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

The government’s move to introduce an optional pension plan for private and free zone employees expands the number of ways they can plan their financial futures

Employees working for companies at the DIFC have been enrolled in a retirement savings plan since 2020. Chris Whiteoak / The National

The recent introduction of an optional savings retirement plan that allows employees in the UAE’s private and free zone sectors to invest their end-of-service benefits to build long-term wealth is the latest in a series of moves to help workers in the Emirates secure their financial futures.

The scheme will involve the formation of savings and investment funds that will be overseen by the Securities and Commodities Authority in collaboration with the Ministry of Human Resources and Emiratisation.

“During today's Cabinet session, we approved an alternative end-of-service benefits system for private sector employees and free zone workers in the country,” Sheikh Mohammed bin Rashid, Prime Minister and Ruler of Dubai, said in a September 4 post on X.

“Through this system, employees can save and invest their end-of-service benefits in various investment options. The goal is to safeguard the savings of employees, which represent their end-of-service benefits in the companies they work for, ensuring their rights and providing stability for their families.”

Watch: UAE launches new gratuity scheme

End-of-service gratuities are lump sum payments that all employed residents are entitled to after completing at least one year of service with a company.

Gratuity payments are covered by the UAE Labour Law, and the sum depends on an employee’s length of service and basic salary.

For example, if an employee has worked for a company for less than five years, their end-of-service gratuity is based on 21 days of basic salary for each year of work. After five years, this increases to 30 days of basic salary for each year thereafter.

The Covid-19 pandemic placed employee financial issues in the spotlight and many companies in the UAE are now formulating plans to help workers bridge their retirement savings gap.

Retirement savings is the biggest financial challenge faced by employees in Gulf Co-operation Council countries, according to a survey by global advisory company Willis Towers Watson in January.

However, a survey by Sharia-compliant savings and investment company National Bonds in July found that 82 per cent of employees in the UAE are open to employers investing their end-of-service benefits.

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

“This has led to a significant number of individuals, particularly expat Arabs, considering longer-term investment opportunities within the country as well as 60 per cent of Asians, and western respondents are eyeing the UAE as an investment destination,” National Bonds said.

Meanwhile, the government’s latest optional retirement plan will increase the attractiveness of the UAE’s labour market and strengthen job security for workers, according to Mohammed Al Ali, group chief executive of National Bonds, which is owned by the Investment Corporation of Dubai.

“These decisions align with a series of strategic initiatives designed to enhance the country’s overall appeal across various sectors and attract talents,” Mr Al Ali says.

The UAE, the second-largest Arab economy, has recovered strongly from the pandemic-induced slowdown on the back of the government’s fiscal and monetary measures.

The UAE 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.

The reforms include an overhaul of a number of visa programmes, including the golden visa, green visa and retirement visa, as well as the introduction of a mandatory unemployment insurance scheme that will pay Emiratis and residents a cash sum for three months if they lose their job.

The new end-of-service benefits scheme will bolster the UAE’s position as a global talent hub, according to Wilson Varghese, general manager and director at Zurich International Life Middle East, the administrator of the Dubai International Finance Centre Employee Workplace Savings scheme.

“This groundbreaking initiative signifies a transformation of the traditional gratuity into a modern, flexible and employee-centric system, creating a win-win scenario for employers, employees and the wider economy,” Mr Varghese says.

Here, we look at seven ways employees in the UAE can invest their end-of-service benefits to save for their retirement.

1. Retirement savings plan for private and free zone sector employees

Announced by the government last week, the scheme is optional for employers to join and offers three investment options depending on an employee’s level of investment risk:

• A risk-free investment that maintains capital
• A risk-based investment with low, medium and high options
• A Sharia-compliant investment

Companies taking part in the scheme are required to make monthly contributions on behalf of their employees.

Public sector workers can also participate to boost their savings and investments, Sheikh Mohammed said.

When an employee leaves a company, they will receive their accrued savings that have been invested.

Further details about the retirement savings scheme have not been released, such as when it will come into effect and whether employees will be able to make voluntary contributions on top of what their employer is offering.

2. Dubai government savings scheme for foreign employees

Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in July last year.

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

The fund, which is supervised by a board of trustees with assistance from the DIFC, would make the emirate more attractive to people from 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 Dubai’s public sector are automatically enrolled in the savings scheme and their employer contributes the total end-of-service gratuity to the plan from the date of joining, without including the financial dues for previous years of service.

These decisions align with a series of strategic initiatives designed to enhance the country’s overall appeal across various sectors and attract talents

Mohammed Al Ali,
group chief executive of National Bonds

3. DIFC Dews plan

The DIFC was the first entity in the UAE to set up a new gratuity system when it introduced the DIFC Employee Workplace Savings plan, or Dews, in February 2020.

The free zone’s employers are required to make monthly contributions of 5.83 per cent or 8.33 per cent of an employee’s wage, depending on their length of service, to a fund administered by Zurich International Life Middle East.

Employees can also choose to make voluntary contributions to the Dews plan.

Since 2020, more than 1,800 DIFC companies have enrolled in the scheme, while it has expanded to 65 government entities and nine free zone authorities, Zurich says.

Now, 50,000 workers benefit from the plan and more than Dh250 million ($68 million) in end-of-service payments have been made to employees.

4. National Bonds Golden Pension Scheme

In October last year, National Bonds unveiled its Golden Pension Scheme to help foreign private sector employees plan for their retirement.

Registered employers can either choose to invest the entire end-of-service benefits accumulated over the years as a lump sum or invest a portion of it.

Employees can also contribute as little as Dh100 a month to the plan and can monitor their savings on the National Bonds app.

The plan aims to not only support companies with employee retention efforts, but also to help them plan for end-of-service financials, according to National Bonds.

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.

5. National Bonds Second Salary Programme

While not linked to an employee’s end-of-service benefits, National Bonds also offers Emiratis and residents a way to generate a supplementary income during retirement through its Second Salary Programme.

Launched in March, it comprises a saving phase, in which customers deposit money into National Bonds every month for a period of between three and 10 years, and an income phase, which allows customers to draw an income every month.

Top 10 global cities for retirement – in pictures

• 

  Tokyo ranked as the best global city to retire in a new retirement index compiled by Veolar. Ryo Yoshitake/ Unsplash

• 

  Wellington, New Zealand, was ranked as the second best global city to retire. Leyvaine Davids/ Unsplash

• 

  Singapore ranked third and scored well in the categories of legacy management and quality of public transport. Kirill Petropavlov/ Unsplash

• 

  Paris is the fourth best city to retire and scored well in the liveability sub-index, driven by its museums and restaurants. Leonard Cotte/ Unsplash

• 

  Vienna ranked fifth globally for offering the best retirement living standards for senior people. Jacek Dylag/ Unsplash

• 

  Zurich, in sixth position, ranked high for safety and quality of health care. Henrique Ferreira/ Unsplash

• 

  Copenhagen was ranked seventh, driven by its safety, mobility and accessibility to health care. Nick Karvounis/ Unsplash

• 

  Amsterdam is the eighth best city to retire globally, Veolar said. Adrien Olichon/ Unsplash

• 

  Osaka in Japan placed ninth, earning high scores in the quality and accessibility of health care and health longevity sub-indices. Ramon Kagie/ Unsplash

• 

  Lausanne in Switzerland is the 10th best city globally in terms of retirement living standards, the index showed. Mark de Jong/ Unsplash

During the second phase of the programme, customers receive their base investment amount every month, plus their accumulated profit. The profit earned is compounded monthly to provide enhanced returns, according to National Bonds.

Customers are required to make a minimum monthly investment of Dh1,000 for at least three years to take part in the scheme, it said.

6. Hayah Employee Secure Saver

In April 2021, Hayah Insurance – formerly known as Axa Green Crescent Insurance Company – unveiled a workplace savings plan to help UAE employees save for their retirement.

The Employee Secure Saver plan helps companies to provide employees with a savings vehicle similar to those available around the world, the insurer said at the time.

Employers can tailor the plan to meet their specific needs, such as by ring-fencing end-of-service liabilities or as a mechanism to offer enhanced benefits as a differentiator in the employment market.

7. Sukoon Go Saver

On Tuesday, Sukoon Insurance, previously known as Oman Insurance Company, unveiled its Go Saver plan for employers to invest end-of-service benefits for employees.

Go Saver is fully embedded in a trust structure, which provides full protection to employees on their end-of-service savings, the company says.

“The trust ensures that all end-of-service gratuity accumulated by employees is protected against any unforeseen circumstances, and also acts independently to provide solutions that benefit the employees,” Sukoon says.

Go Saver also allows employees to start voluntary savings to build their own retirement plan through risk-based portfolios and a choice of Sharia and non-Sharia investment strategies.

The plan is available for employers and employees working in the DIFC, free zones and private sector companies.