Question Summary:
Government employee

Question Detail:

I am a government employee in Pakistan.   Here government deducts some amount from the salaries of employees and invests them in areas, which are not known to the employees and most probably in banks etc.   This amount is managed in individual's account and accumulative amount is returned to the employee on his retirement as a lump sump amount.   The deduction of some amount is compulsory, however individual employee can ask for higher rate of deductions for savings.   Individual employees can ask for interest free account.   However as the the amount will be returned after almost 25 years ie on retirement and money will loose its buying power due to inflation. The government does  not pay any annual  Zakat from the money available with them.  An employee can get loan from his own account, but the employee has to pay it in installments.   this loan is also with interest, which is paid by the employee in his own account.  This interest is also accumulated in individual's own account.  My questions in the light of Qur'an and Ahadith are 

What is the position of interest on compulsory deductions
What is the position of interest on optional deductions
What is the position of paying annual Zakat
what is the position of getting loan from individual's own account

Can we estimate the gold against the amount deducted and recalculate the gold value for the amount received after retirement to cater for inflation and accept the interest
Can we take the interest from the government and distribute it to poor

Answer :

In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykumwa-rahmatullāhiwa-barakātuh.
The question relates to the financial policies of the Government of Pakistan. We have referred the matter to the Darul Iftaa at Darul Uloom Karachi. Hereunder is a summarized version of the fatwaa in a similar context.
Question 1&2: Interest given on compulsory deductions in reality is not interest, rather it is part of the salary. As such, it is permissible to use such funds. However, interest on optional deductions will be considered as riba (interest) and thus, will not be permissible to use[1].
Question 3: Zakat on a retirement fund will become wajib when the employee receives it in his custody (i.e. he takes actual possession of the money). Zakat will not be given for the previous years.[2]
Question 4: It will not be permissible to take a loan from one's individual account.[3]
Question 5: It is not permissible to estimate the gold in order to facilitate for the inflation.
Question 6: If the interest is from compulsory deduction then it is permissible to use. However, it is from optional deduction then it should be given to the poor without intention of reward.[4]    
And Allah Ta’āla Knows Best
Abdullah Ghadai
Student DarulIftaa
Michigan, U.S.A 
Checked and Approved by,
Mufti Ebrahim Desai.