Pensions and Gross Uncertainty – An Overview

In the name of Allah, The Beneficent, The Merciful

First Published: 26th December 2008 Last Updated: 28th January 2018

This summary discusses whether it is acceptable to take out a pension, and is an overview of a research paper which can be downloaded here.

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.