Q: If I have a pension, which I don’t know any details about, do I pay zakāh on the contributions and is it considered haram?
I work for a big company and when I started in Feb 2009 the company inserted me on a default pension scheme. This would be 3% of my contribution and 3% from the company.
I never paid any attention to the pension scheme – or the specific details – was simply told that I am on this scheme and the company would match my contributions. I am not certain whether I had a choice on where my contributions would be invested – since I never gave it any regard.
Due to the complicated nature of the business (as it has been bought and sold), I can’t find this information now.
I have also done some research on the pension provider and one their most popular investment areas is in insurance but they do have some halal areas too. All I have been told is that it has been gathered in their “pool of investment funds” but it is extremely difficult to ascertain my investment area
If I cannot CLEARLY ascertain which area my investment is spent on, do I regard this income as Haram. Do I have to give Zakāh on my contributions to this pension – and if so – is it on the whole amount including the company contributions or just my contributions alone?
A: I would recommend you read the Research Paper on pensions. Al-Qalam is not able to comment on individual companies but can give an opinion on the underlying principles. It is your responsibility to supply the correct information and then apply the principles outlined in the Research Paper. I have applied and clarified some of the principles below to your situation.
Based on further details provided in your email, it appears that both the employee (3%) and employer (3%) contributions together (6%) constitute deferred salary. i.e., they have both been earned by you. Subject to your job being lawful, they are Halal irrespective of how they have then been invested.
The contributions are simply deferred remuneration for the work you have done for your employer. Any income that is then earned is subject to the nature of investment. If Shariah compliant, then lawful, if non-compliant, then unlawful. However, in both cases the contributions value is lawful.
The critical determinant of ownership is not whether you have the option to decide on how they are invested but as to whether they are invested on your behalf or on behalf of the company. In money purchase schemes the contributions are invested on behalf of the employee and once received by a third party [investment company] are deemed to be received by the employee who thereby secures proprietorship.
In principle, if the contributions are invested in a Sharī‘ah compliant manner then the contributions and any profit earned are liable for zakat according to the principles of zakat on investments. For further details see the section on investments in the 1st Ethical Zakat Guide: http://1stethical.com/zakāh/. If the contributions are not invested in a Sharī‘ah compliant manner then the profit will not be lawful nor liable to zakat but must be given in charity. The proportion of the contributions that represent zakatable assets will be liable to zakat. Again, see the 1st Ethical guide for zakat on investments, shares etc.
If you are just unable to determine how the pension is invested then the more cautious approach would be to give zakat on the entire value of the fund, but when it comes to drawing your pension only receive back what you and your employer has contributed.
If the contributions are invested in a ‘haram scheme’ then any profit earned will be unlawful but the contributions themselves, being remuneration for lawful work, will be halal.