Is it permissible to have one’s funds placed in an annuity and receive monthly payments?

Question:

I have worked in a company for around 10 years. At that time the firm’s policy was that all employees were mandated to join the pension plan. As such I contributed monthly to the plan.

The Plan Administrator has since advised that the only avenue to receive the funds is via an annuity. Is it permissible to have the funds placed in an annuity?

Answer:

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

From an Islamic perspective, the problem with placing the funds in an annuity is that a person has no knowledge of where their monies may be invested to bring a return, and such investments may very well be unlawful for a Muslim, e.g. alcohol, gambling, non-Halal etc.

Furthermore, one is given a fixed return for an uncertain duration of time (as long as one lives), which is in reality interest and hence explicitly unlawful in Islam. Therefore, placing one’s money in an annuity plan would not be permissible for these reasons.

The Holy Quran explicitly warns against the use of interest,

“O those who believe, fear Allah and give up what still remains of the interest if you are believers. But if you do not then listen to the declaration of war from Allah and His Messenger”. (AlBaqarah, verse 278,279)

The Prophet ) has severely disliked the one who consumes, deals, records and bears witness for interest-based transactions”. (Muslim1598)

In view of the above, one must avoid a payout via an annuity.  In the case where one was obligated to receive the savings via an annuity, it will be permissible for you to claim your capital sum of your total contributions over the previous years..

And Allah Ta’āla Knows Best

Mufti Arshad Ali

Darul Iftaa, Jaamia Madinatul Uloom (Trinidad)

www.fatwa-tt.com /www.jaamia.net