Islamic pensions gaining more acceptance
SYDNEY/KUALA LUMPUR: Islamic pensions are making inroads in several majority-Muslim countries, and their success may help the growth of asset management industries across much of Asia and the Middle East.
Most pension plans around the world are state-funded. But many countries are trying to develop private pension sectors as a way to deepen their financial markets, and the experience of Pakistan, Turkey and Malaysia suggests Islamic finance can become a significant part of this effort.
If state-owned pensions in major Islamic markets shifted a portion of their money into syariah-compliant schemes, that could add between US$160 billion (RM526 billion) and US$190 billion to the sector, according to consultants Ernst & Young (E&Y).
"So you've got a pent-up demand - your challenge is how to create a supply-side mechanism to cater to that latent demand," said Ashar Nazim, Islamic financial services leader at E&Y.
Pakistan launched such a mechanism in 2005, creating a voluntary pension system (VPS) which holds 3.4 billion rupees of Islamic assets, or 61 per cent of all VPS assets.
While modest in absolute terms, Islamic pension assets account for a much larger proportion of the VPS sector than Islamic bank deposits' 10 per cent share of all Pakistani bank deposits.
Islamic fund managers see potential, however, in countries such as Turkey, where a 2001 private pension law has been energised by government reforms introduced this year. The number of contributors to private pensions has reached 3.8 million, up from 3.1 million in December, after the Turkish state began making a 25 per cent contribution to private pension premium payments and fund management charges were cut.
Malaysia is the most recent entrant to the private pension business, last year launching a Private Retirement Scheme (PRS) which now has 13 Islamic funds out of 36. Authorities are considering additional incentives for the industry.
The PRS now has 30,500 account holders with total net assets - both conventional and Islamic - of RM97.5 million said. Reuters