Lydia Seymour gives Opinion to the LGPS Scheme Advisory Board on Sharia-compliant alternatives to the LGPS

Lydia Seymour has been asked to write an Opinion for the LGPS Scheme Advisory Board on the issue of whether local authorities need to offer a sharia-compliant alternative to the Local Government Pension Scheme. 

A number of LGPS member authorities had observed that some employees were opting out of the LGPS on the basis of their religious belief, particularly people of the Muslim faith who were concerned that LGPS funds/investments were not Sharia-compliant.  At present there is no alternative pension provision from these employers other than the LGPS.

The board therefore commissioned a report and asked Lydia to advise on the risk of a successful claim for discrimination or human rights challenge from an employee complaining of a failure by an LGPS employer to provide a Sharia-compliant scheme.

The Opinion

Lydia’s advice is available at the link below, and includes the following points:

• the issue of whether the LGPS is compliant with sharia law “is not a simple one, and this issue is subject to differing views among Islamic scholars”.  The Islamic Finance Guru website had concluded the LGPS is Sharia compliant, but the issue is complex and the LGA was therefore recommended to seek the opinion of an Islamic scholar on the LGPS’s compliance with Sharia law, the potential alternatives available and the extent to which they would expect consensus among Muslim employees on the question of the Sharia-compliance of the LGPS or any alternative;
• in terms of potential legal claims, the most obvious potential claim would be one alleging indirect discrimination on the grounds of religion or belief in relation to the terms upon which employment is offered.  A Human Rights Act challenge could also raise what is known as a Thlimmenos claim;
• employers concerned by this issue should take pre-emptive action, such as identifying the potential extent of the issue in their individual workforce and the likely impact of offering (or failing to offer) an alternative scheme;
• any decision to offer an alternative scheme to the LGPS would need to be within the powers of the relevant employer, and comply with their legal obligations in relation to pensions;
• offering alternative schemes could in itself give rise to discrimination allegations.  “If an LGPS authority chooses to offer an alternative pension scheme to Muslim employees who opt out of the scheme for religious reasons then that scheme would also need to be offered to all employees… Any restriction of the offer would be direct discrimination on the grounds of religious belief.”
• other groups that share a religious or philosophical belief might also seek an alternative scheme – one potential example is that “in the context of private trust schemes it is becoming more and more common for members to seek to restrict their own investments to ethical, or ‘green’ schemes”.

The Board’s report explained: “At a high level, her advice is that at present it is arguable whether employers have the legal power to offer an alternative to the LGPS. If that were to be clarified as permissible, offering alternative pension provision could most likely not be limited just to Muslim employees who opt out of the LGPS by reason of their religious beliefs.” Lydia had advised that any alternative provision (which would probably be a [defined contribution] scheme offering inferior benefits to the LGPS) would need to be offered to all employees.

It said there would be “obvious implications for employers and administering authorities of offering and administering more than one scheme”, as well as the possibility of employees opting out of the LGPS other than for religious reasons, for example to join a cheaper scheme but with lesser benefits.

It is believed that neither the LGPS nor any other defined benefits scheme has so far faced a such claim.

Bob Holloway, pensions secretary to the LGPS advisory board, told LGC the board agreed the secretariat should “seek further expert advice on those elements of the counsel’s advice that, in the board’s view, require further clarification”.

The full Advice – Sharia Compliant Investments in the Local Government Pension Scheme in England & Wales – is available here: https://lgpsboard.org/images/PDF/BoardMar2022/Sharia07032022.pdf

More information

Lydia Seymour has a specialist pensions and employment law practice. She has been recognised by the legal directories as a leading junior since 2005 and is listed for employment, pensions and professional negligence. She has substantial experience of statutory schemes and advises regularly on issues relating to the Local Government Pension Scheme, the Teachers’ Pension Scheme, University Superannuation Scheme and the NHS Pension Scheme.

To find out more, contact Sam Carter on +44 (0)203 989 6669 or Colin Bunyan on +44 (0)20 7427 4886 for a confidential discussion.

Legal Blogs 3 May, 2022