UAE's new end-of-service saving scheme launches
Applicable to private sector and freezone employees, employers are able to choose whether they opt-in or not…
In September, H.H Sheikh Mohammed bin Rashid Al Maktoum Vice President of the UAE and Ruler of Dubai announced a huge overhaul to the end-of-service benefits scheme for UAE residents. And an update from the Ministry of Human Resources and Emiratisation (MoHRE) has announced that the scheme has officially launched as of Wednesday November 1.
The new end-of-service benefits scheme applies to private sector and free zone employees, and is called the Voluntary Alternative End-of-Service Benefits Savings Scheme. As the name suggests, it’s not mandatory for employers to sign-up, but those that do are required to register with MoHRE if they choose to enter into the plan.
We are pleased to announce today that the Voluntary Alternative End-of-Service Benefits Scheme (Savings Scheme) for the private sector has come into force, in collaboration with the Securities and Commodities Authority (SCA).
The Scheme boosts ease of doing business and enhances… pic.twitter.com/7MhBjazJk3
— وزارة الموارد البشرية والتوطين (@MOHRE_UAE) November 1, 2023
How does the Voluntary Alternative End-of-Service Benefits Savings Scheme work?
The Voluntary Alternative End-of-Service Benefits Saving Scheme is an alternative to the current end-of-service gratuity offered to all UAE residents. Rather than just getting the accrued end-of-service gratuity, the scheme offers investment returns on employees’ end-of-service gratuity by investing it in funds approved by MoHRE. This can allow employees to potentially increase their final pay-out through investment funds.
As per the ministry and reported by The National, employers will pay in 5.83 per cent of an employees monthly basic salary for those who have worked for a company for less than 5 years, and 8.33 per cent of a monthly basic salary for employees that have worked for a company for longer than 5 years.
Employees can then choose to top this amount up with either a percentage deducted from their monthly wage, or a lump sum. This voluntary contribution can’t be more than 25 per cent of their salary, regardless of whether it’s paid monthly or in a single instalment.
Employers will then select and contract with licensed investment funds. Each employer will work with a fund administrator, approved by the Securities and Commodities Authority in partnership with the ministry, providing services including a fund manager and other entities to essentially serve as a broker.
Employees will be able to withdraw all or part of their voluntary contributions – or the investment returns – whenever they like, provided it’s within the regulations set out by the fund manager.
The scheme will not only protect their end-of-service benefits from inflation or deflation, and also allows them to save and invest their benefits in a pre-approved investment fund.
Who is eligible?
All private sector and free zone employees. There’s no minimum salary required
Is it mandatory?
No, employers can choose whether they sign up. If they choose to, they’ll need to register into the scheme with MoHRE. Employers must sign up for a minimum of one year once registered, and once they do, the employee entitlements from before they enter the scheme must still be preserved. Employers that do sign up must also choose which employee categories to enroll in the scheme.
Employers will have a right to recover the basic subscription amount if an employee is terminated within their first year.