Melbourne-based First Guardian plans to launch an Islamic pension fund in January, collaborating with some of Australia's most well-known Muslim organisations to tap the country's $1.5 trillion private pension system, the world's fourth largest.

The fund has received regulatory approval and documentation is in the final stages, said Almir Colan, director at the Australian Centre for Islamic Finance who worked with First Guardian in the design of the product.

The fund has been developed with the Muslim Community Cooperative of Australia and the Islamic Council of Victoria, the governing body for the state's Muslim community, has endorsed the product as well, Colan added.

This would give much-needed support for the superannuation product, as Australia's pension products are known, to reach a small and scattered Muslim consumer base that has yet to fully embrace retirement savings.

"In the Muslim demographic you have many first- or second-generation Australians where superannuation is not usually a priority," said Colan, who also lectures on Islamic finance at Melbourne's La Trobe University.

"It is a matter of financial literacy as well."

First Guardian's Islamic pension would be the second such product in Australia in as many years, after Sydney-based Crescent Wealth launched its own last year.

Islamic fund managers screen their portfolios according to religious guidelines such as bans on tobacco, alcohol and gambling, in much the same way as socially responsible funds.

The fund would also seek to attract other ethically minded investors, as First Guardian follows the United Nations principles for responsible investing.

But unlike their ethical counterparts in Western markets, many Islamic fund managers still struggle with a lack of scale, so tapping pension pools is seen as one way of boosting assets under management.

Growth targets thus remain conservative: First Guardian could raise A$30 million to A$40 million ($27-$35 million) for its Islamic pension fund in its maiden year, aiming for A$100 million within three to four years, Colan added.

"The A$100 million is a very important figure, as it is a break-even point for most of these products."

The fund will use the globally recognised screening rules of MSCI to form the basis of its investment universe, but would incorporate an additional layer of screens every three months to refine the list further, said Colan.

Private pension schemes are also making inroads in majority-Muslim countries such as Pakistan, Turkey and Malaysia, with early experience suggesting Islamic fund managers can benefit from such efforts.