Awareness of Sharia-compliant pension options should be increased, says IFS
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More should be done to raise awareness of Sharia-compliant retirement savings schemes among Muslim employees, according to the Institute for Fiscal Studies (IFS), which highlighted pension opt-out gaps among workers from different ethnic backgrounds. The IFS urged policymakers and businesses to look at ways to simplify the process of switching to Sharia-compliant investment strategies.
Automatic enrolment has substantially increased the share of employees saving in a workplace pension, the research institute said. But it added that, while under 10% of white employees who are eligible for automatic enrolment are not saving in a workplace pension, this rises to 16% for those of Pakistani ethnic origin and 24% for those of Bangladeshi ethnic origin.
It said that, compared with white employees with similar individual and job characteristics and working for the same employer, employees from Pakistani and Bangladeshi backgrounds are still more likely to opt out of workplace pension saving. The Government, employers and the pensions industry should ... look for effective ways to increase awareness of Sharia-compliant pension saving among Muslim employees and to make it easier for them to switch to Sharia-compliant investment strategies.
Higher opt-out rates for Pakistani and Bangladeshi employees exist in both the public and private sectors, researchers said. In the private sector, employees are often enrolled into defined contribution (DC) pension schemes, where the default asset allocations may not be in line with religious teachings – for example, teachings which prohibit receiving income from interest or investing in industries such as alcohol or tobacco.
