National Bonds, the Sharia-compliant savings and investment company owned by the Investment Corporation of Dubai, unveiled a Golden Pension scheme on Tuesday to help private-sector foreign employees invest their end-of-service benefits.
The pension plan is expected to help employees in the UAE bridge their retirement savings gap as well as support employers to fund their end-of-service financial commitments.
In recent years, the UAE — the Arab world’s second-largest economy — has undertaken several economic, legal and social reforms to strengthen its business environment, increase foreign direct investment, attract skilled workers and provide incentives to companies to set up or expand their operations.
These initiatives are also helping to galvanise the current end-of-service gratuity scheme, which employed residents are entitled to after working with a company for at least 12 months.
Here, The National explains what the Golden Pension scheme means for employees and employers in the UAE.
How does the Golden Pension scheme work?
Companies can register for the National Bonds' Golden Pension scheme by either investing their employees’ end-of-service benefits accumulated over the years as a lump sum or invest a portion of it.
Employees have the flexibility to also contribute to the pension scheme from as little as Dh100 ($27.22) a month.
Under the pension scheme, employers open individual accounts for their employees and the money will be proportionately distributed.
What is a gratuity?
The UAE's gratuity system is a defined, end-of-service benefit that all expatriate employees are entitled to after completing at least one year of service.
Gratuity payments are covered by the UAE labour law and the sum is calculated on an employee’s length of service and basic salary.
What is a pension plan?
A pension plan is a benefit in which employers make regular contributions on an employee's behalf to a managed retirement fund. The amount is based on a percentage of a worker's salary. Employees can also choose to make voluntary contributions and draw from the fund after they retire.
Does the UAE have a pension system?
Emiratis working in government and private sectors are eligible for pensions and other retirement benefits after reaching the retirement age of 49, or serving a minimum of 20 years in total, according to the UAE government.
In the UAE, the pensions of Emiratis are administered by agencies such as the Abu Dhabi Pension Fund, the Sharjah Social Security Fund and the General Pensions and Social Security Authority.
Where will the Golden Pension scheme money be invested?
National Bonds will invest employees’ end-of-service benefits in money markets, such as deposits with banks, sukuks and in the company’s income-generating real estate portfolio, according to Mohammed Al Ali, chief executive of the saving scheme provider.
The company will have a low-to-medium-risk approach for this type of investment.
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Who can enrol in the Golden Pension scheme?
The Golden Pension scheme is for foreign employees looking for simplicity and a low-risk investment environment to save and grow their money for their golden years. The retirement age for all private sector employees in the UAE is 65.
Before the introduction of workplace savings schemes for foreign workers, pension plans in the UAE were usually either offered by asset management companies to sophisticated investors or in the form of complicated, expensive insurance saving products that charged high fees for early redemption, Mr Al Ali told The National.
How does the Golden Pension scheme benefit employees?
Employees are able to bridge the savings gap and better plan for their retirement needs because their end-of-service benefits are invested in assets such as real estate and money markets, enabling their savings to grow.
Do employees have control over their invested gratuity?
Employees can monitor their pension savings in real time from their individual accounts on National Bonds’ mobile app.
They can withdraw a portion of their end-of-service savings from the pension scheme when their employer allows them. However, they can withdraw their individual contributions at any time.
How does it benefit employers?
A majority of employers in the UAE and wider Middle East pay for their end-of-service liabilities to outgoing employees from working capital, according to a survey by advisory company Willis Towers Watson.
The Golden Pension scheme aims to support businesses with employee retention efforts, as well as help them to plan their end-of-service financial commitments rather than paying them out of company cash when the benefits fall due.
How many users have signed up so far?
A company in Dubai with 9,000 employees has already subscribed to the National Bonds' pension scheme.
It opened 9,000 individual customer accounts for its employees and proportionately invested their accumulated end-of-service benefits across these accounts.
Does the government offer a pension plan for foreign workers?
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.
They 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 retirement fund scheme will be supervised by a board of trustees with assistance from the Dubai International Financial Centre.
Employees can choose to make their own contributions to the scheme and will have the right to withdraw their personal savings at any time. Employee participation in the scheme will stop at the end of their service.
Are there other pension schemes UAE foreign workers can join?
The DIFC 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.
Employers in the free zone are required to contribute an amount equal to 5.83 per cent or 8.33 per cent of an employee’s wage, depending on their length of service, on a monthly basis to a fund administered by a trust. Employees can also choose to make additional voluntary contributions to the Dews plan.
Axa Green Crescent Insurance Company also introduced a workplace savings plan last year. The Employee Secure Saver offers a range of investment choices alongside a Sharia-compliant fund to meet the needs of employees with a greater risk appetite as well as those who wish to invest in accordance with Islamic principles.