Can employee saving schemes be a substitute for pensions in the UAE?

Workplace saving and investment schemes are more of an employee benefit than an alternative to pensions, experts argue

Chris Keeling views the Dews plan in DIFC as his pension scheme and aims to remain invested long term. Chris Whiteoak / The National

Chris Keeling, a British resident in Dubai, enrolled in Dubai International Finance Centre’s Employee Workplace Savings (Dews) plan when it was first introduced in the financial free zone in 2020.

Mr Keeling, 36, views the Dews plan as his pension scheme and aims to remain invested long term.

Until this scheme was introduced, employee’s end-of-service benefits usually filled the gap for a lack of workplace saving plans from companies in the UAE.

“There are various investment options and asset classes to invest into within Dews,” he says.

“As I work in the financial services industry myself, I am comfortable investing into higher-risk asset classes – however, there are many options for lower-risk investors, too.”

DIFC was the first body in the UAE to overhaul the gratuity system – a defined, end-of-service benefit that all expat employees are entitled to after completing at least one year of service – when it introduced the Dews plan in February 2020. Since the success of this model, other companies have followed suit and implemented similar workplace saving schemes in the UAE.

Employees in the free zone with under five years of service are required to contribute 5.83 per cent of their basic salary on a monthly basis to a fund administered by a trust. This is increased to 8.33 per cent of basic salary for those with more than five years’ service. Employees also have the option to contribute an additional amount but this is voluntary.

Chris Keeling says he is comfortable investing into higher-risk asset classes since he works in the financial services industry. Chris Whiteoak / The National

“I would like to see more employers implement this type of employee saving scheme as a brilliant additional employee benefit,” Mr Keeling says.

The Dews scheme is a funded saving option, as opposed to unfinanced options such as defined benefit schemes. In the UAE, the alternative to Dews is the more traditional employee gratuity scheme, also unfunded.

While gratuity is a “promise” by a company to pay an employee a defined amount in return for a defined period of employment, the Dews scheme is an actively funded scheme by the employer on a regular basis – usually monthly. With Dews, there is a tangible pot of money that is segregated specifically for each employee, Mr Keeling explains.

“It is not the employer’s responsibility to invest the funds within Dews, neither is it the Dews administrator's,” Mr Keeling says.

“Instead, the employee makes the investment decision. Independent advice can be sought if the employee is not comfortable in making the investment decision. The contributions are invested with the expectation of growth over time; however, the invested amount can go down in value as well as up.”

When the Dews scheme was introduced in 2020, employees were offered the choice of taking their gratuity entitlement in cash or transferring it into the Dews investment.

If an employee leaves their employment, a partial or full withdrawal from Dews can be made. The scheme can also be continued if an employee moves to another Dews qualifying company. Withdrawals of voluntary contributions can be made while still in employment but there are limits, Mr Keeling says.

“Dews can be easily viewed and managed through an online portal. Performance can be reviewed and investment funds changed online by the employee. If managed correctly, Dews is a great way to save for your future and I hope more companies across the country implement similar schemes soon.”

Alternative to Dews

Sukoon Workplace Savings Solutions (SWSS), a fully owned subsidiary of Sukoon Insurance, recently launched the Go Saver employee money purchase scheme, to provide end-of-service benefits and workplace savings to companies in DIFC.

Go Saver offers employees access to a range of investments. It features a fully capital-protected option provided by Sukoon Insurance and Generali Global Pension, a selected list of 13 independent funds, including Sharia-compliant solutions, and three risk-based portfolios offered by global asset manager Franklin Templeton, designed to cater to diverse risk appetites. These include a conservative, balanced and dynamic approach for those who want to take more risks.

Sukoon Workplace Savings Solutions is the plan administrator and Corporation Service Company provides the trustee services.

“We launched the scheme in the DIFC, because this is where it is mandatory,” says Emmanuel Deschamps, executive vice president, head of individual life and workplace saving at Sukoon, and chairman of SWSS. “But the target is to launch the scheme in the mainland very soon.”

Emmanuel Deschamps is chairman of Sukoon Workplace Savings Solutions. Courtesy: Sukoon Insurance

The main benefit of such schemes for the employer is the externalisation of balance sheet liability, while they offer employees ownership and visibility of their investments. It helps further financial education and to create a better pension mindset, he says.

In a defined benefit system, there is a “lot of uncertainty” because employees know they will get “some money at some point”. If the employer is a wealthy company, the employee will receive their gratuity. In a defined contribution scheme, the employee’s contribution goes to an account which is frozen, but it belongs to them and they can manage the amount. It removes the risk of uncertainty for employees, Mr Deschamps explains.

“In any mature market, workplace savings schemes should be mandatory. We expect it will be mandatory in the UAE, but you need to educate people and make them understand how it works,” he says.

“There is no pension and retirement mindset in the UAE for many reasons. It needs to be built. When people see the money, decide how to invest it and manage their returns, that will start building awareness that they need to save money for retirement.”

Carol Glynn, founder of Conscious Finance Coaching, says end-of-service gratuity (EOSG) payments in the UAE are not designed to cover a person's retirement needs fully. While they provide a financial cushion on leaving employment, they are typically a lump sum based on salary and years of service, rather than a structured, long-term retirement income, she explains.

“Given rising living costs and longer life expectancy, EOSG payments are generally insufficient to sustain retirement unless supplemented by personal savings and investments,” Ms Glynn says.

“For comparison, pension schemes in many other countries, such as the US and Canada, provide regular payouts over time, often with employer and employee contributions growing over decades. EOSG, on the other hand, is a one-time payment that is unlikely to match the compounding benefits of structured retirement plans.”

Many expats use gratuity as a financial bridge while transitioning to a new job or moving back home. Others may use it to pay off debt or fund a major life event. A smaller portion of individuals invest it for retirement, real estate or other long-term assets. However, because EOSG is often seen as a windfall rather than a structured retirement benefit, a significant number of employees spend it, Ms Glynn says.

“Schemes like the Dews plan are a step in the right direction but are not a direct substitute for pension systems in countries like Canada or the US,” she adds. “Unlike traditional pensions, where payouts are guaranteed and calculated based on salary history and years of service, Dews depends on market performance and personal contributions.”

The flexibility of Dews allows employees to build retirement savings in a structured way but it still lacks the long-term security and government-backed guarantees of pension plans such as Canada’s CPP or the US Social Security system, she says.

“For expatriates in the UAE who do not have access to home-country pensions, Dews provides a vehicle for accumulating retirement funds that is compounding over time,” Ms Glynn adds. “Ultimately, employees should take an active role in their retirement planning, supplementing EOSG or Dews with personal investments in diversified portfolios to ensure long-term financial security.”