Sharia Compliant Retirement Planning

In the Case of Malaysia”, Science Publishing Corporation, 2018, Islamic Finance and Wealth Management proportion of ageing population across countries, along with the rising levels of living costs. Despite favorable demographic profiles and stable demand for such investment vehicles, the growth of Islamic pension funds has been relatively slow compared to conventional funds. In 2017, EY reported that public pension funds (conventional and Islamic) amount to ~US$ 400 billion in the GCC alone, wherein more than half this volume would preferably be invested in Sharia-compliant funds if enough Islamic investment opportunities existed. While this talks about the huge potential of Islamic pension funds as a market, it also strongly magnifies the lack of adequate investment opportunities

 Nevertheless, the market for such funds has picked up pace in the past decade, largely backed by governments initiatives to channel proportional institutional capital into Sharia-compliant funds. According to Thomson Reuters, pension funds were the top performer among the various Islamic asset classes in 2014, representing 0.2% of the global Islamic funds, and amounting to an asset size of US$ 146 million amongst 64 funds

By 2019, this asset size recorded a historic jump to US$ 86 billion. SE Asian countries have been at the forefront of introducing pension fund schemes. Malaysia introduced an Islamic savings scheme option as part of its state pension plan in 2016, called the Employees Provident Fund (EPF), in addition to the existing investment of about a third of the EPF’s portfolio in Sharia-compliant stocks and bonds. Of the US$ 160 billion assets that make up the EPF’s assets, US$ 25 billion were dedicated to a new Sharia-compliant investment vehicle, equating to 15% of the total portfolio.

 This made it the largest standalone Islamic pension fund globally. It also allowed the country to attract new money and encourage higher issuance of sukuk and Sharia-compliant equities for investments by the pension fund, indirectly boosting demand for Islamic securities in Malaysia.

Additionally, Malaysia announced plans to make its second-largest pension fund scheme, Retirement Fund Inc. or KWAP, fully Sharia-compliant. In Turkey, voluntary Islamic pension funds, known as participation retirement schemes have been introduced. They allow investments in property and commodity bonds or funds, Sharia compliant equities, government bonds and other permissible vehicles.

 Outside the core markets, there has been an upsurge in demand for appropriate investment vehicles and options for religiously observant investors across the EU and Asia Pacific regions. The UK and Australia were among the first countries to introduce Islamic pension funds. In 2008, UK became the first Western country to provide halal retirement savings options for its large Muslim population. This was followed by the then-Islamic Bank of Britain, one of the largest Sharia-compliant banks in the UK and today known as Al Rayan Bank, creating the Islamic Pension Trust. The trust enabled Muslim employers and charities to provide a Sharia-compliant workplace pension that met all government criteria for an auto enrolment scheme. Australia launched its first private Islamic pension fund in 2012, followed by other investment instruments such as halal superannuation funds. As of 2020, Crescent Wealth Super is the only provider of Sharia-compliant superannuation in Australia, with several smaller players gradually entering the market. Crescent Wealth Super manages just under US$ 300 million in retirement funds or 0.5% of the total market of US$ 43.3 billion185: “