National Pension System (NPS) in India is a government-sponsored pension scheme for citizens of India. The scheme was launched in January 2004 with the objective of providing a regular income stream to citizens during their old age. The NPS is managed by the Pension Fund Regulatory and Development Authority (PFRDA) and offers citizens an opportunity to invest their savings into a retirement corpus.
Eligibility:
Any Indian citizen between the ages of 18 and 60 years can enroll in the NPS. The scheme is open to all sections of society, including salaried employees, self-employed individuals, and non-resident Indians.
Investment Options:
NPS offers two types of investment options:
Active Choice: This option allows investors to choose their own investment mix of equity, corporate bonds, and government securities.
Auto Choice: This option is based on the investor's age and investment preferences, and automatically allocates funds to equity, corporate bonds, and government securities.
Shariah Compliance :
The National Pension System (NPS) is a government-sponsored retirement savings scheme that provides citizens with an opportunity to save for their future.
The scheme offers its investors the choice of investment in different asset classes based on the age bracket like equity, bonds, government security and alternate investment funds.
The scheme is compulsory for certain categories of employees in the government sector , while for others it is optional.
Please note that this is not a fatwa by a qualified mufti , but an Islamic finance practioner's opinion based on the facts of the matter.
Kindly refer to your local mufti for a formal fatwa, based on the facts as presented below:
1. The options provided in the scheme are all riba based instruments, like Corporate Bonds, Government Securities and even equities option wherein the major fund allocation is in the stocks of banks. Therefore, it can be concluded that the major element of income even in the high equity option will be primarily consisting of investing in riba based banks. Also, the other companies in which the equity investments are done the sharia compliant of those companies as well needs to be checked.
In light of these, the income generated from such an income will not be sharia compliant .
2. With respect to the employees for whom NPS is compulsory the following facts to be considered.
The contribution by employee and the employer will be considered halal as it is the employee’s own money and also the money provided by the employer towards the retirement fund. However , the income generated from this money is from non shariah compliant sources as such the same will not be considered halal and the same is to be excluded from one's income and treated the same way as interest based income.
To explain with an example if the total contribution by employer and employee is Rs 10,00,000 and at the end the funds grows to Rs 12,00,000. The additional amount of Rs 2,00,000 which is due to investment in NPS will not be considered halal. However, the original investment of Rs 10,00,000 will be considered halal as it is your own money.
Hope it is clear.
May Allah guide us on the right path and help us make the right choice and forgive our misgivings.
