Q: My employer has a death in service benefit where they may choose to make a lump sum payment to the employee’s relative(s) in the event of their death. It is possible for employees to state a preference as to who should receive this payment in the event of their death, though the employer is not required to follow this request. No financial contribution is required from the employee for this benefit and the lump sum payment is discretionary.
My question is whether it is permissable for a Muslim employee to stipulate who should receive this payment, or whether this payment should in fact be distributed according to the rules of inheritance in shari’ah?
My understanding of the Death in Service Benefit (DSB) is that this is part of the remuneration package offered by the employer to the planholder and may or may not be paid out of the pension depending on the details of the scheme. The DSB is usually between two and four times the annual salary and is payable upon the death of the planholder.
The DSB may be paid directly to the nominated beneficiary/ies or it may be paid in to a trust. The planholder may choose to direct the administrator/trustees in which case the administrator/trustees will be bound by his direction even if his circumstances go on to change. However, the DSB will then normally be considered a part of the estate for inheritance tax purposes, although the planholder can change this by subsequently granting discretion to the administrator/trustees. If the planholder chooses to grant discretion to the administrator/trustees, the administrator/trustees are no longer bound by the ‘Expression of Wishes’ form by which the planholder nominates his desired beneficiaries. The DSB will then normally not be considered a part of the estate for inheritance tax purposes and the planholder cannot change this once this option is chosen.
If no beneficiaries are nominated, the DSB will then go to the estate of the deceased.
If the DSB is paid in to a trust (in order to protect it against hostile creditors such as divorce settlements, bankruptcy, care fees, etc) the DSB will be bound by the terms of the trust. Normally, a discretionary trust will be used which means that the trustees use their discretion when deciding who should receive the DSB. The trustees will take into account the planholder’s Expression of Wishes but will not be bound by them.
The discretionary nature of the powers of the administrator/trustees does not mean that the administrator/trustees can choose not to pay the DSB to any beneficiary at all but rather that these powers allow the administrator/trustees to use their discretion to make the most appropriate award in the current situation. This can be to reflect any change in circumstances since the Expression of Wishes form was completed or last updated.
Thus, the DSB in question is actually part of the remuneration for your employment and you have/have not expressed your wishes as to who should be the beneficiary/ies in the event of your death but have also granted your employer discretion to make the most appropriate award. Whilst this discretion means that the DSB will normally not be considered a part of the estate for inheritance tax purposes under English law, under Islamic law, as part of the remuneration for your employment, it will be part of the estate and subject to the laws of inheritance. An Expression of Wishes form is effectively a bequest and so the normal rules of bequest will apply. I.e. you may nominate a non-heir to be a beneficiary of the DSB provided the award remains within the discretionary one third of the estate. You may also state in the Expression of Wishes form that you wish for the DSB to be distributed amongst your heirs according to their proportionate shares of your estate. In this manner you are simply affirming the distribution of your estate in a manner congruent with Islamic law. You cannot, however, nominate anyone, whether an heir or a non-heir, as a beneficiary in a manner that does not conform to the requirements of Islamic law.
And Allah knows best.
Mufti Mohammed Zubair Butt
Chair, Al-Qalam Shariah Scholars Panel