pension money received will be payable only after the receipt of such money. There is no Zakaat for the past years.
AN ISLAMIC PENSION FUND
It is possible to establish a pension fund to conform to the Shariah. The pension fund can also conform to Sha~i requirements as is in the case of the medical aid scheme. By way of Waqf or by way of Shirkat an Islamically lawful pension fund can be created.