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Shariah Articles


The Zakaatability of Pension ,Provident and Retirement Annuity Funds, including the Question of Purification , in the Context of Voluntary and Compulsory Contributions of an Employee , Deducted at Source.

1. The purpose of a pension, provident , retirement annuity , preservation or similar fund , registered , in terms of applicable legislation is to provide annuities or lump sum payments for members or former members of the relevant fund upon their reaching their retirement dates , or for the dependants of such persons upon the death of those persons. ( hereafter referred to as " the fund" )


2. A fund is a separate legal or juristic person, with power to exercise its powers and perform its functions , in terms of its rules. The registered rules of the fund inter alia bind the members and the fund, and on any person who claims under the rules. A member of the fund is legally entitled to the payment of a benefit , only in accordance with the rules of the fund. All the underlying moneys and assets of the fund are owned by and vest in the fund, as a separate legal entity. The affairs of the fund are managed by the board of trustees in accordance with the applicable laws and the rules of the fund.


3. Against this very brief background , the critical question arises: How does one treat , for Zakah purposes , the benefit that the employee- member of the fund is legally entitled to, on termination of his or her membership, in accordance with the rules of the fund? How does one characterize such legal right from a Shariah perspective, bearing in mind that the assets of the fund are legally owned by the fund.?


4. Does the answer to the question depend upon whether the  employee - member's participation in the fund is compulsory or voluntary ?


5. In the case of compulsory participation, it is normally a binding invariable term of employment , for the member to participate in the fund , which is designated by the employer. On this imposed contractual basis, the monthly employee contribution is deducted from the member's earnings at source, and paid over to the fund. The effect of this is that the employee has not become the owner of the contribution so deducted and transferred to the fund. In the Hanafi school, the employee only becomes the owner of his or her salary, upon receipt or possession thereof. Prior to such possession,  the employee only has a valid contractual claim for payment thereof.

الأجرة لا تملك بالعقد بل بالتعجيل او بشرطه

او بالاستيفاء او بالتمكن يعنى لا يملك الأجرة الا بواحد من هذه الأربعة والمراد انه لا يستحقها المؤجر الا بذالك... لانها لو كانت دينا لا يقال انه ملكه المؤجر قبل قبضه وإذا استحقها المؤجر قبل قبضها فله المطالبة بها....( البحر الراءق )


6. The excess growth over and above the employee’s compulsory contributions , paid to him or her , is classified in Shariah , as part of services rendered in the past, bearing in mind that he or she has a valid contractual claim to the same, and is therefore treated as halaal, irrespective of the source of accrual.


7. Zakah is accordingly paid on the total amount paid by the  relevant Fund to the employee concerned, in the year of receipt, and not for prior , preceding years, in the view of Imam Abu Hanifah ra. However, it is preferable to pay for previous years, in accordance with the view of Imams Abu Yusuf and Muhammad, who state that Zakah is payable on all categories of debts.

قال أبو يوسف و محمد : الديون كلها سواء و كلها قوية تجب الزكاة فيها قبل القبض...

بداءع الصنايع


8. The aforesaid principles also apply to voluntary at- source deductions: that is, deductions of contributions effected  voluntarily by an employee at source, in respect of  his own election to subscribe to a voluntary pension, provident and retirement annuity fund. The reason for this, is that the employee’s consent on earnings or funds not yet owned by him, cannot have any Shari’ consequence.


9. However, in the voluntary situation, since there is a degree of tashabbuh ( resemblance), with Riba in the consent , on the part of the employee concerned , to the monthly deduction from his or her remuneration, it is cautious to dispose of the excess growth to charity ( unless ofcourse , the employee concerned has elected that his or her monthly contributions be invested in a Shariah Compliant Fund).


10. The aforegoing only applies to deductions at source, effected by an employee, in the context of a voluntary or compulsory participation in a fund.


11. Once the fund value or proceeds in question, are  however transferred by the Fund to any avenue , upon which the the employee concerned has control of disposal, then the funds are deemed to be in his Shari’ possession for all purposes, including the payment of Zakah. In such event, the employee will be responsible to ensure that the proceeds , if transferred to another fund, are invested in Shariah compliant investments. Any impermissible receipts in this situation will have to be purified.


12. This is the gist of the fatwa of Hadhrath Mawlana Mufti Muhammad Shafi Saheb and other luminaries, published under the title , The Zakaatibility Of Provident Fund and the Issue of Interest.”

And Allah Knows Best 

M. S.Omar


2 December 2018

( I am indebted to my teacher, the distinguished jurist, Mufti Taqi Usmani for his valuable input , particularly in correctly interpreting the fatwa of his Honorable father , Mufti Shafi ra, the former Grand Mufti of Pakistan)

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I personally know the honourable Shaykh Mahomed Shoaib Omar for over thirty years. I found him to be an ardent seeker of knowledge, quick of mind &  constantly devoted to the study of the books of fiqh &  has written himself a number of papers. He has been amongst the foremost participants in drafting the Muslim Personal Law for S.Africa, so that it may be enforced there; and the majority of local Ulama have endorsed this.

~ Mufti Taqi Uthmani

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