Zakat on Retirement and Pension Plans
24 Pages Posted: 28 May 2014 Last revised: 3 Oct 2014
Date Written: October 2, 2014
This paper compares and contrasts alternative pension plans in the market place and their status as zakatable wealth or property. These plans differ in terms of who is responsible for providing funds for pension benefit to the retirees upon retirement and who is responsible for bearing investment risk. Whether a pension plan is subject to zakat immediately or upon receipt at retirement depends on immediate accessibility to and ownership of the funds in the account. It makes no difference whether employer and/or the employee is (are) responsible for funding the plan and who bears the investment risk. There is consensus among Muslim jurists and shariah scholars that mandatory plans offered as a part of compensation and benefit package for a job are subject to zakat when money is received upon retirement and non-mandatory plans offered as replacement for or supplement to employer-sponsored plans with voluntary employee participation are subject to zakat in each year of employment.
Keywords: Islamic finance, Islamic economics, Islamic wealth management, pension, defined-benefit, defined-contribution, Social Security, and zakat
JEL Classification: Z00
Suggested Citation: Suggested Citation