Is a pension halal or haram? This site gives no religious ruling; it sets out what UK providers, GOV.UK and two published scholarly opinions say.

Is a pension halal or haram? What this page can and cannot tell you

Whether a pension is halal or haram is a question of Islamic law, and this site takes no side on it. Scholars answer it, and a reader who wants a ruling for their own situation is best placed to ask a qualified scholar they trust. What can be set out here is factual: what a Shariah-compliant pension fund is, which UK providers say they offer one, how they describe the screening, and what happens to a workplace pension if a saver opts out.

Many readers also want to know how their own pot, employer scheme and options fit together. Halal-minded savers who want an FCA-authorised adviser to talk those parts over can, through the form on this page, book an adviser call-back; it costs nothing. The religious question stays with a scholar.

Anything a scholar has said is attributed below to the person and the publication. It is reported, not endorsed or disputed. For a longer look at how individual providers describe their screening and charges, see the halal pension providers page.

Two published scholarly opinions on pensions

Scholars have published differing opinions, and two are summarised here in their authors' own terms. Shaykh Muhammad ibn Adam of Darul Iftaa, Leicester, in an answer first published on Daruliftaa.com and reproduced on the IslamQA site, began by saying he would first need to study the rules and principles of the scheme before issuing a correct ruling. His reply assumed a scheme in which the employee's deducted salary and the employer's contribution are invested and paid out at retirement.

On that assumption he wrote: "From an Islamic point of view, there is nothing wrong with this kind of pension scheme." He treated the employer's contribution as a gift (hiba) and said the pension was not insurance in the sense the questioner feared. The concern he raised was what the money is invested in, giving an alcohol company and a building society as examples of a haram business. His stated condition was that "the money must be invested in a halal business".

He added a fallback for a saver who cannot confirm that: take back only the amount deducted from salary and the amount the employer contributed, and avoid anything extra. The IslamQA page notes that the answer was collected from Daruliftaa.com, headed by Mufti Muhammad ibn Adam Al-Kawthari, who is based in the United Kingdom. It is one scholar's published answer to one question.

A second published opinion covers one scheme only, the Local Government Pension Scheme (LGPS). Its Scheme Advisory Board commissioned Mufti Faraz Adam of Amanah Advisors to report on the scheme, and the Board says his report "concluded as a part of the contractual arrangement between employer and employees, Muslim employees can continue to contribute to, and benefit from, the excellent benefits offered by the LGPS." On investments the two opinions part company: Greater Manchester Pension Fund, an LGPS fund, summarises his view as being that members are not personally responsible for where the scheme invests, because they do not directly choose or control those investments. The Board also asked him about "the range of views that are likely to be held by Muslim members". Which opinion, if either, a reader follows is between them and their own scholar.

What a Shariah-compliant pension fund is

A Shariah-compliant pension fund is an ordinary pension investment option that, by the provider's account, follows Islamic rules on what it holds. Providers describe two things: which businesses are excluded, and how interest is treated.

Nest, which runs the Nest Sharia Fund, puts the starting point this way: "The Islamic faith takes the view that you shouldn’t make money from money - known as interest." Its fund holds Sharia-compliant company shares and sukuk, which Nest describes as an Islamic form of bonds. Nest says Islamic scholars screen the investments, that it does not invest in companies that make money from alcohol, adult entertainment or pork products, and that it avoids investments that pay or receive interest, such as company or government loans.

The People's Pension, for its Shariah Fund, says the investments are chosen on principles agreed by a supervisory board of Shariah scholars, who also cap the debt a company may carry and the interest income it may earn. It says a company can also receive income that is not Shariah compliant provided it has been "purified". A company earning more than 5% of its annual revenue from the excluded activities it lists is left out. How the screening is carried out differs from provider to provider, and the descriptions above are theirs, not this site's.

These funds are not limited to Muslim savers. Nest says: "anyone can invest in this fund – you don’t have to be Muslim."

UK workplace and personal pension options that name a Shariah fund

Four providers' own pages describe a Shariah option. Each is a fund or strategy inside a pension, not a separate type of pension.

  • Nest. The Nest Sharia Fund is one of its fund choices, and Nest says switching into it is done through your online account. Nest also says the fund is invested in just two types of market, unlike its other funds, so it carries higher investment risk. See Nest's fund options for the others.
  • The People's Pension. Its Shariah Fund is managed by HSBC Global Asset Management, according to the fund page.
  • Aviva. Aviva says its Shariah Investment Strategy is "available to members in any of our workplace pensions", built from HSBC Shariah funds and reviewed every year by an independent committee of Islamic scholars. Whether a particular employer's Aviva scheme offers it is a question for that employer or Aviva.
  • PensionBee. This is a personal pension rather than a workplace scheme. PensionBee calls its Shariah Plan a personal pension holding Shariah-compliant companies only, with an independent Shariah committee approving the holdings.

Other providers publish similar options and are covered on the halal pension providers page. Public-sector schemes are a separate case: Greater Manchester Pension Fund, part of the LGPS, says it also offers a Shariah compliant AVC for members who want to pay in more. For the NHS, teachers' or civil service schemes the scheme's own administrator can say what is available, and an adviser can talk it through at no cost after you complete the page's form.

If your employer's scheme does not list one, choosing where a pension is invested explains the usual limits, and a personal pension or SIPP is another route some savers look at.

Opting out of a workplace pension: what changes

Some savers consider opting out entirely. GOV.UK says that if you have been automatically enrolled you can leave, which it calls opting out, and that the position on your own contributions depends on timing: "If you opt out within a month of your employer adding you to the scheme, you’ll get back any money you’ve already paid in." After that, you may not be able to get your payments refunded, because they usually stay in your pension until you retire.

The employer's money is the other side. GOV.UK says that for someone who has been automatically enrolled, "you and your employer must pay a percentage of your earnings into your workplace pension scheme", and that the government will usually add tax relief for those who pay Income Tax. MoneyHelper says of telling an employer you want out that "it’s often like turning down extra pay". GOV.UK adds that your employer will automatically re-enrol you every 3 years, or sooner if it chooses, while you still qualify, so an opt-out may need repeating.

Choosing a Shariah fund inside the scheme, where one exists, and opting out are different decisions; which suits a particular reader is for them, perhaps with their scholar, to weigh. The rules in full are on opting out of a workplace pension and, for the value of staying in, whether a workplace pension is worth having.

Points to check with the provider before switching

None of the following is a recommendation; they are points a saver might check with the provider.

  • Is the Shariah option available in my employer's scheme, or only in the provider's other products?
  • Who reviews the screening, and how often? Aviva and The People's Pension each describe a scholars' committee; ask for the provider's current description.
  • What are the charges on that fund compared with the default? See workplace pension charges.
  • How concentrated is it? Nest says its fund invests in two types of market, and The People's Pension says its Shariah Fund invests in 100 of the world’s largest companies assessed as Shariah-compliant, with no more than 10% in any one.
  • What happens near retirement? Aviva describes its strategy as moving from growth towards capital preservation as members approach retirement.

The value of any pension investment can fall as well as rise, and a saver may get back less than they paid in. PensionBee notes that past performance is not an indication of future performance. Performance comparisons are on comparing pension fund performance.

Halal and haram pensions, question by question

Is a workplace pension halal?

This site cannot give that ruling. Scholars differ in what they have published, and the Darul Iftaa answer above turns on what the money is invested in. Where a workplace scheme offers a Shariah fund, as Nest, The People's Pension and Aviva say they do, a saver can ask the scheme about it.

Is the Nest pension Sharia compliant?

Nest describes its Sharia Fund as invested "in a way that complies with Sharia principles", and it is one of its fund choices. A member wanting that approach would need to choose the fund; it is one of several Nest offers.

Who checks that a Shariah pension fund stays compliant?

The providers name committees of scholars. Aviva says an independent committee of Islamic scholars reviews its underlying funds every year, and The People's Pension says the HSBC Shariah Supervisory Committee makes sure the companies in its fund comply with the committee's interpretation of Shariah law on an ongoing basis. Nest says Islamic scholars screen its investments.

Does a Shariah fund guarantee a return or avoid risk?

No. Nest, Aviva and PensionBee each warn that a saver could get back less than they put in, and Nest says its fund carries higher investment risk than its other funds.

Is a defined benefit or public-sector pension treated differently?

The Darul Iftaa answer above concerned a scheme where contributions are invested, and the scholar said he would need to study a scheme's rules first. The LGPS opinion was given on that one scheme after a review of it, so for any other defined benefit or public-sector scheme the answer is for a scholar who has read its rules.

Getting the practical side checked

Which options your scheme offers, what opting out would mean for the payments going into your pot, and how a pension fits with the rest of your plans are practical points. To have an adviser run through them, leave your details with the short call-back form here. The religious question itself stays with a scholar.

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