Seven ways UAE workers can invest end-of-service benefits for retirement

The recent introduction of an optional savings retirement scheme that allows employees in the UAE’s private and free zone sectors to invest their retirement benefits in long-term wealth building has enabled employees in the UAE to It is the latest in a series of moves to help keep people safe. their economic future.

The plan includes the establishment of a savings and investment fund supervised by the Securities and Products Authority in collaboration with the Ministry of Human Resources and Emirates.

“Today’s cabinet meeting approved an alternative retirement benefit scheme for domestic private sector employees and workers in free zones,” said Sheikh Mohammed bin Rashid, Prime Minister and Ruler of Dubai, on September 4. Said in a post to X. .

“Through this system, employees can save for retirement and invest in a variety of investment options. , to ensure the rights of employees and provide stability for their families.”

Video: UAE launches new tipping system

UAE launches new tipping system

A retirement benefit is a lump sum payment that every employed resident is entitled to receive after completing at least one year of service in a company.

Gratuity payments are covered by UAE labor law and the amount is determined by the employee’s length of service and basic salary.

For example, if an employee has less than five years of service, severance benefits are calculated based on 21 days of base pay for each year of service. After five years, this increases to 30 days of base salary each year thereafter.

The COVID-19 pandemic has brought the financial challenges of employees into sharp focus, and many companies in the UAE are now formulating plans to close the retirement savings gap for their employees.

Retirement savings is the biggest financial challenge facing employees in the Gulf Cooperation Council, according to a January study by global advisory firm Willis Towers Watson.

However, a July survey by Sharia-compliant savings and investment company National Bonds found that 82% of UAE employees were willing to have their employer invest their retirement benefits.

More than a third of respondents to the annual Government Savings Index survey also said they planned to retire in the UAE due to the country’s “stability”.

“This has led not only 60% of Asians but also a significant number of individuals, particularly expatriate Arabs, to consider long-term investment opportunities in the country, while Western respondents have turned to the UAE as an investment destination. ” said the government.

Meanwhile, Mohammed Al Ali, chief executive officer of Dubai Investment Corporation’s government debt group, said the government’s latest voluntary retirement scheme will increase the attractiveness of the UAE’s labor market and strengthen job security for workers. .

“These decisions are in line with a series of strategic initiatives aimed at increasing the country’s overall attractiveness across various sectors and attracting talent,” Al Ali said.

The UAE, the second-largest Arab economy, has strongly recovered from the economic slowdown caused by the pandemic, backed by the government’s fiscal and monetary policies.

The UAE has undertaken several economic, legal and social reforms to strengthen the business environment, increase foreign direct investment, attract skilled labor and provide incentives for establishing and expanding businesses. I did.

The reforms include overhauling a number of visa programs, including the Golden Visa, Green Visa and Retirement Visa, as well as introducing a compulsory unemployment insurance scheme that will pay Emiratis and residents three months’ worth of cash if they lose their eligibility. is included. work.

Wilson Varghese, general manager and director of Zurich International Life Middle East, administrator of the Dubai International Financial Center Employee Workplace Savings Scheme, said the new end-of-service benefits scheme will help Dubai International Financial Center become a global talent hub. It will strengthen the UAE’s position.

“This groundbreaking initiative means transforming traditional tipping into a modern, flexible and employee-centric system, creating a win-win scenario for employers, employees and the economy as a whole.” Varghese says.

Here we take a look at seven ways UAE employees can invest their retirement funds into retirement savings.

1. Retirement savings scheme for employees of the private and free zone sectors

The scheme, announced by the government last week, is voluntary for employers and offers three investment options depending on the level of investment risk for employees.

• Risk-free investment to preserve capital
• Risk-based investing with low, medium and high options
• Shariah compliant investment

Companies participating in this scheme are required to make monthly contributions on behalf of their employees.

Sheikh Mohammed said public sector employees can also participate to increase their savings and investments.

When an employee leaves the company, they receive the savings they have invested.

Details regarding the retirement savings plan, including when it will take effect and whether employees will be able to make voluntary contributions in addition to the amount offered by their employer, have not yet been released.

2. Dubai Government Savings Scheme for Foreign Employees

The Dubai Savings and Retirement Scheme, aimed at foreign employees working in the Emirate of Dubai and the public sector, came into force in July last year.

Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, said at the time that the pension fund offers the government’s foreign workers a choice of investment plans, including Sharia-compliant options.

The fund, supported by the DIFC and overseen by the Board of Directors, will make the emirate even more attractive to people around the world, he added.

“We are keen to provide all workers in the government sector with everything that guarantees them and their families a decent life,” Sheikh Hamdan said.

Foreign employees working in the public sector in Dubai are automatically enrolled in this savings scheme, and their employer contributes the full amount of their retirement benefits, excluding financial contributions from the past years of service, from the date of enrollment into the scheme. do.

3. DIFC Dues Plan

DIFC introduced the DIFC Employee Workplace Savings Plan (DUES) in February 2020, becoming the first organization in the UAE to establish a new gratuity system.

Employers in free zones are required to contribute 5.83 percent or 8.33 percent of their employees’ wages each month, depending on their length of service, to a fund managed by Zurich International Life Middle East.

Employees can also voluntarily contribute to the Dews plan.

Since 2020, more than 1,800 DIFC companies have registered with the scheme, which has expanded to include 65 government agencies and nine free zone authorities, Zurich said.

Currently, 50,000 employees are benefiting from the scheme, with more than 250 million dirhams ($68 million) in severance benefits paid to employees.

4. National Bond Golden Pension System

In October last year, the government announced a golden pension scheme to support the retirement planning of foreign employees in the private sector.

Registered employers can choose to invest all of the retirement benefits they have accumulated over the years in a lump sum or a portion of it.

Employees can contribute as little as Dh100 per month to the plan and see their savings on the Treasury app.

According to National Bond, the plan is intended to not only assist companies with their employee retention efforts, but also to assist with end-of-service financial planning.

If permitted by the employer, an employee may withdraw from the National Bonds Pension Plan. However, you may withdraw your individual contribution at any time.

5. National bond second salary system

Although the bond is not related to employee retirement benefits, it also provides Emiratis and residents with a way to generate additional income in retirement through a second salary program.

The service, launched in March, consists of a savings phase, in which customers deposit funds into government bonds every month for a period of three to 10 years, and an income phase, in which customers receive monthly income.

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In the second phase of the program, customers receive a monthly base investment amount and accumulated profits. According to the bond, the profits earned are compounded monthly, increasing your returns.

To participate in the scheme, customers will need to invest a minimum of Dh1,000 every month for at least three years.

6. Haya Employee Secure Saver

In April 2021, Haya Insurance (formerly AXA Green Crescent Insurance Company) announced a workplace savings plan to help UAE employees save for retirement.

The Employee Secure Saver Plan will help businesses provide employees with savings vehicles similar to those available around the world, the insurer said at the time.

Employers can tailor plans to their specific needs, including mechanisms to lock in end-of-service debt and offer enhanced benefits as a differentiator in the job market.

7.Scoon Go Saver

On Tuesday, Schoon Insurance, formerly known as Oman Insurance Company, announced the GoSaver plan for employers to invest in their employees’ retirement benefits.

Go Saver is fully integrated into the trust structure, allowing employees to fully protect their end-of-service savings, the company says.

“The trust will ensure that all end-of-work tips accumulated by employees are protected against unforeseen circumstances, and will act independently to provide solutions that benefit employees.” says Schoon.

Go Saver also allows employees to initiate voluntary savings and build their own retirement plans through a selection of risk-based portfolios and Islamic and non-Islamic investment strategies.

This plan is available to employers and employees working in DIFCs, free zones, and private companies.

Updated: September 15, 2023, 7:26 AM