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Zakat on Pension Schemes

Answered as per Hanafi Fiqh by Qibla.com

Answered by Shaykh Ilyas Patel

My question is about pension schemes where your investment is locked until you retire.

There are two things I understand:
1) zakat is not payable on a second property you own that you rent out. Zakat is only payable on the rent itself, as part of your total cash balance on your due date
2) zakat IS payable on any pension amount you have, even if this is not accessible to you until you retire

My question is two-fold. One is generic, and one is specific to me. Even if you choose to ignore the generic one, I need to have an answer to the specific one, since I have to pay my zakat in 2 weeks time.

generic) Why do you have to pay zakat on any balance that you are not allowed to access? This gets more relevant in later life when people’s investment in their pension may reach large figures such as 400,000, in which case they’d have to pay zakat of 10,000. However, they may have much less than that in their actual funds, so how would they pay this?

specific) My pension scheme is a commercial property fund, which is filtered for islamic acceptability. If I have a commercial property fund, then all of my wealth in that fund is in the value of the property. Any rent goes straight into buying more property, as I understand it. Therefore, given point 2) above, do I still need to pay zakat on this amount?

wa ‘alaikum salaam.

In the Name of Allah, Most Gracious, Most Merciful

In the Name of Allah, Most Compassionate, Most Merciful

In general: If you cannot pay Zakat on a yearly basis from the contribution and profit that you made, then you can pay it when you can access your money for all the preceding years when you actually receive the money. In your case if you have #400,000, youd have to pay zakat of #10,000.

Also you can keep paying towards the Zakat every year or throughout the year which will eventually lead to you not having paying the full lump at once.

Specifically: In the above case, you need to pay Zakah on the rent received yearly even though you are buying another property using the rent funds whenever you have the ability to do so.

And Allah Knows Best.

This answer was indexed from Qibla.com, which used to have a repository of Islamic Q&A answered by various scholars. The website is no longer in existence. It has now been transformed into a learning portal with paid Islamic course offering under the brand of Kiflayn.

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