United Arab Emirates (UAE) has officially launched a new end-of-service benefits scheme, offering an alternative savings plan for the private sector and freezone employees. The Voluntary Alternative End-of-Service Benefits Savings Scheme was announced by H.H Sheikh Mohammed bin Rashid Al Maktoum, Vice President of the UAE and Ruler of Dubai, in September, and came into effect on November 1.
This innovative scheme, which is not mandatory for employers, provides an alternative to the traditional end-of-service gratuity offered to all UAE residents. Instead of simply receiving the accrued end-of-service gratuity, the scheme allows for investment returns on these benefits by investing them in funds approved by the Ministry of Human Resources and Emiratisation (MoHRE).
Under the new scheme, employers who opt-in will contribute 5.83% of an employee’s monthly basic salary if they have worked for the company for less than five years, and 8.33% for those who have been with the company for more than five years. Employees can then choose to top up this amount with either a percentage deducted from their monthly wage or a lump sum, provided it does not exceed 25% of their salary.
Employers will select and contract with licensed investment funds and work with a fund administrator approved by the Securities and Commodities Authority in partnership with MoHRE. This arrangement includes services such as a fund manager and other entities to serve as a broker.
Employees can withdraw all or part of their voluntary contributions or investment returns at any time, within the regulations set out by the fund manager. The scheme aims to protect their end-of-service benefits from inflation or deflation and allows them to save and invest their benefits in a pre-approved investment fund.
All private sector and Freezone employees are eligible for the scheme, with no minimum salary requirement. Employers who choose to sign up must register with MoHRE and commit to the scheme for a minimum of one year. Once registered, employers must also decide which employee categories to enroll in the scheme. If an employee is terminated within their first year, employers have the right to recover the basic subscription amount.
This new savings scheme represents a significant step forward in enhancing the ease of doing business in the UAE and providing employees with more control over their end-of-service benefits.