Sadly since BRIAN ADAMS’s last article two years ago, we have seen little change in this marketplace. Possibly the best place to start is to relook at the opportunity for pension providers in the UK, given the statistics that one in three Muslims still does not have a pension and this includes individuals ranging from pharmacists, general practitioners and dentists to business owners in the UK working and/or self-employed people, hence the need to save for retirement; this clearly demonstrates the potential out there.
Now let’s look at what is actually available — well putting it bluntly, not a lot with a lack of desire within pension providers (excluding auto enrollment) to engage in this marketplace. There are many providers offering traditional pension schemes but only one stating it offers a Shariah plan, namely Options Pensions, whom sadly in recent years has seen some administrative issues.
In addition, most UK providers do indeed offer a conventional UK approved pension scheme but this consists of one equity fund, the HSBC Global Islamic Fund, which is classed as high risk, so not always appropriate for individuals nearing retirement age looking to protect funds.
Now what’s the issue? In my opinion, it remains the lack of desire to appreciate the opportunity or the increasing need to make a profit immediately to satisfy shareholders as opposed to taking the longer-term view of sustainable profits over time. In addition, there is a lack of education within the Muslim community which is apparent in my opinion regarding the benefits of saving for retirement — let’s be honest, who wants to work until 68, the new state pension age from 2026.
Now to be frank, I disagree with statements I read that UK Muslims are missing out on pensions; they are out there, people need to engage with financial advisors who are regulated to offer advice. Still, I see many non-regulated companies offering guidance on this matter; while this helps in some instances it is actually counterproductive in many cases.
One of the most appropriate and compliant solutions available in the UK is a self-invested pension where we can dictate the investment solution to be Shariah compliant. This enables UK advisors to offer regulated pension advice along with five recognizable risk-based portfolios all with Fatwa certification via TAM Asset Management with the option to remain within the product at retirement. In addition, any cash held does not attract interest as all funds are invested, thus ensuring underlying transactions are similarly compliant. I am aware of other investment houses offering Shariah portfolios within the UK but again they do not offer the pension product needed.
Now what are the benefits to investors, apart from saving a pot of cash to spend at retirement? A pension is probably one of the most tax-efficient methods of investing money…
1. Limited company directors where the business can pay up to GBP60,000 (US$75,936) on directors’ behalf in this tax year, offset tax against company corporation tax, subject to certain criteria.
2. All individuals receive tax relief on contributions from HMRC, the UK Tax Authority and higher rate taxpayers can reclaim additional relief via self assessment.
Furthermore, as we utilize a self-invested personal pension, any individual with business premises could ultimately own the property within the pension, again one of the most tax-efficient options available. This topic is too in-depth and is specific to individual circumstances.
As you can see from the brief market overview, current outlook and potential, there remains a growing need for the past 10 years at least to engage with the pension sector and offer the option to individuals and business owners alike the opportunity to invest in line with faith. However, education is key in terms of the community seeking financial advice which does come at a cost, but is paying a fee to a regulated advisor worth the cost if they, for example, save your business potentially thousands of pounds in tax?
Couple this with some work within the UK government and Islamic institutions to engage with advisors and communities in making the appropriate choice, the following 3 E’s approach would still be valid today:
• Engage — let’s speak to the community via accountants, financial advisors, scholars, etc.
• Educate — let’s explain the benefits, ie you actually can save tax.
• Evolve — UK government and pension trustees need to take responsibility to help clients and evolve the subject.
While there is still a lot of work to be done in this sector within the UK as can be seen above, it is not all doom and gloom and I would like to finish this article by appealing to the trustees, employers and individuals to engage with each other, seek professional advice from qualified advisors and at least have the option available as opposed to discounting this option; although it may not be the norm in the UK currently but with around 700,000 employed Muslims in the UK, something needs to happen.
Brian Adams is the director of Islamic wealth management at Merlyn Wealth Management. He can be contacted at [email protected].