Pension Scheme Query


Assalam Aleikum

All praise be Allah, and may His blessings fall upon Rasulullah Muhammad peace be upon him.

I have been working for a period of ten years, and from my monthly salary, a compulsory 10% is deducted for a retirement benefit scheme. I know intend to leave my current employer for employment elsewhere, and such, I am entitled to my retirement money. Now, as part of the land’s law on the schemes (Kenyan law), the money acquires interest and is also subjected to a government tax of approximately 30%. from this i have to questions:

1. Can the tax and interest cancel out e.g. assuming money accrued is 100,000, and interest given is 30,000, and expected tax is 30,000… can the two 30,000 cancel out and I remain with my 100,000

2. Can additional interest accrued be given out to one’s relative for them to start a business?

(Question Published as received)


In the name of Allāh, the Most Gracious, the Most Merciful

As-salāmu ‘alaykum wa-raḥmatullāhi wa-barakātuh

In mandatory government pension schemes employers are obligated to submit a pension pay-out for every employee from their monthly pay check. This pay-out is deducted before it could even come in the employee’s possession. In effect, it is as though the employer still owes the employee a portion of his wages, and invests in a pension scheme from his side.

If the structure of your pension scheme is as outlined above, then although the extra return upon your unpaid wages (which were deducted as pension pay-outs) will be interest between the Govt. and the employer, it will be classified as a hibah (gift) towards you.

In light of above,

1. You may reconcile and pay the tax amount accruing towards the Govt. from the pay-out of the scheme.

2. Since the additional income/return from the scheme is hibah towards you, you may use it as you please. You may give it to family members to start a business as well.

And Allah Ta‘ālā knows best

Mufti Faisal al-Mahmudi