Retirement

Islamic Savers Demand Shari’a Compliant Pensions

Billions of dollars are on the backburner in sovereign pension funds while the Islamic world awaits Shari’a compliant schemes, claims new research.

Up to $190 billion could be deposited in Islamic pensions if the right products were available to the market, says the report from the Global Islamic Banking Centre at Ernst & Young.

Demand is increasing from emerging and rapidly growing markets like Malaysia, Saudi Arabia and the United Arab Emirates (UAE).

Retirement savers want Shari’a compliant products so they can move their money away from more conventional investments, explained Ashar Nazim, of Ernst & Young.

“There’s certainly enough money out there for pension companies to consider opening Shari’a compliant investment funds,” he said.

Mature market

“With the maturity of the sukuk market and Shari’a compliant equity indices, as well as technology available to screen conventional indices to carve-out Islamic sub-indices, there are sufficient assets to take the first steps.”

The study suggests that rather than starting from the ground up, existing pension funds could be adapted to shelter Sharia’a compliant holdings.

“This may not be easy, but it’s better than starting from nothing,” he said. “Fund asset valuations will have to take place which could complicate financial and legal factors involved in opening the market for Islamic pensions,” he said.

However, the research had identified a clear clarion call from Islamic savers for the tools to manage their own finances in a way that was completely Sharia’a compliant.

The report also revealed that this is a comparative recent call for action in the Islamic world as the concept of wealth management and retirement saving that is well established in other regions is only just catching on.

Global leadership

Nevertheless, the market had enough pent-up demand to make the shift to Islamic pensions and wealth management feasible.

“Financial institutions need to look for new products and markets to maintain growth, and this is one they have not considered before,” he said. “We believe enough people with enough money want Shari’a compliant retirement schemes to make a case for banks and funds to diversify.

“This opens a whole new market for many Islamic banks which need a new way to make profits.”

The report also points out that as Islamic pensions are a new market, those who take the first steps are likely to become the big winners as they have little or no competition.

“Strong regulation is crucial and the nations that move first will take global leadership in Islamic finance,” he said.

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