Sharia Pension Funds Swell Amid Returns Boost

The demand for Sharia-compliant pension funds has surged in recent years, driven by strong returns and a growing Muslim population seeking retirement savings options that align with their religious beliefs. These funds, which adhere to Islamic finance principles, have outperformed their conventional rivals, attracting both Muslim and non-Muslim investors.

Sharia pension funds, also known as halal pensions, invest in a way that complies with Islamic finance principles. They avoid 'in' stocks, such as companies involved in gambling, pornography, tobacco, and alcohol, and exclude assets that bear interest, such as bonds. Additionally, they do not invest in assets with excessive risk or uncertainty, such as certain types of derivatives.

One of the main reasons for the recent surge in popularity of Sharia pension funds is their strong performance. For instance, Nest's Sharia fund delivered returns of 117% in the past five years, compared to 40% from its 2040 Retirement Plan fund. This outperformance can be attributed to the fact that Sharia funds remain completely invested in stocks throughout the saver's career, allowing them to benefit from the strong performance of the stock market over the past decade.

Another factor contributing to the growth of Sharia pension funds is the increasing Muslim population in the UK and globally. As the Muslim population grows, so does the demand for financial products that align with Islamic principles. This trend is reflected in the growing number of workplace pension providers offering Sharia pension funds, such as Nest, The People's Pension, and Scottish Widows.

Sharia pension funds also invest in a wide range of sectors, including technology and healthcare, which have performed well in recent years. For example, Nest's Sharia fund has top 10 holdings in technology companies like Microsoft, Apple, Amazon, and Nvidia. This diversification allows Sharia funds to benefit from the strong performance of various sectors.

In conclusion, the surge in popularity of Sharia pension funds can be attributed to their strong performance, the growing Muslim population, and the availability of Sharia-compliant investment options. As these funds continue to outperform their conventional rivals and attract both Muslim and non-Muslim investors, they are likely to remain an attractive option for those seeking retirement savings that align with their values and beliefs.