National Employment Savings Trust (NEST) Sharia’a Fund

In the UK, any employee between the age of 22 and state pension age, with an income of at least GBP10,000 (US$13,134.72) per year is automatically enrolled in a workplace pension scheme. The aim is to reduce reliance on state pensions, while ensuring that people will have a reasonable income during their retirement. Besides the private pension funds available for this purpose, the UK government has set up the National Employment Savings Trust (NEST) in 2010 which is one of the largest pension schemes in the country with an excess of GBP50 billion (US$65.67 billion) of AuM as of September 2025. Similar to most other available workplace pension schemes, NEST provides mostly conventional pensions but also provides a Shariah compliant option. A closer look highlights challenges with diversification and Shariah compliance.

Historically, the NEST Sharia’a Fund has been 100% invested in equity, which was changed to a 70% equity and 30% Sukuk allocation in November 2024. Currently, this ratio is applied to all pension investors, regardless of age or time of retirement.

Overall, the risk and return profile is significantly higher than the conventional high risk fund which may suit a younger demographic but may not be suitable for those closer to retirement, or pension investors with lower risk appetites.

Although the NEST Funds Annual Report is not segregated by type of fund, it can be inferred that less than 2% of all AuM is Shariah compliant, which equates to at most GBP100 million (US$131.36 million). A side effect of the lower level of AuM is reduced diversification, which is shown in the number of companies the fund invests in. Where the conventional funds are invested in more than 2,300 companies, NEST’s Sharia’a Fund is limited to 107 companies. Among the top holdings are large tech companies including Apple, Microsoft, Alphabet and Nvidia.

A closer analysis of a subset of the investments raises some other challenges. The NEST Sharia’a Fund lists one investment in real estate, a company with just under 32% of debt over market capitalization. In the absence of clarity on the industry and financial screening criteria employed to investors, the assumption is that the most common index screening criteria are applied, and not the AAOIFI Standard 21. Therefore, debt to total market capitalization should not exceed 33% (AAOIFI – debt to total assets < 30%), which the company stays just under. Looking at the market capitalization of this particular asset since the start of 2025, assuming the amount of debt has remained unchanged from the 31^st December, the debt to market capitalization ratio at the end of each month (January to August 2025) varied between 26.9% to 32.6%. As far as can be seen from publicly available information, the type of real estate the company invests in appears to be mainly commercial but information on tenants is not available to investors. Hence, it is not possible to assess whether the tenants are Shariah compliant, or to what extent.

One of the investments in the consumer goods sector has consistently breached the debt to market capitalization ratio between the start of January and the end of August 2025, with values ranging from 33.4% to 42%.

One of the lifestyle companies is an investment company with a varied book including financial services. Although the financial screens for this investment remain safely below the financial ratios, there is no publicly available information about the proportion of the different investments. Their investments in financial services including their planned expansion of investments in the financial industry is well-documented in the annual report.

The NEST Sharia’a Fund holds investments in three financial companies: S&P Global, Mastercard and VISA. There is nothing contentious from an industry perspective. S&P Global is a financial data and analytics company, and Mastercard and Visa are payment system providers who do not issue cards, and do not extend credit. On account of the very high market capitalization compared to total assets, they pass the financial screens with ease. However, there is a perception issue since the average retail investor will automatically associate both Mastercard and Visa with credit cards and by extension to interest bearing financial services.

The size of the NEST Sharia’a Fund does not reflect the population of Muslims (6%) in the UK. There are various reasons for this. They may be overrepresented in other pension funds, opt out of auto enrolment or are not interested in Shariah compliant investments. However, it might be the case that they do not trust the offering complies with their views of Shariah compliance.

Following a request for comment, NEST has noted the following:

• The Shariah compliant offering is provided by a third-party asset manager, and is overseen by the Islamic scholars appointed by the asset manager;
• The diversification into Sukuk brings the risk profile of the NEST Sharia’a Fund closer to the growth phase of the NEST Retirement Date Fund, which is the default investment strategy. The new portfolio offers a better risk-reward proposition than the 100% equity allocation to which members were previously exposed, which was highly concentrated both geographically and by sector in US tech stocks. In terms of real returns, members should have a more stable investment experience because of the diversification and be less exposed to downside market volatility;
• Work is underway to explore how the fund choice can evolve to ensure members have a range of suitable options and that members who choose to invest in line with their faith are not unduly exposed to market risk at retirement; and
• Based on member queries over the past 14 years, a lack of confidence in the suitability of these investments has not been observed.

Dr Natalie Schoon is principal consultant at Formabb, UK.