Payout of the pension fund

26 Feb 2018 Ref-No#: 292

Assalamu alaykum,

A) If a person had a Compulsory Pension Fund, and he made a bequest that if he passes away before the money can be released, the funds should be given to his ailing mom. Now that he passed away before that, and the Pension Fund made the payout, will the mother be entitled to the entire amount? If not, how will this money be distributed in the estate?

B) Can the Pension make out the payment to specified heirs (eg, father, son etc) and designate the percentage they are entitled to?

C) If the son is still under age (below 18) and the fund mentioned they will pay him out when he reaches 18 and more interest will accrue to the amount, will it be permissible for the son to take ownership of it then?


Wa’alaykum as Salam wa rahmatullahi wa barakatuhu,

The money that is received from the pension fund is a gift to the person who contributed to it (i.e. the deceased). Thus, if it matures during the contributor’s life, he becomes the owner of that funds at the time when it is given to him. However, if he passes away before it can be given to him, he will not become the owner. It will still remain the property of his company, although he was the one entitled to it because it is a gift to him due to his contributions. Merely designating his mom on paper as a beneficiary does not make him the owner of the pension fund and neither does it compel the fund to make the payment to that specific person.

Therefore fundamentally, it is not necessary for the company to make the pay out to the estate or to any other designated beneficiary by the deceased. Rather, the company is at sole liberty to make the pay out to whom ever they wish. Thus, if the company makes out a cheque directly to certain heirs, such as his father and son, they will receive the money and the remaining heirs will not be entitled to anything therefrom (because the deceased did not become the owner of it in his lifetime). It was still the property of the company. Therefore, they may give it to whom they want. (It should be remembered that no one should influence the company in giving it to certain heirs and excluding others). (See Fataawa Mahmoodiyah vol.14 pg.463; also “Contemporary Fataawa, by Mufti Taqi Uthmaani, under the section of “Economics”).

Thus, if the pension fund did indeed give it to his mom, she will be come the owner. And if the company gave it to anyone else, the mother will not be deserving of any amount.

(b) As the pension fund are not subject to the rules of inheritance it will be permissible for the fund to make a pay-out to any heir, and further, the pension company can decide the amount that each one will acquire. Hence, it will be permissible for the company to pay (for example) the father 20%of the amount and the remaining 80% to the son.

(c) When the son reaches 18 years of age, and the company makes the payout, it will be permissible for the son to accept the total payout. It should be remembered that irrespective of what the company terms as the surplus (interest), or where the company makes the investment, we will not term it as interest, but as a mere gift and a goodwill gesture.