INSITE - UAE - 02 Oct 2023

NEW END-OF-SERVICE BENEFITS SCHEME FOR EMPLOYEES IN THE PRIVATE SECTOR APPROVED

Summary: The United Arab Emirates (UAE) cabinet recently approved a scheme to establish savings and investment funds for employees, primarily in the private sector, including those in free zones. This scheme serves as an alternative to the existing practice of providing end-of-service benefits (gratuity) to employees upon the termination of their employment.

In Detail: The Vice President and Prime Minister of the UAE has introduced a new retirement plan for employees in the country.

This is an optional plan for those working in the private sector and free zones. It aims to safeguard workers' savings by creating savings and investment funds in the private sector. The Securities and Commodities Authority will supervise these funds in collaboration with the Ministry of Human Resources and Emiratisation.

The plan includes three main investment options: Risk-free investment that maintains capital risk-based investment where the risk varies between low, medium and high and the sharia-compliant investment.

When an employee's job ends, they will receive their savings (contributions made by the employer) and the profits from their investments, depending on their chosen investment option. If the employee's employment is terminated, they may have the option to continue with the fund without additional contributions from the former employer by not withdrawing their savings and profits. If an employee dies, financial benefits will be given to the eligible person.

Employers who participate in the plan won't be required to provide an end-of-service gratuity to employees when they leave. However, the employer must still provide other entitlements such as a return ticket, payment for unused annual leave, and any contractual benefits specified in the employment agreement at the end of the employee's tenure.

The date of implementation of this scheme is yet to be announced.