Zakaat on reinvesting a pension fund

Nasihah (Advice): Refrain to your level best from seeking financial assistance

Sayyiduna Ibn Umar Radhiyallahu Anhu reported that Rasulullah Sallallahu Alayhi Wasallam said:“The upper hand is better than the lower hand. The upper hand is that of the giver and the lower hand is that of the beggar.” (Musnad Ahmad)

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Question and Answer:

Q. Your previous email on compulsory pension funds has been helpful. I now have a follow-up question to it. In my case, it was compulsory for me to have a pension fund with my company. However, I transferred from my first company to my second company and I was given an option by my first company to either take possession of the full amount after deducting tax or to transfer my pension fund to a preservation fund. In this scenario, which portion is Zakaatable and which portion forms part of my estate?

A. In the enquired situation, as you were given the option to access the entire amount of your compulsory pension fund and chose instead to transfer it to a preservation fund, Zakaat will be applicable on the total encashment value of the current fund, i.e. the maximum amount you can receive in cash from the fund through any means possible including termination of the fund.

In regards to your estate, the entire fund will form part of your estate and will be distributed to your heirs according to the Islamic Law of succession and inheritance.

And Allah Ta’ala Knows Best