This fatwā seeks to clarify the sharīʿah perspective on the permissibility of pensions, both personal pensions as well as occupational pensions (final salary as well as money purchase).
Given the complexity of the area, the paper looks firstly at some pertinent sharīʿah issues. These relate to:
1. Employment law
2. To the potential of gharar (uncertain) clauses to void a contract
3. The central issue of ownership of a pension without possession.
Having dealt with these prerequisite issues, this document opines on the permissibility of pensions.
The fatwā concludes that income recived from UK pensions can be deemed to be pure (ṭayyib) income (assuming the underlying investments are sharīʿah compliant). However, the pension contract is defective – fāsid from a sharīʿah perspective. The fatwā also addresses the permissibility of annuities and other alternatives.
The fatwā then concludes with some suggestions to pension providers and regulators on how to amend existing pension schemes and regulations so as to achieve a pension contract which would be entirely valid -ṣaḥīḥ from a sharīʿah perspective.
For a complete discussion on this topic, please refer to the accompanying research paper here.