How British Muslims’ retirement funds rest on a knife edge

LONDON: A lack of choice in Britain’s halal pensions market poses an existential financial risk to hundreds of thousands of Muslims across the UK, according to one of the nation’s leading Islamic finance experts.

Ibrahim Khan, co-founder of Islamic Finance Guru — an advisory service dedicated to helping Muslims make smart financial decisions — told Arab News that despite wider advances in Britain’s Islamic finance industry, one as-of-yet unsolved problem could scupper the chances of a comfortable retirement for Muslims across the UK.

“Of the Shariah-compliant retirement funds available to British Muslims, there’s just one or two that everyone turns to, and they’re 100 percent equity funds. That means there’s no diversification in that portfolio,” he said.

Equity funds of the nature that Khan is describing rely almost entirely on stocks and shares as a store of wealth.

But this means that as the stock market fluctuates, so too does the amount of money that elderly Muslims have to retire on.

A massive hit to the stock market weeks, months or even years ahead of retirement could have ramifications for retirees that last the rest of their lives.

This is exactly what happened when the coronavirus pandemic turned the global financial system on its head.

“If that HSBC fund — which holds a huge amount of Muslim pensions — if that’s hit, like it was last year, that means 20 percent of the entire Muslim community’s net worth is wiped out,” Khan said.

“A key thing we’re calling for is for there to be more than one option, and more than just an equity option.” 

Given that most pensions in the UK are managed through employers, not only has the issue of Shariah-compliant pensions become a financial one for Muslims, but it is also increasingly being seen as a legal issue.

A legal opinion obtained by Islamic Finance Guru not only made clear that a failure by an employer to provide any Islamic pension option to employees is likely illegal under Britain’s 2010 Equalities Act, but also recommended that Muslim members of staff are treated the same as their non-Muslim colleagues: Provided the opportunity to decide how their money is invested and the level of risk they are comfortable with.

“When considering halal investment choices, it’s important for scheme trustees to offer more than one such fund so as to enable members to diversify their investments,” said Paul Newman of London’s Wilberforce Chambers.

“Trustees who offer only one such fund, and who thereby limit Muslim members to investing in that fund, may expose themselves to claims for maladministration or breach of trust.”

What Muslims need, Khan said, is the ability to decide their own appetite for risk — and this is where companies such as Wahed Invest step in.

Wahed works with mainstream pension providers to offer Shariah-compliant pension funds that give their customers real choice in what to invest in.

Gold, Shariah-compliant bonds — non-interest bearing and known as sukuk — and real estate all feature in its portfolios, giving its customers access to the same level of freedom that the rest of Britain has when deciding their financial future.

Providing British Muslims with equal access to pensions is “not that complicated,” Umer Suleman, head of Wahed Invest’s UK offering, told Arab News.

“Where you may have riskier investments when you’re young, when you approach seniority in age you redress the balance — you start moving into lower-risk, lower-return investments. It’s about having a managed service for your pension and having a risk-based approach to it,” he said.

“Shariah-compliant doesn’t mean just equities. There’s real estate investments, sukuks and commodities,” he added.

“Choice is always good. It’s good from a competition perspective and from a product perspective. Are Muslim consumers missing out by not having more options? Yes.”