Is the Teachers’ Pension CARE Scheme Permissible?

pensions

Question:

Is the Teachers’ Pension CARE scheme permissible?

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

The Answer:

It is permissible to be a member of the CARE scheme offered to school teachers.

The Fiqh (jurisprudence of the answer):

Pensions pay-outs are deferred salary[1].  In a CARE scheme, the employee does not gain possession (Qabḍ) of the pension contributions during the contributory phase, instead, the pension contributions are deducted at source and invested by the employer.  The employer deducts a percentage without paying that percentage to the employee.  As a result, the employee holds a right and claim on the employer.  This right is a claim to the deferred salary owed to him for which the employer invests to pay the employee post-retirement.  The employee holds a claim because of the services he offered as an employee.  He is owed an accumulation of a percentage of his salary which was deducted at source and deferred for post-retirement.  It is this legal premise which distinguishes a pension scheme from an insurance contract in which you are entitled to a payment not due to your services but due to your premium.  The investments into a CARE scheme are not the employee’s because he does not have any involvement in the investment and nor does he bear any performance risk.  Instead, it is the employer who bears the risk.  The employee has a right to receive a pension but not the accumulated assets in the pension.  Even though the employee is guaranteed a sum because of the CARE scheme, the guarantee is there in lieu of his services he has already offered and not in lieu of his purchasing an annuity. His services are due compensation. Despite the exact sum of this deferred salary being unknown, such obliviousness and ignorance does not lead to any dispute.  Therefore, such ignorance will be deemed as jahālah yasīrah (minor ignorance) and is overlooked.

And Allah Ta’ālā Alone Knows Best

Mufti Faraz Adam al-Mahmudi,
www.darulfiqh.com

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[1] https://www.barnett-waddingham.co.uk/media/filer_public/0c/7e/0c7e5abd-1ab4-41e5-84da-9a539da97e17/making_sense_of_pensions_guide.pdf

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