IBB to launch sharia-compliant option for auto-enrolment

The bank has teamed up with a number of companies to provide the new discretionary portfolio service in the form of a self-invested personal pension, which will run alongside its existing corporate scheme.

There has been growing awareness among employers of the importance of catering for members who share common beliefs, highlighted by the Baptist Union’s decision to launch two ethical lifestyling strategies for its staff last year.

Sultan Choudhury, managing director at the IBB, said: “We have carried out a survey, and about 50 per cent of [employees] said they would be very keen, if they had to put money in a pension, on putting it in a sharia-compliant option.”

Of the bank’s 117 employees, around 66 per cent are not members of its defined contribution scheme. After conducting research, the bank concluded this was due to the lack of sharia options available as well as its large proportion of young workers, with 35 per cent aged under 30.

Choudhury said the bank’s experience was typical of an organisation with a large number of Muslim employees. But he said he was hopeful that by widening choice, more staff would be encouraged to join up.

The company’s current DC scheme has one sharia-compliant fund within it, but the bank felt this did not offer enough flexibility. It also wanted to have something in place ahead of its 2014 auto-enrolment staging date.

Laith Khalaf, pension investment manager at Hargreaves Lansdown, said it was a good idea to make the option available for staff, but added there could be challenges.

He said: “The problem with any kind of option like this is getting enough money to make it sustainable. If they get sufficient assets in there to make it sustainable that is great, but it is never going to be a really big fund.”

The National Employment Savings Trust (Nest) offers its members a sharia-compliant fund. According to the trust, current take-up represents just 1 per cent of its assets under management.

Mark Fawcett, chief investment officer at Nest, said: "We expect that to change over time, as millions more workers are enrolled into the scheme over the next few years."

After launching it with its own workforce, the IBB service is being made available to other employers as an alternative to a group personal pension and other auto-enrolment options.

The product works by providing access to a series of investment portfolios which are held within a Sipp. These portfolios will be administered by fund administrator SMARTfund, while the Sipp will be administered by Pointon York.