3 key principles behind Shariah pensions that could help you to invest more responsibly

Shariah compliant pensions invest savings in accordance with Islamic principles on finance, making them suitable for anyone who wishes to invest their money in line with their faith. They could also be suitable for any savers looking to invest more responsibly, regardless of faith.

Whilst Shariah compliant pensions can seem complicated at first, they’re actually pretty straightforward. Here are three key principles of Islamic finance to help you understand more about Shariah compliant pensions and how they could work for you.

Ethical investing

Islamic finance prioritises ethical investment, which means that Shariah compliant pensions will restrict or exclude investment in certain industries, which are deemed to be unethical. These industries include:

• alcohol
• tobacco
• gambling
• weapons
• finance sector

Alongside these restrictions, some Shariah compliant pensions will allow for a small percentage of non-compliant income from large, Shariah compliant companies with many operations. PensionBee’s Shariah Plan allows for 5% of non-compliant income, which is donated to community charities, supporting positive social change and assuring investors of the fund’s commitment to ethical investing.

No interest

Islamic finance sees interest as unfair and something that can create inequalities. This is why a key principle of Islamic finance is the requirement that no interest is earned or paid, and you’ll see this reflected in Shariah compliant pensions as well. With a Shariah compliant pension, wealth is generated by profits made through trade and investment instead of interest.

Whilst this requirement may seem unconventional at first, some Shariah compliant financial products consistently outperform their expected profit rates, which means that Shariah compliant financial services may be able to balance more responsible investing and saving with a healthy return.

Transparency

Another core principle of Islamic finance is transparency in financial contracts and agreements. This means that contracts and documents must use simple language, with terms and conditions that are easy to understand. There also shouldn’t be any discrepancies within the contract that could result in later disputes.

Shariah compliant pensions offer transparency in their terms in order to encourage fairness and equality. Here at PensionBee, transparency is one of our core values so we always provide easy-to-understand information about our plans and how they work. We think transparency should be an industry standard so it makes sense to us that Shariah compliant pensions, which aim to be more responsible, are committed to transparency.

Find more info about our Shariah Plan, where you’ll also find a factsheet and a helpful video. Our Shariah Plan is managed by HSBC and State Street Global Advisors, following a Shariah compliant benchmark, and is appropriately diversified.

To learn more about Shariah investments, listen to episode 6 of our podcast, watch on YouTube or read the transcript.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.