Interest bearing retirement fund

Category: 

Business Dealings & Money Matters

According to Madhhab: 

Hanafi

Reference: 

1441-407

Question: 

I work for a company which pays a portion of my salary to a compulsory retirement fund. This retirement fund is not shariah compliant and there is haraam interest (about 0,42 % of the contributions) and doubtful investment returns (about 5,33% of the contributions) which accumulates into the fund. The fund also charges different fees and premiums on the retirement fund (about 13,32% of the contributions). Since the interest/returns are much less than the fees/premiums of the retirement fund, will it be permissible to consider that part of the premiums/fees were taken off from the interest/returns and thus the balance of the fund will be the actual contributions paid by the company less some of the fees. (See the following example related to totals paid/received at the end of an employment period)



Contributions from company: R100000

Interest: +R420

Investment Returns: +R5330

Premiums/Fees: -R13320

Balance of Investment: =R92430



In the above example, when one leaves the company (before the age of retirement) and is paid out the money from the retirement fund, what amount will be permissible for the employee to take from the balance of R92430 which is received. Will one have to subtract the interest and investment returns from this amount, or can one consider that it was already taken off by the premiums/fees that were charged.

Answer: 
In the case of the queried compulsory retirement fund, even though this money is labelled as interest money relative to your company’s deal with the insurance company, according to Shariah the definition of interest will not apply to you, since the contract of Riba (interest) is: “an agreement between two parties …” This definition of interest will only come into play if you were the contracting party qualified to receive the interest by way of contract between you and the retirement fund. In the enquired case, you have not voluntarily entered into a contract of interest with the retirement fund. It is only coming into play by virtue of your company entering into such a contract with the retirement fund. Therefore, you need not deduct the interest or any other amount and it will be permissible to utilize the entire amount (which is R92430 in the example given by you), since the definition of interest does not fit here; rather, the investment payout will be considered as a gift or bonus salary that is given upon retirement or resignation.i
AND ALLAH TA'AALA ALONE IN HIS INFINITE KNOWLEDGE KNOWS BEST
ANSWERED BY: Mohsin Khan 
CHECKED AND APPROVED BY: Mufti Muhammed Saeed Motara Saheb D.B. 
Islamic Date: ١٩ جمادى الاخري ١٤٤١ 
English Date: 14 February 2020


iجواهر الفقه ص ٢٥٨،٢٧٦ - ٢٨٤ ج ٣ ط: مكتبه دار العلوم كراتشي
احسن الفتاوى ص ٣٥ - ٥٠ ج ٧ ط: سعيد
كتاب النوازل ص ٥٢١ ج ١٢ ط: دار الاشاعت
فتاوى قاسميه ص ٤٠٠ - ٤١٠ ج ٢٠ ط: مكتبه اشرفيه
فتاوى دينيه ص ١٥٠ ج ٤

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