Legal & General (L&G) has announced the launch of a new Islamic investment proposition, designed to address a recognised need for Muslim members to have a wider choice of Shariah-compliant investment options.

The launch of the fund follows previous research from L&G, which found a "significant" disparity in pension saving amongst ethnic minorities, with a 54 per cent ethnicity pensions gap between minority ethnicities and white British defined contribution (DC) pension savers in the UK.

Given this backdrop, L&G said that it is looking to expand the range of investment opportunities open to members as one way of encouraging pension savings among communities which may otherwise choose not to do so as a way to fund their retirement.

In particular, the L&G Islamic Investment Proposition aims to address one significant barrier to saving for the UK’s Muslim population, who will be able to make use of the many benefits of pension saving and improve adequacy of income in later life.

The funds within the proposition will be managed by HSBC Asset Management (HSBC AM), which was selected account of the firm’s track record and experience in serving Islamic investors globally.

Shariah-compliant investing aims to grow investors' money while fulfilling the principles of the Islamic faith and adhering to Shariah law, meaning that the funds will only invest in companies that meet Shariah-compliance principles as interpreted or approved by the Shariah Committee.

In line with this, the funds will exclude shares of companies that generate more than 5 per cent of income or revenue from the business activities such as alcohol, tobacco, pork-related products, conventional financial services, weapons and defences, as well as certain entertainment.

The proposition also offers a selection of investment options that are designed satisfy different appetites for risk, including a lifestyle glidepath option, which aims to address the changing needs of savers as they approach and move into retirement.

The L&G Islamic Lifestyle Profile, which incorporates the ready-made and L&G designed investment glidepath, will invest in underlying funds, the L&G Islamic Growth Fund and the L&G Islamic Retirement Fund, bringing together a range of asset classes and risk profiles, with the asset allocation adjusted to prepare for retirement, depending on how far the member is from their selected retirement age.

The L&G Islamic Growth Fund is designed for members 10 years or more away from their selected retirement age, aiming to achieve capital growth over the long term.

Members nearing retirement in the next 10 years or less, meanwhile, will gradually transition to the L&G Islamic Retirement Fund, which aims to strike a balance between managing risk, while continuing to provide long-term capital growth.

Both funds will invest in a variety of asset classes including, but not limited to, equities and Sukuk instruments (Islamic bonds).

Alongside the L&G Islamic Lifestyle Profile, L&G is also providing access to three self-select Shariah-compliant investment funds for members who want to manage their pensions more actively.

Commenting on the launch, L&G head of DC investments governance and proposition, Jesal Mistry, said: “While the pensions market has begun to have the conversation around the ethnicity pensions gap, much more needs to be done.

"L&G has a strong track record of developing innovative solutions to improve the outcomes of our members and we’re pleased to build on our track record by bringing this Islamic Investment Proposition to market.

“HSBC AM’s Shariah-compliant investment expertise, combined with L&G’s scale and expertise in serving over 5.3 million DC members, will enable us to help address a critical gap in the UK pensions market and significantly broaden access to Shariah compliant DC solutions.”

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