Zakat on retirement and pension plans
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 17 August 2015
Abstract
Purpose
This paper aims to compare and contrast 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.
Design/methodology/approach
Descriptive and analytical methods were used.
Findings
There is consensus among Muslim jurists and shariah scholars that mandatory retirement 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.
Originality/value
There is no prior research work in the extant literature examining zakatability of alternative retirement plans offered in the US marketplace. This paper fills this void and provides a comprehensive survey and analysis of all available retirement plans and their treatment with respect to zakat.
Keywords
Citation
Rahman, S. (2015), "Zakat on retirement and pension plans", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 8 No. 3, pp. 274-290. https://doi.org/10.1108/IMEFM-09-2014-0089
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited