I work for the local council, and have been enrolled onto the Local Government Pension Scheme. I have tried to find out how the fund is invested, to find if none shariah compliant transactions are involved. Although it is not clear, given how most transactions are based nowadays, it is highly likely interest may be involved. I found the following passage under the Investment Income on the annual report:
Interest income is recognised in the fund account as it accrues, using the effective interest rate of the financial instrument as at the date of acquisition or origination. Income includes the amortisation of any discount or premium, transaction costs or other differences between the initial carrying amount of the instrument and its amount at maturity calculated on an effective interest rate basis”.
Please can you advise the permissibility of the pension scheme? Also, if it is permissible, would you recommend on staying with a pension scheme or opting out, (i.e. is there a chance that it could have an impact on tawakkul later on in life, or am I indirectly hoarding wealth / preparing to live a long life)?
It is not permissible to participate in the pension scheme, due to the high possibility of the funds being invested in Haraam avenues.
If one is compelled by company regulations to participate in the pension scheme and contributions to that fund is directly from the employer before your wage can reach you, you will be regarded to have no connection with the fund. Rather it will be between the employer and the insurance company. Hence, the profits as well as all the other benefits accrued from the pension scheme will be permissible and considered as a gift from the side of the company/employer.
However, if one is not compelled by the company to participate in the pension scheme, then it will not be permissible to participate. This is because, you will be actively participating in investing by making the employer your agent to invest part of your wages on your behalf.
Checked and Approved By:
Mufti Muhammed Saeed Motara Saheb D.B.