Zakat and Pensions
Navigating the rules and guidelines on paying Zakat (zakaat, zakah) can be tricky. Fortunately, Islamic Relief is a one-stop for all things Zakat, including whether you have to pay Zakat on pensions.
Simply, Zakat is only payable on certain types of pensions that fall into the following categories:
- Defined contribution schemes. This includes:
- Personal Pension Plans or Group Personal Pension
- Additional Voluntary Contribution (AVC)
- Self-Invested Personal Pension (SIPPs)
- Stakeholder Pensions/ Group Stakeholder Pensions
These are Zakat-able during employment whilst contributing.
Muslims do not have to pay Zakat on pensions that fall into the following categories:
- Defined benefit schemes. This includes final salary and CARE schemes.
- State pensions.
These are non-Zakat-able whilst employed despite any pension deductions from your salary.
It’s really important to check with your pension provider which category you fit into if you’re not yet aware, and then factor your pension assets into your total personal wealth and holdings so that you can make an accurate assessment when calculating your Zakat.
When do I have to pay the Zakat on my pension?
For those who are eligible to pay Zakat on their pension, the following applies:
As some pension funds are only released when you retire, it may not be possible to distribute it alongside your Zakat calculation for each year that you pay/are eligible. Therefore, it is permissible to wait until you acquire your pension funds, however far in advance that may be.Then, simply deduct the Zakatable amount from the total. However, it is imperative that you carefully and strictly log the Zakatable amount on your pension each year that you have been eligible for so that by the time you are able to deduct, you are doing so accurately.
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