This scheme, which many in the pensions industry predict will set the benchmark, has a Shariah option. But what about other DC schemes? Many contract-based schemes do include a Shariah investment option, but is it actively promoted? And for the majority of trust-based DC schemes its inclusion is likely to be an oversight.
Yet as the UK population and our workforce become more diverse, it is becoming increasingly important to recognise the different needs of scheme members.
So what’s so different about Islamic investing?
Islamic finance is a unique form of investment that can be compared with the values of socially responsible investing and derives its principles from Shariah (Islamic law).
The most distinctive element of Islamic finance is the prohibition of interest of any type, meaning that conventional interest-based lending and bonds are ruled out.
Investing in stocks and equity funds is permitted as long as it conforms to certain guidelines. The good news for trustees is that many major financial companies are now offering Shariah-compliant investment funds as part of their range.
The most common types are equity funds, real estate funds and money market funds. The fund managers act on the advice of a board of respected Islamic scholars to ensure that the funds are fully Shariah-compliant.
Trustees therefore do not need any particular knowledge or expertise to include these funds as an investment option. Shariah-compliant equity funds operate in a similar way to other socially responsible funds, in that they screen investments, in this case to exclude any company whose main activity is banned by Islamic law.
The prohibited sectors are financial services (including most banks), alcohol, pork, gambling, tobacco, media and pornography.