By Dale Critchley, Workplace Policy Manager, Aviva
This is designed to coincide with a saver’s capacity for risk, to improve potential returns in the early years, and to help preserve wealth and align income solutions as retirement gets closer.
Default funds are tailored to suit the needs of each employer’s group of savers. But what happens when personal beliefs prevent investment in the default option?
More than 1 in 20 people in the UK are British Muslims. Islamic belief states that Muslim investors should share in profit and loss when they invest, they should receive no interest on the amount they save, and they should not make investments in any business that is prohibited by Islamic Shariah principles.
Up until recently, pensions schemes have made Shariah-compliant self-select funds available to savers, which has meant employees make the initial decision on where to invest and how to manage their investments as they approach retirement.
Generally, across the market, Muslim savers have been underserved in terms of default automatic de-risking arrangements.
Aviva recently announced plans to launch a Shariah Lifestyle Investment Strategy , in partnership with global fund manager HSBC. It utilises their range of Shariah-compliant funds, governance. and expertise.
All funds used within this default arrangement exclude investment in sectors such as tobacco and alcohol which are not permissible according to Shariah principles. These funds have been approved, and are reviewed each year, by an independent Shariah committee. The committee comprises experts in Islamic finance who issue an annual Shariah certificate, which is added to the funds’ annual report, providing reassurance to investors that their investments are halal.
Bonds play a significant role in any default investment strategy by helping to reduce risk for customers as they get closer to taking their savings at retirement. However, bonds as we know them are not Shariah-compliant and this has been an obstacle for providers of default solutions.
The introduction of Sukuk bonds, which are deemed acceptable in Islamic Finance has helped to change this. By investing across Shariah-compliant equities, Sukuk bonds, property, and commodities it’s possible to build a Shariah-compliant default solution that works in the same way as traditional defaults, but using building blocks that meet the requirements of Muslim investors.
The introduction of Shariah-compliant default funds aims to help remove investment barriers for Muslim savers to help achieve saving goals and prepare for retirement.
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