SPONSORED COMMENT
What challenges do Muslim savers face accessing workplace pensions?
One of the biggest hurdles is a lack of awareness and understanding about pensions. This is true across the workforce — but it means many Muslim savers do not realise that there are Shariah-compliant options available. Even when these are signposted, some employees remain sceptical about whether these fully adhere to Islamic financial principles. For this reason, it is important to provide information and reassurance these pensions avoid interest (Riba), speculative investment (Gharar) and investments into alcohol, gambling and other areas prohibited under Shariah principles.
Workplace pensions automatically place new employees into default investments, which may not be Shariah-compliant, so there’s a need for proactive action and communication from day one to ensure Muslim employees don’t opt out of pensions altogether.
How have Shariah-based investment options evolved in recent years?
Historically, most Shariah-compliant pension options were predominantly equity-only funds. This meant that Muslim savers had to take greater risks with their money compared to those in conventional defaults, which offer a mix of assets to balance returns and volatility.
This is changing though. Pension providers have introduced Sukuks
(Islamic bonds) and multi-asset funds, allowing for more diversified investment strategies. This shift helps Muslim employees manage risk, particularly as they approach retirement, while still adhering to Islamic finance principles.
Pension providers such as Aviva have gone further, utilising the range of different products to design Shariah-compliant glidepaths, where investments are gradually and automatically shifted into lower-risk assets as people approach retirement.
Does more need to be done to inform and engage employees about Shariah options?
Employers, pension providers and consultants all have a role to play in raising awareness of workplace pensions and the different investment options available, including Shariah-compliant funds.
At present, there is a knowledge gap among advisers and employers when it comes to Shariah investments. While many may understand the broad principles there is often limited awareness of specific exclusions. Closing this knowledge gap is crucial, as better education can lead to improved communication strategies, which should enhance engagement and participation among Muslim savers.
Employers, in particular, have a key role to play in ensuring Muslim employees are aware of their choices from the outset. However, they will often need support from consultants and providers when it comes to communicating pension benefits to employees, including those from different faith groups.
How do Shariah pensions fit into wider DEI and ESG objectives?
Offering Shariah-compliant pension options can support corporate initiatives around diversity, equity and inclusion (DEI), ensuring employees from all backgrounds have access to workplace pensions. By partnering with pension providers that offer Shariah options, employers can demonstrate their commitment to workplace inclusivity.
Many Shariah principles also align closely with Environmental, Social, and Governance (ESG) frameworks around responsible investment. Like many
ethical or responsible investment funds, Shariah funds exclude industries such as tobacco and gambling – sectors often considered harmful to wider society.
This can make Shariah-compliant options attractive to some non-Muslim savers, including those from other faith groups and individuals looking to
invest responsibly.
This trend has certainly been observed with the HSBC Islamic Global Equity Index Fund, which can be accessed through Aviva’s workplace pension. This equity-only fund has delivered strong returns in recent years, partly due to its relatively high allocation to technology stocks. As a result, it has gained traction among non-Muslim investors looking for both ethical and high-growth investment opportunities.
What’s next for Shariah pensions? How does Aviva see this market developing in the future?
Looking ahead, Aviva is focused on further expanding its Shariah-compliant pension offerings, including options for retirement income. The next step involves exploring additional asset classes, including private markets and alternative investments, to provide even greater diversification.
The goal is to ensure that Muslim investors have access to the same level of choice, security, and performance as other pension savers, making workplace pensions more inclusive for all.
