Lump Sum Payments in Terms of Compulsory Pension and Provident Funds

Zakat is payable on lump sum payments received by an employee upon retirement, or by his dependent, if the money is held by such recipient for a period of one year as from the date of receipt thereof/ No Zakat is payable for preceding years. Take the following example: An employee under a compulsory pension fund receives a lump sum payment of $100,000 upon retirement on 1st January 2005. His Zakat year ends on 1st January 2006. If the lump sum has not been spent at the end of Ins Zakat year, he will pay Zakat thereon, namely 2.5% of $100,000 = $2,500. On the other hand, if he had used the money to buy a house before the end of his Zakat year on 1st January 2006, no Zakat will be payable thereon. The aforegoing applies to compulsory pension and provident funds in the sense that the employee is obliged as a term of his employment to become a member of such fund and make prescribed contributions.

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