The UAE is pressing ahead with plans to create a savings retirement fund for non-Emirati employees that will complement the existing end-of-service gratuity system, according to the Federal Authority for Government Human Resources (FAHR).
The government body completed a Work Incentives & End-of-Service Benefits (WIESB) study earlier this year, which was followed by a May 9 meeting with global insurers and consultancies to discuss best practices for pension fund management and gratuity benefits, FAHR said in a statement on its website.
“Setting up investment funds for the retirement benefits of UAE expats will help employees and officials to properly plan for the future by taking advantage of end of service benefits, and utilise their financial resources after retirement. It will also provide employment opportunities for new generations, or the so-called millennials," Abdulrahman Al Awar, director general of FAHR, said.
"Establishing such systems or savings funds for end-of-service benefits in all sectors is an important strategic step and a new experience of its kind in the region."
Under the current system, employees leaving a UAE organisation are entitled to a gratuity payment after completing at least one year of service with the amount calculated on their basic salary and length of service.
FAHR in February said that it planned to "enhance and improve" the end-of-service benefits awarded to employees to help companies attract and retain talent and ensure they can adequately fund the liability.
Since then, Dubai International Financial Centre said it is committed to replacing expat workers' end-of-service gratuity with a funded, trust-based savings scheme on January 1, 2020 that will offer employees a choice of up to 12 passive investment funds.
Mr Al Awar said the recent round-table meeting with some of the top UAE retirement specialists tackled key points from the WIESB actuarial study to "come up with an exemplary experience” in line with international standards.
He said the WIESB study was based on in-depth research following meetings with concerned authorities at state level, including local governments, relevant ministries, pension funds, chambers of commerce, economic development departments and Executive Councils in Abu Dhabi and Dubai.
According to the study, the proposed fund will collect end-of-service contributions from employers or institutions that will then be invested to generate financial returns. When an employee later retires or resigns, they will receive the benefit with the investment returns on top, "making the employee a partner in investment decisions".
FAHR said the savings system would be optional for government or private institutions; they can either choose to participate in the new retirement fund or stick with the existing gratuity scheme. The study also suggested that employees taking part in the fund can choose to contribute a higher amount on a monthly basis to increase their return.
Under the WIESB proposal, workers who choose the new fund would have their existing gratuity benefits leading up to the implementation left untouched. That liability would remain an obligation for employers who would have to pay out when the employee left based on their final salary.
FAHR said the final savings fund vision would be submitted to decision makers at a later date.