UAE launches new end-of-service scheme; how to register

Employees have the choice to either receive financial benefits after the termination of the employment contract or to continue investing in the end-of-service scheme

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Waheed Abbas

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Published: Wed 1 Nov 2023, 12:51 PM

Last updated: Wed 1 Nov 2023, 11:17 PM

The UAE’s alternative end-of-service scheme is now live and companies can approach the Ministry of Human Resources and Emiratisation (Mohre) or the Securities and Commodities Authority (SCA) to register.

Addressing a media briefing on Wednesday, Dr Abdulrahman Al Awar, Minister of Human Resources and Emiratisation, said participating in the system is optional for both employers and employees.

The scheme is open to employees working in the public and private sectors, and free zone entities. If employers decide to sign up for the scheme, they can specify the staff members who will be part of it. Emiratis — whether they are working in public and private sectors or just wanted to invest — can also subscribe to the scheme.

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Mohre and SCA explained that employers who are interested in subscribing to the savings scheme can submit a request to the Ministry through its service channels, select one of the approved investment funds, and pay the subscription fees for the workers they wish to register.

The SCA will grant licences to investment service providers for conducting activities of the new scheme. Regulatory authorities of financial free zones in the UAE will oversee drafting and implementing legislation, regulations, and rules for the Scheme for the employees and employees working in the free zones.

When can employees get benefits?

Employees have the choice to either receive financial benefits after the termination of the employment contract or to continue investing in the end-of-service scheme until it matures.

The new employer may take over from the previous one and continue paying the subscription to the same fund, after contracting with it. The new employer may also register the worker with another fund manager and pay the basic subscription amounts.

It further added that workers will keep the gratuity they earned prior to joining the new scheme. However, the existing end-of-service gratuity system will be suspended for employees registered in the new scheme, and the financial entitlements they have accrued are calculated based on their years of service, up to the date they join the new scheme.

The minister said employees can request for the withdrawal of all or part of the voluntary contribution amounts and investment returns.

The end-of-service scheme for UAE employees working in public, private and free zone companies offers an alternative system to the existing gratuity payment practice and aims to protect dues while ensuring they are invested safely.

The scheme is aimed at increasing investment revenues and offers workers an opportunity to make additional voluntary contributions.

The minister said skilled workers can increase their end-of-service benefits by choosing high-return investment portfolios or by making additional contributions if they wish

However, if skilled employees decide to resort to high-risk investments, they don’t have the right to lay responsibility on the employer in case of losses because employees choose to invest in high-risk assets.

2 types of subscription

Subscriptions come in two types: Basic and voluntary.

  • Basic subscription: This is generally for non-skilled workers. Through this option, contributions strictly go to the low-risk investment funds.
  • Voluntary subscription: This is for skilled workers who are more knowledgeable when it comes to investments. They may opt to direct their funds to high- to medium-risk investments. However, if skilled workers don't specify an option, they are referred to low-risk guaranteed investments.

How much will be deducted from salaries

Contributions to the new scheme will depend on how long an employee has worked in a company.

  • For employees have worked less than 5 years in the company: 5.83% of basic salaries will be deducted
  • Those who have worked above 5 years: 8.33% of the basic salary will be deducted
  • Employees also have the option to increase their investment returns by boosting their contributions to approximately 25 per cent of their total annual salary. They will be able to withdraw part of or the entire amount or their investment returns.

Employers have the right to withdraw from the scheme with the approval of the Mohre, provided they meet certain criteria — including a minimum subscription period of one year; the absence of outstanding administrative fines or unresolved labour disputes; and having measures in place to ensure the withdrawal will have no impact on the rights and gratuities of employees, among other conditions.

The savings scheme supports financial stability for workers, making sure they receive their end-of-service benefits regardless of the employer’s financial situation, the ministry added.

How to register

The employer will submit a request to the Ministry of Human Resources and Emiratisation and then choose an approved investment fund. They need to choose the employees they wish to register in the scheme while ensuring that their employees’ entitlements from the previous period are preserved.

The employer can select the investment fund and sign the subscription contract, identifying the fund administrator. The participation and registration of establishment staff in the scheme can be made through the fund administrator by opening a savings account for beneficiaries.

After the registration, the employer will transfer a voluntary monthly contribution from the beneficiary’s salary. The funds can be transferred in a lump sum directly to the scheme.

Dr Abdulrahman said the new scheme forms part of ongoing efforts to develop the legislative infrastructure for the UAE labour market to support ease of doing business and provide the highest standards of living.

“The new scheme helps ensure market flexibility and ease of doing business, providing employers with multiple options to fulfil their legal obligations to workers at the term of their employment relationships, securing their end-of-service benefits,” he said.

Mohammed Al Shorafa Al Hammadi, chairman of the SCA, said the scheme is one of the most notable innovations to protect workers’ rights and enable them to achieve their long-term investment goals.

“The solid infrastructure for service providers ensures that the end-of-service benefits are managed by professional companies capable of making calculated and correct investment decisions that yield positive returns for beneficiaries and benefit the UAE financial sector, driving a significant leap forward in our country’s development,” he said.

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