More ‘thoughtfully’ created Shariah-compliant funds could help solve the ethnic pension gap, Franklin Templeton chief investment officer global Sukuk, Mohieddine Kronfol, has suggested.

Speaking at the Pensions UK Investment Conference, Kronfol noted that Islamic offerings are sometimes “less thoughtful” compared to “conventional offerings”.

“Our experience in other parts of the world, which is perhaps a bit similar in the UK, is that the Shariah-compliant version doesn’t compete as well as the conventional offerings,” Kronfol said.

“Obviously, the conventional offerings are much broader and have been around for a long time but often you have something very thoughtful that goes out on the conventional side, and on the Islamic side you have one fund or two funds, and not necessarily something that's thoughtful and a true glidepath… And so it makes someone really feel like they’re not getting something that is competitive or of the same quality, and that's probably one of the reasons why we haven't seen the [ethnic pensions gap close]. And so having these conversations and moving in that direction, I think, will be met with a positive response,” he explained.

Fellow panellist, NatWest Cushon head of investment proposition, Kinna Patel, stated that an Islamic finance survey found that those not saving into a pension “feel that there's no options for them within their pension scheme. So, I think a lot more needs to be done around the education of pensions and the options that are available to them and why it is suited”.

Patel explained how NatWest Cushon currently offer a Shariah equity fund and is exploring a glide hub solution… “because the equity fund is not appropriate for all members, particularly those approaching retirement, as the equity fund is quite volatile, and nor for those members that want more diversification or have a lower risk appetite”.

“So, for us, trying to create a solution that helps solve the ethnic pension gap, or inadequate pension, it seems like the right step forward.” Patel added, “and the way we will start doing this is by looking at our default solution as that’s our ‘best ideas’ solution that suits the majority."

This will involve looking at the factors such as the de-risking period, the expected risk/return for each of the phases, and considering products like Sukuk [Islamic bonds] and money market funds, and utilising those building blocks for our members, she explained.

Patel also highlighted how the market is developing, “so we need to try to make a solution that we can utilise now, but also as the [Shariah-compliant] market develops and new asset classes get into this space as well”.

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