The UAE Cabinet adopted, on 4 September, a new system for employees in the private sector and free zones to invest their end-of-service benefits (EOSBs). Employers will be able to choose to enrol their employees in the new system, regardless of their roles or seniority, and pay a monthly contribution.
Currently, employees are entitled to a lump sum pay-out after they complete one year of continuous service at a company. The new scheme will entitle them to the end-of-service gratuity amount plus the returns made from investing the contributions.
The scheme will involve the establishment of a new savings and investment fund that will be overseen by the Securities & Commodities Authority, in coordination with the Ministry of Human Resources & Emiratisation. Employees’ end-of-service benefits will be invested in the fund, with three investment options offered:
- Risk-free capital guarantee.
- Investments, where risks vary between low, medium, and high.
- Sharia-compliant investments
“The goal is to protect workers’ savings … and to ensure that they are invested safely,” said Prime Minister of the UAE and Ruler of Dubai Sheikh Mohammed bin Rashid Al Maktoum. “It will ensure their rights, while offering stability to their families.”
The government said the scheme will cost less than the traditional system for employers in the long term. It will also assist employees to retain talent because it will offer more attractive terms than the current end-of-service scheme.
In 2020, the Dubai International Financial Centre (DIFC) launched the DIFC Employee Workplace Savings (DEWS) plan to transform the way EOSBs were managed and to drive a culture of long-term savings aligned to global best practice.
DEWS was also chosen by the Dubai government in 2022 as the mechanism to deliver its savings scheme for expatriates working in government departments. DEWS also offers a voluntary savings option, allowing employees to secure their financial future with ease by making additional voluntary contributions.
Detailed legislation regarding the new scheme and its implementation is expected in due course. Under the DEWS scheme, employers are required to make a mandatory contribution into the plan according to the length of service which broadly match minimum accrual rates under the existing EOSB system. The minimum contribution rates as a percentage of basic salary are 5.83% for members with less than five years’ service and 8.33% for members with five years’ service or more.
“The UAE does not currently have a typical pension or savings plan available to its expatriate workforce,” said Matthew Boyd, Business Development Manager at Sovereign Middle East. “The EOSB in the UAE is mandatory for all employers to provide, so investing this offers a way to generate some form of savings. However Sovereign Middle East already provides an equivalent service to this, facilitated through our Guernsey office, which offers a much wider investment spectrum.”
For further information, please contact Matthew Boyd below.
