What is the ruling on compulsory workplace pensions, and on employees being enrolled automatically (auto-enrolment) in the pension schemes of UK companies?
The situation
Under this system, employers must automatically enrol eligible employees in a pension savings scheme. A percentage is deducted from the salary, the employer adds a contribution, and the government adds tax relief. In practice:
- Most companies deduct 5% of the eligible employee's salary.
- The employer adds 3% or more, depending on the company.
- The government adds tax relief.
The Sharia issue with default funds
On auto-enrolment, the employee's money is placed by default in a general investment fund that includes:
- Interest-bearing government and corporate bonds with fixed interest.
- Shares in companies engaged in prohibited activities (interest-based banks, alcohol, gambling, tobacco, weapons, prohibited entertainment).
- Companies with very high levels of interest-based debt and borrowing.
The ruling
Joining is permissible, and indeed recommended. Benefiting from the pension scheme and the employer's contribution is, in principle, permissible and legitimate, as it protects the employee's money and secures their future.
However, the default fund must be changed. It is not permissible for a Muslim to leave their money in a default fund that invests in interest or prohibited activities, as explained above. The employee should log in to their account and choose an Islamic (Sharia-compliant) fund, which most major providers offer on request, by contacting the Human Resources (HR) department.
If no Islamic option is available
If this is not possible, we turn to alternatives, including changing employer where possible and where this causes no harm.
If that would cause hardship, the employee may continue with the employer and remain in the fund to benefit from the employer's contribution, observing the following:
- Try to choose lower-risk funds invested in general equities rather than outright bonds, and avoid funds that invest in prohibited activities such as alcohol and gambling.
- Purify the returns, annually or at retirement, by giving away to charity the portion of returns that came from interest and prohibited activities.
And Allah knows best.
Director, The Bridge of Wisdom Limited (Sharia Consultancy)DM-2026-001 · 2 October 2026
About the mufti
- Holds ijazahs (formal licences) to issue fatwas and in comparative fiqh (Islamic jurisprudence).
- Postgraduate studies in Usul al-Fiqh (principles of Islamic jurisprudence).
- Member of the Sharia Committee of the Halal Food Council of Europe (HFCE).
- Adviser and mufti to a number of institutions across the Muslim world.
- Scholarly reviewer and editor (muhaqqiq) of books for a number of publishing houses.
- Imam, khatib and lecturer, formerly in Egypt, Malaysia and Indonesia, and currently in the United Kingdom.