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Zakaat On A Pension Fund

Question

Somebody retired from teaching at a government school. He received his pension payout in this way that they paid him one third of it, and the balance , he receives in monthly installments.  How must he calculate his Zakaat.  Is there Zakaat on the previous years?

Answer

We assume that the pension fund in question was a compulsory pension fund enforced by the employer, where a portion of the contribution (towards the fund) was deducted from the employee’s salary and a portion of the subscription was paid by the employer. A pension payout of such a nature is considered as a gift from the side of the government, and in the case of a gift one cannot be considered as the owner (of the gift) before assuming ownership.

Therefore, Zakaat is not payable on the pension fund until the recipient or beneficiary of the fund receives the funds in his possession. This in essence means that there is no Zakaat payable on previous years. Now, if the recipient of the pension fund payout had maintained the Nisaab in the past and therefore discharges his Zakaat on a stipulated date, then on that particular date he will be required to pay Zakaat on the 1/3 payout that he has received (together with his current funds,) if the total payout funds are available on the stipulated date. If he had used part of the pension payout, then Zakaat will be payable on the remainder (of the pension payout) together with his other funds on the stipulated date. However, if he had already used the pension payout funds in full before the stipulated Zakaat date then Zakaat will not be payable on the pension payout funds at all. 

Now coming to the remaining funds (which is the remaining 2/3) that hasn’t yet been received by the subscriber as yet but will be paid out to him on a month to month basis as understood from your query; the entire payout amount (which is the remaining 2/3) is not Zakaatable as yet as he hasn’t yet taken possession of the funds. However, if the monthly payouts received have accumulated and is available when discharging his yearly Zakaat, then he will have pay Zakaat on these accumulated funds together with his other available funds and savings, but if the said funds have been used before the stipulated Zakaat date, then these funds will be exempted from Zakaat.

N.B. Our ruling is based purely on the information provided by you in the query. If the details are any different to what has been described to us in the query the ruling could vary.

Checked and Approved By:

Mufti Muhammed Saeed Motara Saheb D.B.

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