[1] I switched my employer a year ago and got enrolled in their DC pension plan with voluntary contributions during my first few months there. After a while I realized that these are being used for haram investments and withdrew my voluntary contributions from the plan. The voluntary contributions I made are still part of my overall DC plan (that the employer is still funding) which is making investments in impermissible securities etc. What can I do now to correct the mistake of making those voluntary contributions? I do have access to statements that break down the fund performance into contributions from myself and my employer, so I know the amount I had contributed and where the balance stands today after gains and losses. However I will obviously only have access to that money once I leave this job.
[2] I understand from a separate answer on this forum that zakat is to be paid out annually on the DC balance. However in my case I have not authorized my employer to make contributions on my behalf or the fund manager to invest such funds (they are doing so voluntarily and I did not fill out any paperwork to this effect), no pension deductions are made from my salary and I have no say in how the funds are invested. Are these factors taken into account when determining whether zakat should be paid annually? Apparently it seems like a gift from the employer at the end of one’s employment, with the benefit of the employee knowing what to expect. There is also a fatwa from Mufti Muhammad Shafi about this situation where he says that the employers’s contributions are classified as a weak debt that does not attract annual zakat. See: https://ia800603.us.archive.org/34/items/ProvidentFundByShaykhMuftiMuhammadShafir.a/ProvidentFundByShaykhMuftiMuhammadShafir.a.pdf. I would be grateful for your comments.
Jazakumullah khayran to IFG, the muftis and the contributors on this forum.
First of all my advice for you would be to transfer your pension contribution to a shariah compliant fund.
From the current contribution already made, you can keep yours and your employer’s contribution and give the rest of the profit into charity.
The scheme which you are referring to, is it the same as mentioned in the first question? I am confused as to whether it is the same or whether you have a different one. Secondly, I am not sure if this second scheme is an actual DC but it seems it might be a Defined Benefit scheme (DB).
Please clarify the above.
Also the fatwa of Mufti Shafi refers to Provident Fund which is not the same as DC. Zakat is due on DC because it is money invested on your behalf. It is not a mandatory deferred salary payment. It is voluntary. You have the choice to opt out of it within a month of being enrolled into it.
P.S: There are quite a few shariah scheme available in the market. You can ask your HR or your current pension provider to transfer the fund to the new scheme. My current employer employer enrolled us with Legal & General pension scheme, I asked my HR for a shariah alternative and LGEN offered me to transfer my contribution to a shariah scheme.
With regards to point 1: I am not based in the UK and I unfortunately I don’t have the option of switching to a Shari’ah compliant scheme. Since I don’t make voluntary pension contributions I also don’t have any option or say in how the funds are invested. However from your response I have gathered that once I come into possession of this money I can keep the capital I had voluntarily contributed in the initial few months and give the rest away in charity. Is that correct?
Also, since my voluntary contributions are going to remain in the DC scheme and continue to be invested in impermissible ways, is there anything else I should do apart from making tawba? I don’t have the option of withdrawal but I will double check with the fund manager if that’s a possibility.
With regards to point 2: Yes this is the same scheme as referred to in point 1. It is not a defined benefit scheme. Maybe DC schemes are structured differently in the UK. The DC scheme I am enrolled in is as I described in my initial post. Neither did I opt in nor do I have the option of opting out.
My employer makes a mandatory contribution towards the DC pension scheme equal to 2% of my salary. I have the option of making voluntary contributions of up to 4%. If I do that, they will be deducted from my monthly salary and will also be matched by my employer. If I make voluntary contributions then I also have the option of choosing between different investment options according to my risk appetite (all options are impermissible in the Shari’ah). If I don’t make voluntary contributions, I have no say in where the money is invested because I don’t have a share in it. I did not ask the employer to set up this scheme and make investments on my behalf, they do so of their own accord.
In this scenario, is annual zakat still applicable?