Although certainly not a new endeavour, shariah-compliant investing has come to the forefront of industry conversations due to an increased focus on diversity and inclusion in financial services.
Shariah-compliant investing means to invest into funds that adhere to the core governing principles of Islam under shariah law.
Prohibition of Riba and avoidance of Haram are two key components of shariah-compliant investing.
Riba refers to paying or receiving interest, both of which are forbidden under Islamic law, while haram is an Arabic word relating to prohibited activities under Islamic law.
When it comes to shariah investing, gambling, alcohol, tobacco, adult entertainment and some meat industries, among others, are excluded from investments.
There are also additional considerations relating to uncertainty of outcomes, proportionate risk and transparency which must be applied in order for the investment to be considered shariah-compliant.
One of the aims of auto enrolment has been to increase the provision of retirement saving to those who were previously underserved.
There’s no disputing the success of auto enrolment in increasing participation and savings into workplace pension schemes in the UK; earlier this year, The Pension Regulator announced that more than 11 million people have been enrolled into a workplace pension since 2012.
Unfortunately, there’s a huge number of UK savers who continue to fall through the metaphorical cracks when it comes to pension provision. Among them, many Muslims are excluded from saving for retirement through a workplace pension, due to the lack of suitable investment options.
According to 2021/22 Census data from the Office of National Statistics, National Records of Scotland and the Northern Ireland Statistics and Research Agency, more than 4 million people identified as Muslim in the UK. This makes Islam a significant portion of the UK population.
However, a third of Muslim employees don’t have a workplace pension, with a vast majority of these (78%) citing a lack of shariah-compliant investment options as a key barrier1.
Additionally, the Muslim community in the UK has an average age of 272, significantly younger than the average age of the UK’s general population which hovers around 40. From a pension perspective, many Muslim savers still have considerable time for their retirement savings to grow – if only they were saving into a pension in the first place.
These numbers indicate a significant gap in the provision of workplace pensions in the UK, and raises the question: can the investment and savings industry, and in particular the workplace pensions sector, do more to cater for the communities we serve?
At Smart Pension, we have been committed to positive change by launching the Halal Workplace Pension earlier this year, the first shariah-compliant lifestyle strategy launched by a master trust.
This was built in partnership with Wahed, a provider of shariah-compliant investments, including access to sukuk investments, equities and gold investments.
We all know that saving is important, particularly saving into a pension. That’s why we’re excited to be breaking new ground in the retirement saving marketplace with a pension scheme that features a shariah-compliant lifestyle strategy, available to employers as a default.
Existing shariah-compliant pensions options tend to offer single equity funds that members have to actively select, with no risk management approaching retirement age.
It’s the first step in what we hope will be many in delivering improved accessibility and greater inclusivity when it comes to savings and investments.
These options not only open up pension provision to underserved communities but also provide opportunity, offering investment diversification while seeking growth.
We continue to strive to be inclusive and diverse, catering for a range of needs, to shape an industry reflective of society.
Notes and references
Fiona Smith is head of responsible investment at Smart Pension.
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