I have recently learnt about Zakat on Pensions and i am confused.
1.) If i am saving in a work place pension in a sharia compliant fund and i can’t access it till 55 at the earliest; do i have to pay Zakat? Do i pay it on the total amount each year even though i don’t have access to it. So i factor the value of pensions with everything else ?
2.) Say if my pension pot now is worth 50k and i buy a house and my savings are minimal. What is the ruling here where i have small savings and a big pension pot . Do i still pay Zakat here. What if my small savings means i can’t pay zakat that is due on the amount or if i do i have next to nothing left at the time - affects my rent etc if i pay?
3.) Side question if i work for (SKY, BT Virgin) as a test engineer for there TV platforms. Testing services and application to help programming etc such as getting channels on the platform is this a halal job. Main job is testing software and platforms so other teams can use and sometimes customers also see new channels and programmes on there box.
My opinion in the past was that, zakat is payable on the value of a defined contribution scheme. This is also the opinion of @Mufti_Faraz_Adam.
However, given the lack of understanding of most people around the calculation of zakat on pensions, I have now taken a different approach as follow:
if a pension is zakatable, but one cannot calculate it or cannot get easily access for help in calculating, then the zakat will be payable only for one year after being in possession of the pension fund. This is based on a principle established by the Maliki school of jurisprudence.
if a pension is zakatable, but one can calculate the zakat or can get someone to assist them in calculating, then they should pay zakat every year.
jazak allah khair . Apologies for the multiple questions now .
on point 1 - how would one know or calculate if a pension is zakatable . Do we use the figure of 40% / 1% of the value of the pot and pay this yearly always .
2.) in regards to saving in a non sharia complaint fund for a workplace pension i have now opted out of. Do i have to pay zakat on the previous years of zakat for this ? or shall i pay 1% on the current value now for this year only.
i don’t know too much about zakat on pensions but can you define the process for me ?
Scenario :
i am now saving into a workplace pension with employer contributions in a sharia compliant fund.
3.) just pay 1% of this value each year ? (40%)
4.) if i have money in shares it get’s difficult calculating this method of zakatable assets etc.
i have company shares saving x amount each year for 3 years - i take it i just add the value of x to my overall wealth ?
5.) if i have shares in Ftse100 company - do i give zakat on the value the shares are worth at the time of zakat or the amount i invested if i have not sold at market value ?
6.) if i have x amount in Wahed do i also just add the whole amount as part of my wealth and pay 2.% % zakat on all of these ?
In sha allah hope this makes sense. IFG has made me realise a lot about my finances. So it’s good to ask people of knowledge about this too ! There does not seem to be many people versed in this field
At National Zakat Foundation, we reviewed pensions thoroughly with industry experts and looked at the top 100 pension funds for defined contribution schemes. Thereafter, we established the following proxies to ease calculation:
15% direct property fund
26% Shariah compliant fund
27% equity fund
50% mixed assets fund
100% bonds fund
Therefore, there should be very little excuse of “lack of knowledge” on calculation. The scholars mention that lack of knowledge is not an excuse for not fulfilling an obligatory action.
Further, I do differ with Mufti Billal’s view. There can be a moral hazard and potential of people being lazy and simply opting to not calculate based on not being able to calculate. There are several organisations and Muftis which assist in pension Zakat, it is within reach and access to get assistance.
Investments require some basic knowledge, which people should acquire if they are doing this. This is a Shariah requirement for a person before getting involved with pensions.
Therefore, to make easy, you should adopt the proxies depending on the type of pension.
I agree. Could you give me the name of these organisations and mufti’s contact details so i can speak with them directly ? I don’t know of any . I would like to speak to them about pensions and shares.
but based on you calculations if i save into a shariah compliant fund i work out 26% of the value of my pension pot and calculate 2.5% of this 26% value ?
In sha allah if you could give me the details of organisations and other Mufti’s i would prefer to speak with them directly to get more educated. NZF - I can’t get a contact number for them.
Sure, you may consider contacting the following Muftis who are all of the view Zakat is payable annually:
Mufti Mohammad Zubair Butt
Mufti Muhammad ibn Adam
Mufti Liaqaut Zaman
Mufti Yusuf ibn Shabbir
Mufti Hanif Patel
You can Google them and find their websites and contact details.
On your second question, yes, you would pay 2.5% on 26%. We believe that will cover your Zakat liability. I plan to review these percentages every five years Insha’Allah to ensure accuracy, but given the nature of the funds, I don’t expect major shift.
It has been a struggle getting answers from these Mufti - i have managed to get most of them from other places. .
As i have had the pension for 2 years in a non sharia complaint fund. The funds are listed below
The two funds i my company have invested is
1.) Aegon BlackRock 30/70 Currency Hedged Global Equity Index
2.) Schroders Diversified Growth Fund (LSC)
if i have £2,000 in each of these funds how much zakat do i pay on these ? i will be moving the fund to a sharia complaint one next month and will then start using the 26% value.
Please can you clarify and help ? I am now trying to work the backpay for 2 years.
then the zakat will be payable only for one year after being in possession of the pension fund.
Could you please clarify a little more on what this means, or how it is applied in practice? Just want to make sure I don’t misunderstanding the wording, jazakallahukhair
then the zakat will be payable only for one year after being in possession of the pension fund
This means that as soon as you cash out your pension, you will make one Zakat payment on its total value. This will be for all the previous years the pension was locked into the fund.
@Mufti_Billal - is your opinion solely based on the practicality and simplicity of calcs or are there references behind this? Ignorance of law cant be an excuse.
There are resources available such as on Al Qalam website from Mufti Zubair and youtube videos where @Mufti_Faraz_Adam has explained how to calculate zakatable assets on the pension fund.
Have been following one argument i.e. Mufti Faraz’s and Mufti Zubair’s so would love to hear your argument too as I am yet to hear an opposing argument to consider both sides.
Jazakallah - May Allah bless you all for making this effort to educate the community.
Have you opted out of your employer scheme altogether? You may be losing out a lot as pension is a pretty decent tax-efficient saving. I was in a similar situation sometime back where my employer did not have a shaira compliant fund on the scheme (alhamdulillah they do now). The way i dealt with it that, on an annual basis, i was transferring the accumulated funds in the employer scheme out to a SIPP in a sharia-compliant funds (AJ Bells have few funds). I gave 100% gain on the employer scheme to charity to purify. I undertsand how frustrating the situation is when you dont have any option on the employer scheme and they were not ready to contribute in a personal scheme. But having followed multiple times with them, i was able to agree with them to move my funds on a preiodic basis.
@Mufti_Billal & @Mufti_Faraz_Adam - any views on the above arrangement as i am sure this is a common issue with a lot of us in this country.
As my previous answer is self explanatory, I would like to invite you to read it again for clarification.
Regarding the “ignorance of law can’t be an excuse” argument, there is exceptions to this general rule. However, the discussion around it is related to usool of fiqh rather than Islamic finance topics. Since the current forum is not adequate for such discussion, please contact a darul ifta for further explanation.
In terms of reference, I am not sure what kind of references are you asking for, and on which point exactly? Please clarify.
Bare in mind that defined contribution scheme is pretty new, and the understanding of zakat surrounding this financial instrument is quite recent too. In this country, Mufti Zubair Butt is most likely the first one to have written a research about it.
So it will be impossible to find a reference to my point in the traditional books of fiqh unfortunately.
JazakAllah for highlighting this option. I may potentially be in this situation soon as the Aberdeen Islamic fund is closing and Scottish Widows have advised they don’t have any other islamic/shariah fund available at this moment.
How easy was it for you to transfer to the SIPP annually? Is it possible to transfer across monthly so as to still benefit from the employer contributions but also keep the growth in the non-shariah compliant fund to a minimum?
If your current pension provider allow you to do a partial transfer then that may be an easy thing where you can deal with the two pension providers directly.
if not, then you will need to closeout your current employer’s plan and transfer out. Then your employer will have to reopen your pension account for your monthly contribution to go.
As you can see that there will be a lot of admin require, so doubt it will be feasible to do on a monthly basis. Check with the parties involved.
Paying away to a SIPP on a monthly basis may raise eye brows with your pension funds trustees as it will be a huge amount of admin and they are likely to incur trading fees as well.
Check with your pensions administrator as they will have a process to transfer out to a SIPP. and it really varies between administrators.
For example i managed to transfer a pension to a SIPP within 10 days with a couple of self serve clicks, but in another case with another provider i had to request manual valuation quotations, fill out paper forms, sign and return them, declare i didn’t require financial advice, etc etc and it takes several months to transfer.