Is paying back more to a loan I take from my pension fund considered interest?
May 28, 2012
Q: I intend to purchase a property for my business use for which I intend to borrow the money from my own pension funds.
I have a self-administered pension scheme to which I and my partners contribute, the scheme allows us to operate and invest the money at our own discretion as so far as it meets pension rules.
The trustees advise me to meet pension rules they must be a gain for the funds that I borrow, they advise me I can borrow the money and repay the amount over a period with interest.
The principal owner of the funds in the pension pools is myself so I will be borrowing my own money and repaying it to myself with interest.
The question I therefore need clarifying is: would this type of transaction be lawful as I would require me paying interest to myself?
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
A: If it is true that you are simply borrowing money from only yourself and then repaying it back with an increment described as ‘interest’ then this is simply a structure which provides for the transfer of funds from one vessel owned by you into another vessel owned by you. The increment is not the prohibited riba and one cannot pay interest to oneself. However, if you are borrowing money from both yourself and your partners then the proportionate increment apportioned to your partners is riba and is prohibited.