One of the important roles of the Federal National Council is to put forward different ideas for how Government policies should be framed. The debate on pensions and the retirement age, reported in The National yesterday, is a vital one. Yet some of the goals that the FNC are aiming for, such as motivating nationals to enter the private sector, can be achieved in slightly different ways. This newspaper has argued before for pension reform, especially along the lines of replacing the end of service gratuity companies currently pay with a contribution scheme that would apply to all workers in the UAE, both nationals and expatriates.
It could work like this. For every employee, companies, private and public, would pay a percentage of the employee’s salary into a state-managed pension fund. This would not cost companies any more: already the end of service gratuity is calculated as one month’s salary per year. This would merely split that amount across the year, allowing companies to plan ahead. Workers could also pay into this pension plan if they wished. This contribution would be voluntary, but would encourage people to save for their retirement.
For nationals, the Government could even incentivise the private sector by, for example, contributing a further amount to the pensions of private sector workers. That would both encourage people to work in the private sector – one of the goals of the Government – and make up for the generally lower salaries on offer outside the public sector. In effect, this would be a bonus from the Government for working in the private sector, payable at pension age.
This state pension scheme would apply to both nationals and expats. For expats, they would be given a larger lump sum at the end of their employment contract – with the option, if they moved to a different job in the UAE, of maintaining their accumulated funds. Indeed, because the money would be invested from the start of their employment, it would grow and be worth more than the current lump sum payment. Such a scheme would have significant benefits in other areas. For those on modest incomes, it would give them access to investment vehicles that they might not otherwise be able to afford. It would also mean that money that would usually be remitted abroad would stay here, and be available for investment by the Government.
Companies should also welcome the scheme because, at the moment, companies cannot plan for payouts because they don’t know when their workers might decide to leave. With this scheme, the payments would be automatic and monthly. Moreover, pensions funds, in other countries, are usually big investors in companies and stocks; large pensions funds in the UAE would improve both the liquidity and the stability of assets in the country.
The pensions debate is essential for the country, even though so many Emiratis are young. But by starting the idea of contribution early, perhaps residents will begin to learn a savings habit.
