Exploring a Shari'ah-Compliant Model for Retirement Annuity Plans

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Islamic insurance, hereafter referred to as takāful, is established on the concept of mutual assistance (taʿāwun), mutual security (taḍāmun) and mutual protection and assurance between participating members who undertake to mutually guarantee and indemnify one another in case of a particular defined event. This concept has been widely used to structure various takāful products, ranging from general to family takāful, with features that reproduce most of the features of conventional insurance. Nevertheless, the fact remains that not all conventional product features can be easily adopted and offered by takāful operators (TOs). This is evident in the absence, so far, of a Sharīʿah-compliant model for retirement annuity plans with defined benefit features in the takāful industry.

The present study proposes that takāful operators adopt a hibah muʿallaqah (conditional gift) contract structured together with a wakālah (agency) contract in order to offer a Sharīʿah-compliant retirement annuity plan. At the outset, the participants agree to enter into a wakālah contract with a TO whereby the participants appoint the TO as an agent (wakīl) to manage the plan and invest the funds. Immediately, the participants agree to enter into hibah muʿallaqah whereby they will donate the accumulated contributions and their profits into a tabarruʿ fund. Upon reaching the age of retirement, or some other specified age, the participants shall be entitled, by their mutual agreement, to an income stream in the form of a series of regular payments.

The study identifies several potential Sharīʿah issues entangling the proposed model, mainly the issue of hibat al-thawāb (gift with expected compensation), the issue of gharar (uncertainty), features of maysir (gambling), and the issue of a defined unfortunate event. These issues have, however, been dealt with in the paper.

The issue of hibat al-thawāb arises since the participants who donate their funds stipulate a condition to enjoy a benefit from their donation in the form of periodic payouts during their lifetime. In this regard, the overwhelming majority of jurists are of the view that hibat al-thawāb is no longer considered to have the ruling of hibah (gift); rather, its characteristics resemble those of a muʿāwaḍah (exchange) contract; in this case, a sale contract. However, a narration from Imām Aḥmad ibn Ḥanbal and one view from the Shāfiʿī School held the opinion that hibat al-thawāb remains as hibah with all its ruling and Sharīʿah implications; it does not change in any way the status of hibah to an exchange contract.


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