SAMIR ALAMAD delves into the world of Shariah compliant self-invested personal pensions, discussing their introduction into the UK market as well as their implications for the country’s Muslims.
In June 2011 the UK’s pensions and personal finance market welcomed one of the first ranges of
Shariah compliant self-invested personal pensions (SIPPs). The range was launched by
Pointon York, a specialist SIPP administrator.
The new range of SIPPs has been accredited as
Shariah compliant by the
Islamic Bank of Britain (
IBB). Importantly, the bank’s accreditation gives a guarantee to UK Muslims that the range of SIPPs is genuinely
Shariah compliant and therefore a suitable financial product for them.
SIPPs explained
A self-invested personal pension is the name given to a certain type of UK government-approved personal pension scheme. The scheme allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue & Customs (
HMRC), the government’s customs and tax department.
According to industry reports, over the past decade the SIPP market in the UK has grown tenfold, to the point where there are now around 650,000 plans in force. A SIPP is considered to provide greater investment flexibility than conventional personal pensions. It can accommodate a wide range of investments which can include several pension plans, property, shares and cash. The investment benefits from tax relief subject to a maximum earnings limit set by
HMRC each year.
The
Shariah compliant range offered by
Pointon York consists of the following four SIPP products:
1. e-SIPP: A low cost SIPP which can be easily managed online.
2. Single Investment SIPP: A straightforward SIPP for clients wishing to invest in a single asset.
3. Individual SIPP: A fully flexible SIPP allowing an extensive range of investments.
4. Corporate SIPP: Suitable for employers, it has three tiers providing flexibility. It is made up of the e-SIPP, the Single Investment SIPP and the Individual SIPP.
IBB approves the SIPPs as
Shariah compliant by checking them when they are set up. It also checks the status of the SIPP on a quarterly basis throughout the lifecycle of the product to ensure that
Shariah compliance continues to be maintained.
The pensions imperative
The SIPPs launch by
Pointon York, and its accreditation by
IBB, is significant for the UK pensions market. It has secured headlines across the consumer and financial intermediary media because the two companies really have broken new ground. The range also goes some way towards addressing an issue of key national importance: saving for retirement.
It is well documented that in the UK, the nation as a whole is not saving enough for its retirement. In fact the national press have already branded the situation as an impending ‘pensions crisis’. To illustrate, a recent study found that half of UK citizens aged between 30 and 60 – about 10 million people – who could and should be saving more for their old age, are not doing so. The report also found that one fifth are not saving anything at all, despite most workers saying they want to retire at 61 with a pension of at least GBP24,300 a year.
The challenge, therefore, is a big one for the UK government; who recognize that such a predicament has the potential to pose an enormous strain on the state system in years to come. It is therefore an almost institutionalized campaign to encourage the population to think and act in readiness for their retirement years.
The problem is compounded for Muslims in the UK who have very limited access to financial products that are
Shariah compliant. Certainly when it comes to pensions and investments the choices are very narrow.
Another factor is pension ‘auto-enrolment’ which is the UK government’s forthcoming initiative to ensure as much of the population in employment as possible is saving for retirement. Coming into force in October 2012, workers will be automatically enrolled into their employer’s qualifying pension scheme without any active decision on their part. The aim is to combat the fact that presently many workers fail to take up valuable pension benefits because they do not make an application to join their employer’s scheme.
The new range of
Shariah compliant SIPPs from
Pointon York, with the all-important seal of approval from
IBB, is therefore a welcome relief for the UK pensions market. It automatically provides a solution for the Muslim adult population who wish to save for their retirement but have not had access to the right product. It also offers employers and Muslim employees the ability to comply with the auto-enrolment initiative without the concern that their pension is not permissible according to the rules of Islam.
Though not a panacea for the national pensions crisis, the new range of
Shariah compliant SIPPs will go a long way towards addressing the needs of UK Muslims. It is widely accepted that there is a lack of genuinely
Shariah compliant financial products available to this small but growing market. For this reason, financial planning and investments can often be neglected.
The wider picture
In recognition of the lack of suitable
Shariah financial products available to UK Muslims, the
Shariah compliant SIPPs form part of a wider strategy being implemented by
IBB. This includes working with experienced partners and providers of retail financial products to offer Muslim consumers a genuinely
Shariah compliant alternative. The aim is to expand the ways in which consumers can manage their finances without having to compromise their faith. Accrediting
Pointon York’s SIPPs as
Shariah compliant follows the recent announcement of a Discretionary Portfolio Service (DPS), also accredited as
Shariah compliant by
IBB.
The DPS is provided by
Praemium, the portfolio administration specialists. With the DPS, retail customers can invest in assets such as shares, commodities, property funds and
Sukuk through a number of portfolios. Ultimately the service allows Muslim investors to generate profit from their wealth in a
Shariah compliant and ethical way.
The launch of
Pointon York’s
Shariah compliant SIPPs, preceded by the launch of
Praemium’s
Shariah compliant DPS, highlights the integrated nature of
IBB’s overall strategy. Individuals who set up an investment portfolio with the DPS may utilize this as part of their SIPP allowance. Both products complement each other and provide a comprehensive
Shariah compliant wealth management solution.
A viable solution
Undoubtedly,
IBB’s accreditation of
Pointon York’s range of SIPPs and
Praemium’s DPS provides a viable solution for the UK Muslim consumer, the product provider and
IBB. Muslim consumers can now seriously look at wealth management and access a range of products. The product providers, such as
Pointon York, can access new markets, broaden their revenue streams and extend their offerings across a diverse range of communities. For
IBB, the bank can also extend its reach and bolster its brand and reputation as the leading provider of
Shariah compliant retail financial products in the UK.
However, the launch of the SIPP range also heralds an exciting time for independent financial advisers (IFAs), through which both the SIPP and DPS are accessible to consumers.
According to the industry body, IFA Promotion (IFAP), there are over 16,000 IFAs in the UK. And based on various reports, the market potential for IFAs providing
Shariah compliant products is sizeable.
The 2001 National Census recorded 1.6 million Muslims living in the UK. Muslims were the largest religious group after Christians and formed over half (52%) of the non-Christian religious population. Ten years on and estimates point towards the continued growth of the UK’s Muslim population. This is likely to be confirmed when the results of the 2011 National Census are revealed next year.
A recent market report also found that 400,000 Muslims in Britain held Islamic financial products. The research showed that Muslims in the UK have a combined spending power of GBP21 billion and save about GBP1 billion a year. For IFAs, who provide consumers the sole route to the
IBB-accredited SIPPs and DPS, these figures should provide reassurance as to the market opportunity available to them.
By default, as a range of faith-based products the availability of the
IBB-accredited SIPPs and DPS service also contributes to the growing demand for ethical investments. They therefore appeal to investors of all faiths seeking returns derived from products based on the values of socially responsible investing.
It is these principles upon which
IBB has based all of its products and around which it strives to expand the way Muslim consumers can manage their finances. The recent SIPP launch by
Pointon York heralds yet another success for the bank. It represents the perfect marriage of faith and finances: the bringing together of two experts to provide a solution that will provide the customer benefits for a lifetime.
Samir Alamad is a Shariah compliance officer and product development manager at Islamic Bank of Britain. He can be contacted at
[email protected].