Question
The company has an Islamic provident fund,
First scenario – If the provident fund is mandatory when the employee passes away does it form part of the estate or can it be distributed as per the beneficiaries listed on the beneficiary form irrespective of the percentages. Meaning the percentages do not coincide with the Islamic fixed shares- for example I joined an Islamic provident fund which was mandatory so I listed that 100% must go to my wife – can I person do that although there are others who would inherit from the deceased.
Second scenario – If the provident fund is voluntary, when the employee passes away does it form part of the estate or can it be distributed as per the beneficiaries listed on the beneficiary list.
Answer
1. A mandatory provident fund when paid out is considered as a gift from the company to the beneficiary/ies stipulated by the employee. The reason why it is considered as a gift is that in this scenario, the employee’s contribution is taken from source; i.e. from the employee’s monthly gross salary (without it first coming into his possession) and a further amount is contributed by the employer. This combined amount is invested with the Provident Fund Company which then generates returns. The total amount then paid out is regarded as a gift from the company and this gift will be given by the company to the beneficiary that is stipulated by the employee.
This payout will hence not form part of his estate but instead be a gift from the company to whomever is stipulated as the beneficiary. Consequently, it is not necessary that one’s Shari’ee heirs are stipulated as beneficiaries of the fund, nor is it necessary that the funds be distributed according to the Shari’ee law of succession. If an employee for example stipulated his wife as the sole beneficiary of the funds then she alone will be entitled to the said funds.
2. In the case of a voluntary pension or provident fund; the funds will form part of the deceased’s estate and will have to be distributed in accordance to the Shari’ee law of succession. The reason for this is that when it is a voluntary Provident Fund, the employee after receiving his salary (on his own prerogative), contributes/invests a certain amount in the Provident Fund Scheme. His monthly contributions plus the returns in this case, are not a gift from the company; rather they all then belong to him, thus forming part of his estate.
If he lists any of his heirs as beneficiaries after his death, this will not be in order as it is tantamount to making a bequest of part of his wealth in favour of his heirs, whereas such a bequest in not valid in Shari’ah. It will thus be the duty and responsibility of the executor to rectify the matter, by ensuring that the funds are distributed in accordance to the Shari’ee law of succession. This is obviously in a case where the voluntary Provident Fund is fully Shariah compliant.
In the case of the voluntary Provident Fund not being fully Shariah compliant, the total amount contributed in the form of monthly premiums will form part of the deceased’s estate. The remainder/returns on the funds (over and above one’s contributions) will have to be disposed of in charity to the poor without making an intention of reward.
Checked and Approved By:
Mufti Muhammed Saeed Motara Saheb D.B.