Pension Fund Compatibility with Islamic Law

JP Morgan FundsHub pay 5% of base salary into a pension fund for staff. They were asked by a Muslim employee to pay his pension contribution with his salary, as he did not wish to be part of their interest bearing scheme. They sought out an alternative pension scheme instead.

The situation occurs because under Sharia (Islamic law) paying or receiving interest is forbidden. This has led to the creation by HSBC of their Sharia banking services for Muslim customers. Employees may also wish to avoid investing in funds where companies invested in are involved in pork, alcohol, tobacco, arms and/or gambling trades.

David Griffiths (Partner at Addelshaw Goddard), cited in People Management, “It is potentially discriminatory to run an occupational pension scheme that can’t cope with an employees’ particular preferences. Effectively they are then barred from the scheme and in a materially inferior position to their colleagues”. He suggests companies should offer the facility to invest in a fund compliant with Sharia law (for examples of these funds see the Guardian article below).

Additional details can be found by clicking on the following links:

People Management report

A Guardian feature on Sharia compliant financial services.