Question:
Is Zakah due on funds held in a Defined Contribution Pension Plan (DCPP) if the money is locked within the account and the account holder cannot withdraw the money before retirement?
Answer:
A Defined Contribution Pension Plan (DCPP) is a retirement savings plan wherein contributions are made by the employer and/or employee, however the contributed funds are locked and cannot be accessed until retirement. If such is the case, let us continue:
Based on the principles of Zakah, the following are improtant:
1) Ownership and Accessibility: Zakah is only obligatory on assets that an individual fully owns and can freely access. If one has money in an account and only has access to 80% of it, then zakah will only be on that 80% the individual has access to. One will only give zakah on what they have free access to.
In the case of a DCPP account, the account holder owns the funds but cannot withdraw the funds until a specific retirement age. Thus, due to the owner not being an owner in the traditional sense of ownership of having free access, due to this limitation, they do not become eligible to give zakah on monies in the DCPP account. Likewise, wealth that is inaccessible due to restrictions beyond one’s control, such as unpaid wages, frozen assets, inheritance that is not released to its rightful owners, etc. will not have zakah due on it. (However, if this not the case for the inquirer, than they will only give zakah on the amount they have access to.)
Ruling on Inaccessible Wealth: Since the funds are inaccessible before retirement, they are not subject to Zakah annually.
Zakah Upon Withdrawal: Once the individual reaches retirement age and can access the funds, Zakah becomes obligatory only on the amount in their possession if it meets the nisab (the minimum Zakah threshold).
If the individual withdraws a lump sum, they must pay Zakah on the entire amount if it remains in their possession for a lunar year. If they receive monthly pension payments, Zakah is due only on the remaining amount at the end of the Zakah year.
May Allah (SWT) bless you for wanting to do the right thing.
Allah Certainly Knows Best.