National Bonds, the Sharia-compliant savings and investment company owned by the Investment Corporation of Dubai, unveiled a Golden Pension Scheme to help private-sector foreign employees with their financial planning.
The scheme will give employees working for registered companies a head start in retirement planning through returns offered by National Bonds, the company said on Tuesday.
“When it comes to pensions in the UAE, it’s either offered by asset management companies to sophisticated investors or in the form of insurance saving products, where you have to invest for a long time and the redemption process is tedious, with the investor being heavily penalised for early redemption,” said Mohammed Al Ali, chief executive of National Bonds.
“This scheme is targeted at employees who are looking for simplicity and low-risk investment.”
The Covid-19 pandemic put employee financial issues in the spotlight, with many companies now trying to formulate plans to help workers bridge their savings gap.
About 45 per cent of UAE residents have not yet started saving for their golden years, a survey in April by insurance company Friends Provident International found. About 44 per cent of people in the Emirates expect to retire by 55, while 63 per cent hope to before they turn 60, said the FPI survey, which polled 1,000 people.
In March, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, launched a savings retirement scheme for non-Emirati employees working in the emirate’s government and public sector.
The system is in addition to the existing gratuity scheme. End-of-service gratuities are lump-sum payments to which all employed residents are entitled after completing at least one year of service. Gratuity payments are covered by the UAE labour law and the sum depends on an employee’s length of service and basic salary.
Foreign employees working in Dubai’s public sector will be enrolled in the savings scheme by default and the employer will contribute the total end-of-service gratuity to the plan from the date of joining, without including the financial dues for previous years of service.
The Dubai International Financial Centre was the first body in the UAE to overhaul the gratuity system when it introduced the DIFC Employee Workplace Savings (Dews) plan in February 2020. The scheme allows participants to choose a plan in line with the type of investment risk they are willing to take.
Under the National Bonds pension scheme, the employer has the choice to either invest the entire end-of-service benefits accumulated over the years as a lump sum or invest a portion.
Employees have the flexibility to contribute as little as Dh100 ($27.22) a month. They can watch their pension savings grow in real time from their individual accounts on the National Bonds’ app, the company said.
A company in Dubai with 9,000 employees has already subscribed to the pension scheme, National Bonds said.
"They decided to open 9,000 individual customer accounts for their employees and proportionately invested their accumulated end-of-service benefits with us across these accounts," Mr Al Ali said.
"We will invest in money markets [deposits with banks], sukuks and our income-generating real estate portfolio."
The plan also aims to support companies with employee retention efforts, as well as help them plan for end-of-service financials, National Bonds said.
"We encouraged employers to invest their end-of-service amounts. Unfortunately, a lot of end-of-service dues are not funded by employers," Mr Al Ali said.
"Employees miss an opportunity to grow their end-of-service benefits because it is not being invested."
Seventy-eight per cent of companies in the Middle East do not fund end-of-service gratuities. Instead, they pay it out of company cash when the benefits fall due, according to the 2020 Middle East End-of-Service Benefit Willis Towers Watson Survey, which covered more than 300 organisations.
Employees can withdraw from a National Bonds' pension scheme when their employer allows them. However, they can withdraw from their individual contributions at any time, Mr Al Ali said.