Zakaatability Of Provident And Pension fund: Summary

  1. As discussed, I had the opportunity overnight to review the Zakaatability of Pension and Provident Funds. I briefly summarize as follows:

   2.       The category of debt owed by the relevant Fund to the member is both secure and strong (QAWI), notionally analogous to:

          2.1               Property in one’s possession (see Kitab-ul-Amwaal, paragraph 1236); or

          2.2               Wadiah, or deemed possession of deposit (see Mugni, Rule 1937).

     3. Pension and Provident benefits are protected, to the extent that they cannot even be attached at the instance of creditors (section 37A and 37B of the Pension Fund Act).

  4. I am accordingly of the view that a member of a Pension or Provident Fund should pay Zakah each year on his or her Zakah valuation date on the:

4.1 Aggregate member’s contributions; or

4.2 Where appropriate, on the relevant member’s individual account value (determined on the basis, if he or she were to cease or terminate membership of the fund on the Zakah valuation date).

5.       In any event, this is the more cautious view, having regard to the fact that:

1. 1the majority (jumhur) concur that Zakah is obligatory each year on all classes of debts, with good prospects of recovery (debtor able to pay);

1. 2Imams Abu Yusuf and Muhammad (RA) treat all categories of debts equally as strong (qawi), with Zakah being obligatory thereon, each year prior to possession (see Badai, vol 2, p 90);

1. 3Even in the case of doubtful debts, known as “dhunun”, where the creditor does not know whether the debtor will pay or not, there is a reliable view that, once recovered, Zakah is payable for preceding years. (see Kitab-ul-amwaal)

   6. I am taking the liberty of circulating this, so that this nothing may benefit from other considered opinions.

AND ALLAH KNOWS BEST

• This question requires a detailed paper on the subject, but time on my side does not permit at this stage.

Are Pension And Provident Fund Death Benefits Payable Into The Estate Of The Deceased Member?

1.    The central question is : how are the pension and provident fund death benefits payable to a member to be dealt with, on his death, in terms of the Shariah? Are the death benefits payable into the deceased estate to be distributed amongst his or her heirs, determined at death, according to the rules of the Islamic Law of Succession? How are such payments characterised according to Shariah law?

2.     The Muslim jurists are unanimous that monetary rights which attach to the property of the deceased are transmissible to the heirs of the deceased upon his or her death. (for example, the right of the creditor to hold the pledged thing (rahn) is transmitted to the creditor's heirs ).

3.     There is however a difference of opinion on the category of rights per se, which are transmissible to the heirs of the holder of the rights. (for example, a stipulated right of option of a party to a contract of sale to cancel the contract within an agreed period. (Khiyar al Shart) In the Hanafi school, the option lapses upon the death of the holder. In the other schools, the option is transmissible to the heirs of the deceased holder of the right, because it is a monetary right. [1]

4.     On the other hand, there is unanimity, across all the schools, that a valid debt (dain sahih) owed to the deceased at the time of his death, forms an asset in his or her estate.

5.     The crucial question therefore is : Did the deceased member, at the time of his death, have a valid, legally enforceable entitlement against the Fund for the payment of the death benefits ? If so, the value of the benefits clearly and indisputably form part of the deceased's estate, to be dealt with according to the Shariah.

6.     The answer to this question is found in the provisions of section 37C of the Pension Funds Act, 1956. (hereafter referred to as “the Act”), which is the applicable law.

7.     This section creates a statutory order of precedence for the payment of death benefits to the dependants of the deceased member, who were legally and factually dependant on the deceased for support at the time of his death. Section 37C (1) expressly provides that the benefits payable “shall not form part of the assets in the estate” of the deceased member. The trustees of the Fund are, in terms of section 37C (1)(a), given the discretion to allocate the death benefits between the dependants of the deceased, in such proportions as they may deem equitable. In doing so, they may override the nomination of any person who the deceased may have designated in writing as a beneficiary to receive the proceeds of the death benefits.

8.     The following was stated in a Court case, Mashazi v African Products Retirement Benefit Provident Fund,[2] on the objects of the section :

        “Section 37C was intended to serve a social function. It was enacted to protect dependancy, even over the clear wishes of the deceased. This section specifically restricts freedom of testation in order that no dependants are left without support. Section 37C (1) specifically excludes the benefits from the assets in the estate of a member. Section 37C enjoins the trustees of a pension fund to exercise an equitable discretion, taking into account a number of factors. The fund is expressly not bound by a will, nor is it bound by a nomination form. The contents of the nomination form are there merely as a guide to the trustees in the exercise of their discretion...”.

9.     The Fund is a juristic person, a body corporate, which is vested with its own assets, and it is responsible for its own liabilities, capable of suing and being sued in its corporate name, and capable of doing all such things as may be necessary for or incidental to the exercise of its powers or the performance of its functions in terms of its rules. (Section 4B read with section 5)

9.     The contributions paid by the member to the Fund are accordingly owned by the Fund as a separate legal person.

10.   The member is bound by rules of the Fund. In terms of section 13 of the Act, the rules of the Fund shall be binding on the fund and its members and on any person who claims under the rules.

11.   The member acknowledges and agrees, through subscribing to the Fund, that the death benefits will be dealt with as provided in section 37C.

12.   In these circumstances, it is apparent that the deceased member has no legal entitlement or claim against the Fund, for payment of the benefits at the time of his death, with the result that the death benefits are excluded from his estate, according to the Shariah.

13.   In my view, the death benefit payments made by the trustees, in the exercise of their discretion, to the dependants of the deceased, in terms of section 37C of the Act , should be characterised as gratuitous payments in the nature of tabarru. On this basis, it makes no difference whether or not the Pension or Provident Fund in question is voluntary or compulsory.

14.   A similar conclusion was reached by certain fataawa,[3] and appears to be the view of certain contemporary Shariah experts in the field of Islamic finance.[4]

AND ALLAH KNOWS BEST

MAHOMED SHOAIB OMAR

Specialist Shariah & Corporate Attorney

20 January 2014

[1]   See for example, Kitab-Al-Mugni, IBN Qudama, on sale. Kuwait Fiqh Encyclopaedia on Definition of an            

     Estate (Tarika)

[2] Per Hussan J : 2003 (1) WLD at page 632 H - J

[3]   see Contemporary Fataawa, by Mufti Muhammad Taqi Usmani, “Entitlement to Death benefits Payable by Pension

     Funds”, page 165 – 167 - Fataawa Mahmudia (20 : 402); Fataawa Haqaania (6 : 541); Ahkaam Mayyit (page 261);    

     Mufid Al Waariseen (page 29)

[4]   In a recent telephonic discussion, the distinguished contemporary jurist, Shaykh Abdul Satar Abu Guddah confirmed

     that the proceeds do not form part of the deceased estate. According to him, this view has also been adopted by

     various Shariah Boards of Islamic Financial Institutions.

Fiqh Of Renting Out Property

In order to understand the position of Imam Abu Hanifah (ra) on the issue of leasing of premises for a prohibited activity, two different situations must be distinguished:

The first situation is where the landlord expressly authorizes the letting for a prohibited activity. For example, the lease stipulates that the tenant shall use the premises for the sale of liquor/wine. In this case, all the jurists and mazaahib across the board are unanimous that the lease is null and void.The reason for this is that the subject matter of the lease is a prohibition or sinful transgression, and accordingly contrary to the express prohibition enshrined in the Quranic verse: Do not cooperate with one another in sin and transgression. Al Maidah 5:2 see Mugni of Ibn Qudamah vol4 p306.

The second situation covers the case where the landlord leases the premises for a permissible activity. The tenant however voluntarily and without the consent of the landlord uses the premises for a prohibited activity. Such conduct of the tenant is a new independent cause which breaks the chain of causation and should not be attributed to the landlord; and because the intention of the landlord was not to let the premises for a prohibited activity. It is only the second situation, which gave rise to a difference of opinion in the Hanafi school between Abu Hanifah, on the one hand, and Abu Yusuf and Imam Muhammad, on the other. The latter still held that the lease was void and the rental impermissible. See Al Mabsut Saraksi vol 16. Against this background, the fatwas of the Indo Pak scholars must be considered in context. They deal with the second situation referred to above, where the landlord does not authorize the letting and use of his premises for a prohibited haraam activity.

On the contrary, as stated above, the act of the tenant is an independent one, not sanctioned by the lease contract, which breaks the chain of causation. As was stated by Allama Zafar Ahmed. Thanvi (ra) Imam Abu Hanifah (ra) only permitted a causative route to halal sources, that enabled an escape from haram conduct(and not vice versa) see ila al Sunan vol 14 p172.

Landlord Intends Lessee To Use Premises For Prohibited Purpose

1.       In order to understand the position of Imam Abu Hanifah (ra) on the issue of leasing of premises for a prohibited activity, two different situations must be clearly distinguished: The first situation is where the landlord expressly authorizes the letting for a prohibited activity, and accordingly intends that the premises will be so used for a prohibited purpose. For example, the lease explicitly stipulates that the tenant shall use the premises for the sale of liquor/wine, or a conventional bank or insurer. In this case, all the jurists and mazaahib across the board are unanimous that the lease is null and void at inception, with the result that the stipulated rental income is impermissible. The reason for this is that the subject matter of the lease is a direct prohibition or direct sinful transgression, and accordingly contrary to the express prohibition enshrined in the Quranic verse: “Do not co-operate with one another in sin and transgression”. “Al Maidah 5:2, see the authoritive juristic text, Mugni of Ibn Qudamah vol4 p306”.

2.       The second situation covers the case where the landlord leases the premises for a permissible activity as stated in the lease (eg. general dealer). The tenant however voluntarily, and without the consent of the landlord, uses the premises for a prohibited activity. Such conduct of the tenant is a new independent cause which breaks the chain of causation, and therefore cannot not be attributed to the landlord; bearing in mind that the intention of the landlord was not to let the premises for a prohibited activity, because only a permissible use is stipulated in the lease. It is only this situation, that gave rise to a difference of opinion in the Hanafi school between Imam Abu Hanifah, on the one hand, and Imam Abu Yusuf and Imam Muhammad, on the other. The latter still held that the lease was void, and the rental specified impermissible. (see the well known juristic text, Al Mabsut, Sarakhsi, vol 16).

3.       Against this background, the relevant fatwas of the Indo Pak scholars must be considered in proper context. They only deal with the second situation referred to in paragraph 2 above, where the landlord does not expressly authorize the letting and use of his premises for a prohibited haraam activity, and therefore does not intend to commit a prohibited act. On the contrary, as stated above, the act of the tenant is an independent one, not explicitly authorised by the lease contract, which in turn breaks the chain of causation. As was stated by Allama Zafar Ahmed. Thanvi (ra), Imam Abu Hanifah (ra) only permitted a contract that was a means to escape from haram conduct, (and not vice versa): see his well known work : ila al Sunan vol 14 p172.

4.       In short, therefore, any conventional lease which expressly specifies and stipulates that the tenant is entitled and authorized to use the premises leased, for a prohibited activity, such as a conventional bank, or conventional insurance, or sale of liquor, is null and void, with the result that the rental is impermissible, by consensus of jurists across the board in all schools. In this situation, the landlord and tenant by contractual arrangement collude and co-operate with each other, to use the premises for a prohibited purpose or actitivity.

5.       The aforegoing opinion is consistent with the standpoint of the contemporary Shariah   experts including the recognised international fiqh academies.

AND ALLAH KNOWS BEST!