Muslim Retirement in England – Exploring the Opportunity of an Islamic Occupational Pension Scheme

Manjoo, Faizal (2019) Muslim Retirement in England – Exploring the Opportunity of an Islamic Occupational Pension Scheme. PhD thesis, University of Gloucestershire.

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Abstract

This research attempts to address, from an Islamic perspective, one of the main problems faced by most countries – securing financial provisions for an ageing population. While England is considered among the world’s pioneers in developing funded and unfunded pension schemes to sustain the aged, such endeavours have no clearly identifiable precedence in Islamic history. As Islamic finance has expanded, it has created an appetite for more products, pension being one of them which not much has been adequately documented. Pensions can be considered an extension of the life range of products. Due to longevity risk issues the landscape of the pension industry is changing with more emphasis on privately funded pensions. The furtherance of pension products can assist in resolving the sustenance of the elderly at a funded occupational pension level, which is presently the dominant option in England. This research addresses three main areas. It illustrates jurisprudential divergences in the conceptual framework of pension arrangements under the Islamic and English legal systems, where there is room to develop an Islamic occupational pension fund to satisfy the need for Muslim pensioners as there is a potential demand for such products. Three gaps were identified for the purpose of this research from the literature review. These are: historically the idea of operationalising a pension in Muslim lands, more so an occupational pension, did not exist; secondly while reviewing the various pension arrangements available in England, many fiqhi issues remain unresolved, and, finally, there is no model of an occupational pension in existence that would meet both the Shari’ah, as well as, English legal requirements. The research explores the underpinning reasons for historical trends in legal pension reforms in England that led to its conceptual and contractual evolution. A critical analysis of the problems that exist in the various pension arrangements under English law, especially, the issue of annuity, is conducted from an Islamic perspective. This exercise helps in identifying the areas of jurisprudential conflict and thus facilitates the research by formulating an Islamic model for funded occupational pension schemes. Following the gaps in the literature the three research questions have been identified which fall within different disciplines. The areas identified for research are firstly, to identify any convergence and divergence in the conceptual framework of pension arrangements in the Islamic and English legal systems that would influence designing an Islamic private occupational pension model. The second factors explore perceptions of Muslim workers and Shari’ah scholars in relation to introducing Islamic pension models in England. The third area focuses on the actual construction of an Islamic occupational pension scheme model. Here, due to the three strands of research, three research methods were adopted: Social research methods to assess the market for Islamic pensions: empirical research to assess supply and demand; empirical analysis of questionnaires and interviews. Legal research methods were applied to analyse the typology of pensions and acceptability of pensions under English law. Finally, Usūl al-Fiqh, qawā’d fiqhiyyah and maqāsid al-Shari’ah are applied to evaluate permissibility of pension structures The research is qualitative in nature, but it also encapsulates a purposive sampling of employees and Shari’ah scholars. The employers have not been surveyed because by law they should provide these facilities. The survey among employees provides an idea of the demand side for such a product, while Shari’ah scholars’ views would ensure the Shari’ah compliance or non-compliance for the purchase and sale of such product. The research methods are primarily inductive and partially deductive, based on the nature of the research questions. For answering the second research question, an open survey question was conducted among Shari’ah scholars in order to determine the appetite for an Islamic occupational pension as they would verify any product placed on the market. Two striking results came out of this open-ended questionnaire: there seems to be a lack of understanding among Shariah Scholars regarding pensions, and, secondly, they tend to encourage the development of a Shari’ah compliant occupational pension scheme. Employees were interviewed via a closed question questionnaire to determine their knowledge about pensions and their willingness to purchase these products. Hence, from the survey such a product would be welcome though it will take some time to develop the market due to many factors such as cost, awareness, etcetera. The research provesthat there is ample space under the existing pension system to develop an Islamic occupational pension scheme. It shows that the defined benefit pension arrangement is not accepted by most fatawa issued but the defined contribution is accepted. However, the defined contribution arrangement was acceptable, although it might raise a zakāh issue because the pension pot would be in the control of the employees. Hence, this was an important area to be examined because it would affect the returns on investment and the viability of the model. This aspect has been captured in the model developed. The third and recent pension arrangement which is known as the define ambition seems to be the most appropriate one. The reason for opting for this last one is because with the defined benefit, the risk lies entirely with the employers, while with the defined contribution it is the opposite, i.e. it lies with the employees. The defined ambition aims at splitting the risk whereby the employers will promise a minimum annuity to the employees while the employees bear the risk in their pot. Finally, the research proposes an Islamic model premised on the defined ambition arrangement under a trust structure based on the concept of wa’ad (promise) and waqf (in lieu of trust) to operate the fund and tabarru’ (a unilateral contract to donate money) in order to eliminate the prohibited elements of riba, gharar and maysir. The trust structure is substituted by the waqfstructure which fits into the fair level playing field. It is proven that the said structure has the potential to satisfy both English law and Islamic law and proves that it is possible to develop an Islamic occupational pension under English law under a fair level playing field principle. Three practical legal issues were analysed to ensure the proposed model was viable under English law: the tax implications, the enforceability of a promise (wa’ad) and the nomination clause. To have a deeper insight into Islamic occupational pension schemes few recommendations are made: A quantitative research be conducted to ascertain the mathematical elements of its sustainability. Stochastic analysis for Islamic pensions, actuarial calculations for the tabarruʿ along with the financial support to be provided, is required. A proper market survey is also a requisite. Another area for further research is the theory of savings which is a pillar of pension economics. A further concern involves considering a system of maqāsid of wealth management which has not been well explored in literature – involving bukhl, iqtisād, infāq,’afw, shuḥ, isrāf and tabzīr. Also, in order to maintain a proper cash flow and balancing the assets and liabilities, a pension fund should ensure that there is appropriate Islamic investment vehicle. There will be a need to explore this area because presently it seems that there is shortage of such medium and long-term shari’ah compliant investment products on the market.

Item Type:	Thesis (PhD)
Additional Information:	Submitted to the University of Gloucestershire through The Markfield Institute of Higher Education.
Subjects:	H Social Sciences > HF Commerce > HF5001 Business
Depositing User:	Susan Turner
Date Deposited:	01 Dec 2021 13:00
Last Modified:	01 Dec 2021 13:00
URI:	https://eprints.glos.ac.uk/id/eprint/10422

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