A new workplace savings platform from global insurer Zurich and investment consultancy Mercer aims to prevent UAE employees from losing out in the gratuity shortfall.
The partnership between Zurich - which has more than $4 billion assets under management for 730 companies - and Mercer, the world's largest investment consultancy with $227bn of assets under management, aims to fill the region’s savings gap via its defined contribution workplace product. The platform recently received approval from the UAE Insurance Authority.
"End of service benefits are beyond their 'sell-by' date - it was never designed to address retirement savings needs," Peter Cox, head of international pension plans sales, at the Swiss insurer Zurich, told The National. "Employers should recognise this and do more to facilitate long-term savings through the workplace."
Mr Cox said Zurich's MySavings plan is designed as an appropriate vehicle for gratuity funding or for providing a top-up to this statutory entitlement.
By law all UAE employees receive an end of service benefit, commonly referred to as a gratuity, when they leave their firm. However, the benefit has received criticism in the past for being an inadequate method for residents to save for retirement as it is calculated on an employee’s base salary.
In a YouGov poll of 1,000 UAE expats in full-time employment, commissioned by Zurich and Mercer in 2017, eight in 10 said the gratuity payment was not enough to cover their retirement expenses, while 78 per cent said their employer should do more to help them prepare for their financial future.
Alternative pension plans – where money is deducted from an individual’s salary with the corporate employer typically topping up the contribution - already exist in the region from a number of providers, including Zurich.
National Bonds, a Dubai-based investment company, also offers an employee savings scheme allowing all income levels to save a fixed amount each month.
"Workplace saving schemes are a good way to encourage employees to save, as the money comes straight out of your salary monthly and companies can also make contributions. There is a danger, though, that employees get trapped in inflexible plans with high total fees and have no idea what their money is invested in," said Steve Cronin, the founder of DeadSimpleSaving.com, which helps residents invest their finances.
With much criticism in the UAE in recent years around fixed-term savings products that lock consumers in, Mr Cox said employees would be free to withdraw their holding from the MySavings scheme "subject to whatever employer specific vesting rules apply".
Mr Cronin said employees must check details of any savings plan carefully to ensure their savings are easy to access and they should demand full transparency on fees.
Mr Cox said: "There is no cost of joining or leaving the plan. No hidden charges apply, as no savings term has to be specified at outset - this is a clean contract. The fees would be based on overall assets under management and would be calculated prior to implementation, and in agreement with each employer."
He added that the plan's assets will be invested in "a range of risk-profiled, multi-asset funds designed and managed by Mercer".