Personal Finance Question: Pension Annuity Halal?

Everyday Islamic Finance Personal and Family Finance
#1

Salaams

I was wondering whether when the time comes to access a defined contribution pension, opting for an annuity would be halal? The benefit would be that it pays a fixed amount of income, every year. Is it similar to interest or insurance?

Thanks

#2

Wasalam

May Allah bless you.

My previous insurance lecturer Rob Thoyts defined annuity as “the reverse of life assurance”. Life assurance covers against the risk of early death whilst an annuity, protects against long term survival.
An annuity is an income based product i.e. you will receive a regular income for the entire duration of the annuity. The income is usually based on the performance of the underlying investment.
There are 2 issues which I believe make this sort of investment impermissible from a shariah perspective:

  • the investment is usually made in non shariah compliant products such as interest bearing instruments
  • the uncertainty element presents in many of these contracts i.e. in the case of lifetime annuities, for how many years will you be receiving an income?
  • the fact that your return is guaranteed is also against shariah principles. In effect, such agreement amounts to riba.

As far as I know there are no shariah compliant annuities currently available in the UK.

And Allah knows best!

#3

Salaam. I’m new here. So what are the options for a halal annuity for millions of Muslims here in the UK? Thank you.