Awareness of Sharia-compliant pension options should be increased, says IFS



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More should be done to raise awareness of Sharia-compliant retirement savings schemes among Muslim employees, according to the Institute for Fiscal Studies (IFS), which highlighted pension opt-out gaps among workers from different ethnic backgrounds.

The IFS urged policymakers and businesses to look at ways to simplify the process of switching to Sharia-compliant investment strategies.

Automatic enrolment has substantially increased the share of employees saving in a workplace pension, the research institute said.

But it added that, while under 10% of white employees who are eligible for automatic enrolment are not saving in a workplace pension, this rises to 16% for those of Pakistani ethnic origin and 24% for those of Bangladeshi ethnic origin.

It said that, compared with white employees with similar individual and job characteristics and working for the same employer, employees from Pakistani and Bangladeshi backgrounds are still more likely to opt out of workplace pension saving.

The Government, employers and the pensions industry should … look for effective ways to increase awareness of Sharia-compliant pension saving among Muslim employees and to make it easier for them to switch to Sharia-compliant investment strategies

Laurence O’Brien, Institute for Fiscal Studies

Higher opt-out rates for Pakistani and Bangladeshi employees exist in both the public and private sectors, researchers said.

In the private sector, employees are often enrolled into defined contribution (DC) pension schemes, where the default asset allocations may not be in line with religious teachings – for example, teachings which prohibit receiving income from interest or investing in industries such as alcohol or tobacco.

However, employees typically have the option to switch their asset allocation to a Sharia-compliant fund, researchers said.

Laurence O’Brien, research economist at the IFS and an author of the report, said: “Most employees are actually able to save in workplace pensions consistent with Islamic teachings.

“Employees offered defined contribution plans typically have the option of choosing a Sharia-compliant fund, while defined benefit pensions prevalent in the public sector are typically considered Sharia-compliant.

“The Government, employers and the pensions industry should therefore look for effective ways to increase awareness of Sharia-compliant pension saving among Muslim employees and to make it easier for them to switch to Sharia-compliant investment strategies.”

Pensions are for everyone

Zoe Alexander, Pensions and Lifetime Savings Association

The IFS said the disparity in pensions participation risks substantial harmful consequences for future retirement incomes.

Opting out of a workplace pension can mean missing out on employer contributions as well as tax reliefs on pension saving.

The research was funded by the IFS Retirement Saving Consortium and the Economic and Social Research Council.

Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said: “The pension providers covering the vast majority of the workplace pension market offer Sharia-compliant products that cater for Muslim employees, and these have generally performed very well.

“Pensions are for everyone and most of us are not saving enough to enjoy the retirement we deserve.

“It is the responsibility of employers, pension schemes and anyone with a stake in driving good retirement outcomes for the UK population to help everyone – but especially under-pensioned groups – understand how they can get the best value from the system in a way that is aligned with their values.”

Minister for pensions, Torsten Bell said: “Everyone needs the security of a decent income in retirement, so closing pension savings and entitlement gaps, whether of gender, ethnicity or faith, is important. Automatic enrolment has driven significant progress but there is further to go.

“We encourage employers to support their employees from minority backgrounds to make informed decisions about their retirement savings and raise awareness of Sharia-compliant investment options.”

  • Umair

    Muhammad Umair is a passionate content creator, web developer, and tech enthusiast. With years of experience in developing dynamic websites and curating engaging content, he specializes in delivering accurate, informative, and up-to-date articles across diverse topics. From gaming and technology to crypto and world news, Umair's expertise ensures a seamless blend of technical knowledge and captivating storytelling. When he's not writing or coding, he enjoys gaming and exploring the latest trends in the tech world.

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