Without interest | Providing Sharia-compliant pension options for Muslim employees is a must

The word ‘Sharia’ has most certainly been overblown, misunderstood and maligned in previous years. In simple terms, it is a set of beliefs and practices that accompany an individual’s religious faith and practice.

As the Council for Foreign Relations puts it, “Sharia isn’t the same as Islamic law. Muslims believe sharia refers to the perfect, immutable values understood only by God, while Islamic laws are those based on human interpretations of sharia.”

So, much like the 10 commandments, the Golden Rule, the belief in ‘instant karma’, etc, it’s general guidance for how to live one’s life. As part of that, there are rules around how Muslims deal with money when trying to live a moral life.

In a nutshell, those rules revolve around social responsibility and include:

1) No collecting interest – the principle here is that by ‘earning’ interest, says ethical investment broker Qardus, that interest accrual “distorts wealth as the money lender is able to exploit others and increase their wealth without any substantial contribution to society.” Some Muslims will collect interest, then take that money and give it to charity or directly use it to benefit the poor.

2) No ‘speculation’, high risk or uncertainty – this includes gambling, prediction of future outcomes, short-selling and more.

3) No investing in ‘haram’ (prohibited) activities – investments or mutual funds that include profits from alcohol, sexual activity, gambling and more are included in this.

Why should HR be concerned with sharia investment?

Firstly, because all employees deserve the chance to save for their future, regardless of their beliefs. This month, UK-based pension provider Penfold conducted research into this topic and found that by not providing and communicating about sharia-friendly pensions, they were disadvantaging British Muslims – by an estimated £11.5 billion.

In a statement release, the pension firm said:

“The research finds:

• 80% of the 206,720 working UK Muslims without a pension are not aware that sharia-compliant options exist
• if the average person contributed just £50 into their pension a month from the age of 25 using the provider’s sharia fund, they could expect to have a £55,755 pension pot by the age of 67.
• this means that collectively, the 206,720 working Muslims without a pension could hold more than £11.5bn when they reach retirement age.

“We believe pensions should be accessible for everyone,” Pete Hykin, Co-Founder at Penfold, told HR Grapevine Muslims represent a quarter of the world's population, yet less than 1% of global financial assets are Shariah-compliant. We wanted to change this, so we set up the Shariah fund in 2020 to give Muslims in this country the opportunity to secure a vital part of financial security.”

Secondly, the Muslim-friendly investing world is growing exponentially in recent years: Qardus estimates that Islamic finance institutions oversee more than $2 trillion in funds worldwide, with Muslims often preferring to bank with them as it makes life easier.

How important is sharia-friendly investment and pension?

Nazeerah Faulkner, a white British Muslim employee and mother told HR Grapevine that Sharia-compliant pensions are “absolutely vital. When Child Trust Fund payments were provided for my children from the Government, I invested them in the Sharia-compliant option available. I also have an Islamic current account that avoids interest,” she says.

Instead of forcing your Muslim employees to go out and research to find a socially responsible pension and perhaps cause them to lose money they’ll need when they’re older and unable to work, perhaps companies need to consider this when searching for a pension provider. And if your company is in the financial services game, or operates in one of the 50 Muslim-majority countries worldwide, this becomes a vital part of benefits provision.

According to data from Islamic Finance Guru, British Muslim working-age people are missing out on a vital element of financial security by not having a pension, but it’s not through a lack of interest. When asked, 80% of UK Muslims without a pension responded that they didn’t know compliant options existed or that they weren’t sure if the pension offered to them was Shariah-compliant.

These figures, says Hykin, clearly highlight the need for the pensions industry to recognise that the needs of today’s savers have evolved.

“Incumbents must provide options which align with a variety of faiths and values, so as not to exclude anyone from financial security in retirement. That’s why Penfold provides UK Muslims with easy-to-use options for Shariah-compliant auto-enrolment and SIPP pension options. In fact, despite UK Muslims only representing 2% of working demographic, 5% of Penfold’s customers are benefitting from its Shariah investment plan.

Each fund within the company’s Sharia plan has its own elected board which monitors the fund and its investments and ensures that they remain Sharia-compliant. The board has to approve all major decisions and create an annual Sharia certificate to evaluate how the fund has adhered to Sharia principles, Hykin explains.

“The industry puts too much time and resource into developments which only benefit a select few,” he concludes. “These efforts are misguided, failing to make pensions inclusive and with the customer front of mind. Making sure people are saving enough for retirement is the ultimate goal for the pensions industry, so there needs to be greater progress and emphasis on ensuring there are pension and investment options suited to all.”