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Zakat When Opting Out on a Pension Scheme

Answered as per Hanafi Fiqh by Seekersguidance.org

Answered by Shaykh Faraz A. Khan

Question: I’m currently part of a pension scheme. I am aware that Zakat is not due on the pension money due to it being out of my possession. If I decide to opt out of the scheme then I will have access to the money.  Based on this do I have to pay Zakat on it due to being able to access the money if I opt out?

Answer: Assalamu alaikum wa rahmatullah,

I pray this finds you in the best of health and states.

Before answering your specific question, it must be understood that such pension schemes are zakatable since they are money owned. The only issue is when one owes the zakat.

If you opt out early and hence get access to the money, then yes zakat will be owed upon access at each yearly zakat due date (along with your other zakatable assets). If there are any penalties or taxes due to the early opt out, then those penalties or taxes are deducted.

Again, if you do not opt out, then zakat is not due immediately since there is no access. However, it is money owned so it is still zakatable, but zakat will not be due until you have full access to the money, at which point zakat is owed for all the past years (i.e., for each year you owned nisab or more). [Ibn Abidin, Radd al-Muhtar]

Even if you don’t opt out, it is advisable to go ahead and pay zakat on the plan each year, based on its total value that year, since otherwise it would take much effort to keep track of the yearly amount in retrospect when you finally have access to the money.

And Allah knows best.
wassalam
Faraz

Checked & Approved by Faraz Rabbani


This answer was collected from Seekersguidance.org. It’s an online learning platform overseen by Sheikh Faraz Rabbani. All courses are free. They also have in-person classes in Canada.

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