With ethical investing gaining traction globally, more Muslims are looking for Shariah-compliant options to grow their wealth without compromising their faith. According to a 2021 study by the Office for National Statistics (ONS), one-third of Muslim employees didn’t have a workplace pension. 78% said concerns around investments being Shariah-compliant were a major factor. This signals a clear need for more awareness around halal pension options. One solution is Shariah-compliant investment options.
PensionBee not only offers a Shariah-compliant pension option but also aims to bridge the knowledge gap by producing more educational content around halal investing. So what are Shariah-compliant pensions and how can Muslims invest in one to help them secure their financial future?
What is a Shariah-compliant pension?
For Muslims, a Shariah-compliant pension is a way to plan and save for a happy retirement while adhering to Islamic values.
These are pensions that invest according to Shariah principles, which means that the investments in the fund don’t generate income from impermissible sources such as:
alcohol;
tobacco; or
weapons.
Investment funds that are Shariah-compliant are essential for Muslims. However, they can be a responsible investment choice for anyone. A common misconception is that they don’t perform as well as non-Shariah compliant pension funds. This is because they exclude certain industries. In reality, there’s considerable merit to well-managed Shariah-compliant investment funds.
Comparing Shariah investments to non-Shariah investments isn’t very helpful. This is because the purpose of Shariah investments isn’t to outperform the benchmark. It’s to open investment markets and other important tools like pensions to the Muslim community. Which otherwise would be hugely underserved financially.
Ethical vs. Shariah-compliant investments - are they the same?
The aim of both ethical and Shariah-compliant investments is to align financial decisions with personal values. However, they differ in their approaches. Ethical investing generally avoids industries that harm society or the environment. For example, tobacco or fossil fuels. And instead, focuses on sustainability and social responsibility. It’s flexible and varies based on individual beliefs.
Shariah-compliant investing is rooted in Islamic law and prohibits:
interest;
gambling; and
investing in haram industries like alcohol or conventional banking.
While both emphasise responsible investing, Shariah-compliant investments follow stricter, faith-based rules. Whereas ethical investing can be seen as more subjective.
PensionBee’s Shariah Plan
PensionBee’s Shariah Plan invests exclusively in Shariah-compliant companies and is suitable for anyone looking to invest responsibly or according to their faith.
The plan is composed entirely of equities and invests in the HSBC Islamic Global Equity Index Fund, managed by HSBC Global Asset Management and State Street Global Advisors (SSGA). While it’s standard practice for investors to be offered a range of portfolios that offer differing proportions of equities and bonds according to their risk profile, bonds aren’t compliant with Shariah investing. This means as a Muslim, our pension portfolios would ideally be 100% invested in equities.
You can find further information in the HSBC Islamic Global Equity Index Fund Fact Sheet.
How the plan ensures halal compliance
The HSBC Islamic Global Equity Index Fund tracks the Dow Jones Islamic Market Titans 100 Index. This is an index of the 100 largest global stocks that comply with Islamic investment guidelines.
The fund invests largely in equities in the technology and healthcare sectors with around 75% of the holdings based in the USA.
To maintain Shariah compliance, all investments in the fund are approved by an independent Shariah committee. The process involved is transparent, ensuring that those invested in the fund can be confident that their fund aligns with Islamic principles.
Regular reviews of the fund and ongoing compliance, including purification of non-compliant revenue, are an integral part of the process of maintaining Shariah compliance.
Fees and benefits of the Shariah Plan
The Shariah Plan is suitable for Muslims seeking a halal investment option and those looking to consolidate or start their first pension. The plan is also suitable for self-employed individuals seeking a Shariah-compliant pension. By signing up to a PensionBee Shariah Plan, you’ll benefit from:
One simple fee - you’ll pay a 0.95% annual management fee. This is halved on amounts over £100k.
No minimum contributions - you can start investing without having significant capital.
Easy consolidation - you can manage all your pensions in one place by combining your old pensions into one plan.
Personalised support - a dedicated UK-based account manager (a “BeeKeeper”) to help manage pension and transfers.
User-friendly platform - a website and app to monitor your pension performance, discover educational content and contribute or withdraw from your pension.
Learn more about Shariah Investing
Understanding Shariah compliance can feel overwhelming for those new to halal investing. Fortunately, there are several excellent resources to help you on your journey. Here are a few we recommend:
Islamic Finance Guru - a personal finance platform for Muslims in the UK.
UKIFC - a specialist advisory and developmental body. Their focus is promoting and enhancing the global Islamic and ethical finance industry.
Riba Free Foundation - a non-for-profit organisation developing financial literacy training.
The Pension Confident Podcast - learn more about Shariah investing in episode six. Host Philippa Lamb talks to Co-Founder of Islamic Finance Guru; Ibrahim Khan and PensionBee’s VP Product; Martin Parzonka. You can listen to the episode, read the transcript or watch the best bits over on YouTube.
Is the Shariah Plan right for you?
With no minimum pension contributions and the ability to combine other pension pots in one place, PensionBee makes it easy to manage your pension, whether online or in their app.
Having a pension is an important part of securing your financial future and as a Muslim, investing in line with Shariah principles is key. PensionBee’s Shariah plan offers a balanced, accessible way to do both.
Want to find out more about PensionBee’s Shariah Plan? Head to the plans page.
Muhammad is the Founder and Content Creator behind Muslim Investing - a platform dedicated to helping Muslims learn more about Islamic finance and halal investing. He aims to create awareness around the misconceptions of finance in Islam and help Muslims grow their wealth in the process.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Past performance does not guarantee future results. This information should not be regarded as financial advice.
