Sharia compliant retirement planning

In traditional and western retirement planning there was one main model used for investing and that was the one that created the most profit with any given risk tolerance. However, in recent years, the demand for Sharia compliant retirement planning has grown. This growth alongside the demand for more socially responsible investment means that Islamic finance has created Sharia compliant options for retirement planning.

Socially responsible investing is at the heart of Sharia law. What it means for those looking to build a halal retirement fund is that it limits an investor's portfolio to those kinds of investments that are deemed to be socially responsible.

RETIREMENT PLANNING

Retirement planning is a key part of planning for the future. It is important for many different reasons including the following:

• Maintaining quality of life
• Facilitating financial independence
• Inflation protection
• Reducing financial stress in later years
• Managing longer life expectancy
• Covering benefits and pension gaps in later years
• Legacy planning
• Facilitating early retirement

Retirement planning ensures that you take a strategic and proactive approach in planning for your future. It is a means of securing your financial future with a roadmap for saving, investment and managing your finances.

WHAT IS SHARIA COMPLIANT RETIREMENT PLANNING?

Sharia compliant retirement planning refers to making financial arrangements for your future that do not contravene Islamic rules relating to financial transactions and savings.

Retirement planning in a Sharia focused manner refers to preparing for retirement whilst adhering to ethical guidelines outlined in Islamic finance.

Let's examine some of the key principles related to Sharia compliant retirement planning:

1. Interest - the main rule for halal retirement planning is that you must avoid riba (interest). Islam strictly prohibits any form of interest. If you are planning for your retirement make sure that none of your investments and savings accounts are not linked to interest in any way. In fact, you should ensure that any product, service, or company you deal with does not include interest based products or the payment of interest.
2. Risk and profit sharing: Islamic finance rests on the principle that transactions and deals should result in both parties sharing the risk and profit. This creates a more equitable relationship when dealing with money.
3. Ethical investment: retirement planning that is halal encourages ethical and socially responsible investing strategies. This means that you should look to invest in industries and companies that lead to social benefit (ie education, healthcare, relieving poverty) and stay away from companies that are involved in haram industries such as gambling, war, and alcohol.
4. Charity: although not necessarily related to retirement saving, ensuring you keep up with your zakat and sadaqah payments during your life is important. Not only does this form of charity enhance your adherence to Islam, but it also means that you can set aside money or a portion of your wealth for charitable purposes later on in your life.
5. Avoidance of speculation: if you are retirement planning then you need to be choosing products and investment options that are secure. Avoiding speculative products and markets means your long term planning is on more stable ground. Islam seeks to minimise ambiguity and uncertainty in financial dealings. As an investor, you should seek those investments that are asset backed and tangible.

WHAT IS AN INVESTMENT?

An investment is something that you invest in to generate a return. When it comes to halal retirement planning, a halal investment is one that complies with Islamic rules.

There are more products, services and investment options on the market than ever before. Islamic finance is still a dynamic industry, so for anyone looking to plan for their retirement and future you should know that there are many products already on the market.

When it comes to stocks and equities, Muslim investors can construct a portfolio that is Sharia compliant by ensuring that they research the companies, choosing those investments that meet the Islamic finance criteria of being compliant.


TYPES OF RETIREMENT ACCOUNTS

When planning for retirement there are a few different options. You can either use regular investment accounts and earmark part of the savings specifically for long-term investment. Or, you can use retirement accounts that are created for the sole purpose of future planning.

In the UK, there are Islamic pensions that do comply with Sharia principles. They focus on investing in halal industries and assets, using a halal investment plan.

Another form of long-term investment planning includes real estate. For many people, property is a means of planning for your retirement. There are many halal mortgage options in the UK and European markets for Muslims to access. These mortgages are structured to ensure the individual does not have to pay or be charged interest to the bank that provides the mortgage as a lender.

SHARIA COMPLIANT PENSIONS

As an employee in the UK, it is very likely that you are already paying into a workplace pension. In addition to this, you can also have a private pension to supplement your income in retirement.

There are various Islamic pension schemes available, alongside halal Islamic bonds called sukuk and other investments that are Sharia compliant.

Muslims can also look into having a halal SIPP which are self-invested personal plans. These plans are a type of pension that provide individuals with the flexibility to create their own pension portfolio. A halal SIPP is one where the requirement of the pension investments is that they are Sharia compliant.

SHARIA RETIREMENT PLANS - WHY HAVE THEM?

There are many reasons why you should have a Sharia compliant retirement plan, not least so that you adhere to Islamic rules.

As we become an aging population it is more important than ever to ensure we have the means to live and survive as we age.

Sharia retirement plans are necessary because they:

• are a form of voluntary Islamic pension so you can adequately plan for retirement.
• provide opportunity to manage the risk and return for the future
• create a flexible investment plan
• are Sharia compliancy
• lead to secure, halal financial planning

For anyone looking to build a secure halal retirement plan you need to research and make all the relevant enquiries as soon as you can. Look into banks, financial institutions and services that provide pensions and future planning.

Consult with Islamic scholars and financial advisors who are knowledgeable about Islamic finance and give you accurate information.

Remember, the Islamic finance offerings and landscape is ever-changing and growing and the value of its services should not be underestimated. As the economy continues to fluctuate it is important to understand the commercial and business process relating to retirement planning. Understand what it is you need for the future and start making plans now.

Determining Sharia compliancy is a critical part of halal retirement planning. You need to be able to evaluate an investment and eliminate any element of haram so that it aligns with your Islamic belief system.