The UK legal reforms on pension and the opportunity for Islamic pension funds

Abstract

Purpose

Recent developments in pension law in the UK has seen a shift towards the creation of a Shari'ah fund under the National Employment Savings Trust (NEST) to cater for British Muslims' retirement needs. However, as the concept of funded pension is an alien concept in Islamic history, there is a need to analyse the intricacies associated with the establishment of such occupational pension plan. The purpose of this paper is firs, to address the concept of pension to see how it fits with Muslim ethos, and second, to highlight some Fiqhi (Islamic jurisprudence) issues that need to be addressed before establishing the Shari'ah pension fund.

Design/methodology/approach

The paper first traces the historical development of pension in the UK and how the issue of an ageing population is shaping the reforms. It subsequently highlights some of the Fiqhi issues that need to be addressed in establishing the new Shari'ah fund and recommendations are then made.

Findings

The paper sheds some light on the need to consider the idea of savings in Islam to meet retirement needs because the societal structure of Muslim community in the UK is economically changing as compared to the past. Hence, the concept of pensions is seen to fit into the maqasid of Shari'ah which includes protection of life, family and wealth. However, there are some haram (non permissible) elements, such as annuities and nominees (which affect the law of inheritance), that need to be eliminated in the legislation and pension models currently available. Hence, a model is suggested to help make the Shari'ah fund offered to British Muslims via NEST to be religious compliant.

Practical implications

The recommendations made in this paper will facilitate to some extent addressing some of the fiqhi issues to make the fund religiously suitable.

Social implications

To align an Islamic occupational pension model with that of its mainstream counterparts requires addressing some of the fiqhi issues to make the fund religiously suitable.

Originality/value

A modern Islamic occupational pension fund is a new phenomenon in the Muslim world, and this issue is hardly being addressed so far. This paper highlights some pertinent fiqhi issues to be considered in establishing such an occupational pension fund.

Citation

Manjoo, F.A. (2012), "The UK legal reforms on pension and the opportunity for Islamic pension funds", Journal of Islamic Accounting and Business Research, Vol. 3 No. 1, pp. 39-56. https://doi.org/10.1108/17590811211216050