Question: Please could you advise if it permissible to join a local government pension scheme?
The information I have from the scheme is that contributions are made from monies paid in by members and something like 4% will come from investments and it is very difficult to breakdown the investments to determine which are permissible or impermissible. Below is the information I have as to how the scheme works and where the money is invested.
As the scheme is optional is it better to to abstain from it altogether?
The Fund collects contributions from employees (at a rate prescribed within Statutory Regulations) and employers (at a rate set every 3 years by the Fund’s actuary), and pays out the benefits earned by individual members as they become due. Any surplus of income over expenditure is invested in order to assist in paying future benefits.
At 31 March 2015 the Fund has investments in the region of £3.1bn and all of this has only one purpose – to ensure that benefits can be paid as they become due. The Fund invests the assets through a number of different investment managers and in a variety of asset classes including shares, property and bonds. In recent years the Fund has introduced a number of new asset classes which assist in ensuring that the Fund’s risks are spread more widely.
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
Local government pension schemes tend to be defined benefit schemes and the details you have provided indicate that this scheme is also a defined benefit scheme. The pension holder does not own the investment in a defined benefit scheme but rather agrees with the employer to receive a pension according to a certain calculation that represents a portion of the salary or an average thereof. The pension fund itself tends to be used to pay off current liabilities to existing pensioners. Defined benefit pension schemes are permitted provided the job role itself is permitted. You can read further details at the following link: http://alqalam.org.uk/pensions-and-gross-uncertainty-an-overview-3/
And Allah knows best.
Mufti Mohammed Zubair Butt
Chair, Al-Qalam Sharia Scholars Panel