JazakAllah Khair for that. Like I said some were mentioning your rule and some were saying completely different. You seem to be well rehearsed on this issue. What do you make of the attached IFG document? Secondly if you have stocks and shares pension or otherwise, is the total amount assets to take into consideration when calculating Zakat. So if I was to invest in Asda for example. Asda has a whole heap of real estate which you hold a share in, also transport infrastructure etc. Are these things going to be pay of the calculations for zakat. Again looking at the attached document they estimate the total value of assets of a company on which zakat is required at 40%. Please forgive my ignorance I am trying to find out as much information as possible regarding this.
I will try to answer based on what I have gathered from multiple ulemas (who I have directly inquired from). So it is not based on my own conjecture/reasoning (although there is a possibility that I might have misunderstood their rulings). Also there is potential scope of slightly different interpretation of ruling. I am assuming that the pension is subject to the UK regulations (which under 2015 Pension Freedom Act allows lump sum pension amount withdrawal, instead of it rolling into annuity) (1) Zakat is payable on pension. The main wrinkle is that the pension is not withdrawable until after a certain term (as it is so in the UK); so even though it's yours, you don't have the possession of it. Strictly speaking, zakat on pension is not due until you actually have the pension in hand. This leads to 2 different methods of disbursement (as I discuss below). (2) It is payable on both your (employee's) contribution and employer's contribution. After all, zakat is liable/payable on your wealth (no matter who's contribution) that has accumulated for a year or more. (3) Zakat is liable for every year (of completed accumulation period). So if zakat has accumulated for 30 years, then it has to be paid for all years in arrears. You need to work out how much the pension balance was for each zakat year end. If you don't have the record, then you can request the pension provider or manager for historical annual balance statement. If that's also not possible, then make a straight-line estimation/extrapolation. (4) There are 2 ways to pay zakat on pension: Method 1: Determine pension balance at the end of each zakat year, and pay the zakat on that amount each year. Method 2: Determine pension balance at the end of each zakat year, and calculate the zakat liable on that amount. Accumulate this calculated zakat value and pay zakat in lump sum when the pension amount actually comes in your hand. (5) There are pros and cons (from individual's point of view) to each method. Method 1: Accounting is easier. The zakat amount payable each year is manageable. You may, however, end up overpaying zakat, if the pension amount you finally get in hand is taxed or suffers other deductions or withdrawal restrictions Method 2: As above. You know the exact amount (after tax and deductions) that you get in hand; so you pay zakat on actual amount at hand (albeit for each previous year in arrears, which might be bit tricky to account). The zakat payable in aggregate will likely be less than the overall payable in Method 1 There is a risk that in case of "untimely" demise, zakat may remain unpaid. I hope this somewhat answers your queries. If in doubt, ask DI's Darul Ifta (who seem to understand this issue well). You may also ask Mufti Shams ul-Huda Misbahi or any other mufti you can rely on.
Salaam all, We were just having a discussion list night as my father is due to retire soon and was looking at taking out some of his pension. There were some interesting issues raised which we did not knowledge of so we contacted some Ulema but it seemed as though they were giving various conclusions so I thought if the knowledgeable people of this forum could help it would be appreciated and In Sha Allah a means to seek knowledge for us. The primary question is Zakat given on a pension? We are presuming the answer is yes but how much would be given etc is where there is confusion on our part. I am surprised at how less information is out there and how much difference there is with the ulema even though it is an issue that potentially affects most Muslims in the UK. Some of the Ulema we have spoken to I believe may not fully understand the pension process, hence why we have had varied responses. I am going to present Some of the responses we have had. 1. you would need to pay 2.5% of the amount that you have put into the pot. Not the total value but your contribution. And that 2.5% would be since you started putting into the pot. So if you contribute £1200 a year you would need to pay on 1200 for the first year, then 2400 for the second, 3600 for the third etc all the way up to today. 2.you would need to pay 2.5% of the value of the pension pot and that would need to be backdated once the pension is received from when you first started contributing to the pot. So if you had the pension pot for 30 years you would essentially owe 30 years worth of Zakat. I don't understand how this would be possible as you would have to know how much the pot was worth over the 30 years. Unless you average it out to around an increase of £3300 per year. 3. You only need to pay on that which you receive. So if you were to receive 15k a year from your pension that would be what your zakat would be calculated on, after expenses etc. I can't remember if this was from a scholar or my own concoction. 4. I have attached a document which I don't know who wrote but they've tried breaking it down. I don't know how correct it is but In Sha Allah the learned people here should be able to verify. Due to most pensions being in stocks and shares you would need to divide the value of your pot by 40% and then pay 2.5% of that yearly as you receive the pension. The way they come up with 40%is that from research this author believes that when you hold shares you are owner of part of the company so the maximum assets a company had which can come under Zakat assets are less than 40% so they've rounded it up to 40%. The rest of the company, eg. Buildings, workforce, expenses will not come under zakat. So if you receive 10k a year from pension 40% of that would be 4k. So if you don't use any of that 4k you would need to pay £100 Zakat on that. If you used it no Zakat would be payable? Some of the Ulema mentioned that because the pension is accessible you must pay on the whole amount, but is that necessarily true? If you were to access a 100k pension in one lump sum you would need to pay 45k tax on that so how would that be worked out? Also if we go by answer 1 if your zakat was worth 100k for 20 years you would need to pay 50k Zakat and then 45K tax. So would you be left with 5k from your pension? Or would you take the tax out as an expense, but for the past 19 years the tax had not been taken off so would you still need to pay on the full amount for them years. I think due to it being a contemporary issue it may be the reason why there are so many different views. In Sha Allah if people have this knowledge please post as I'm sure it will help so many. Sorry for the long response and repetitive nature of the post but I've tried to explain it the best I can and given the differing situations. JazakAllah Khair.
