UAE Government Approves Optional System for End-Of-Service Gratuities for Private Sector and Free Zones
His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President, Prime Minister and Ruler of Dubai, chaired the UAE Cabinet meeting and approved an optional system for end-of-service gratuities for private sector and free zone employees. The system is optional for employers to join, and includes establishing private sector investments and savings funds supervised by the Securities and Commodities Authority in coordination with the Ministry of Human Resources and Emiratization (MoHRE).
His Highness added that through these funds, employees can invest and save their end-of-service gratuities according to various investment options. He said, “The aim is to safeguard workers' savings, which constitute the end of service gratuities, and to ensure that they are safely invested in order to guarantee their rights and to achieve the stability of their families. Government sector employees can also participate in the System, for savings and investment purposes.”
The Ministry of Human Resources and Emiratisation in coordination with the Securities and Commodities Authority will be supervising the system and its funds all over the Emirates. The system 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. The system sets mechanisms for each option to contribute to the achievement of the associated objectives and to enhance the competitiveness and stability of the UAE’s labour market.
Employers participating in the System, have the right to choose the employment categories to benefit from the system, and are asked to pay a monthly contribution. Upon termination of service, the beneficiary (employee) receives his savings under this system. Legal financial benefits will be paid to the beneficiaries, including accrued returns on participation in the system's investment funds, after the termination of the employment relationship. If an employee dies, financial benefits will be given to the eligible person.
Founder of Freedomvisory, Taqua Malik said, “Yes, I would opt-in. Considering the current economic situation globally, I see this as an opportunity to take part in a government-backed investment vehicle that will grow and add value to the end of service amount, rather than leaving it to be eroded away by inflation over the next few years. I think this initiative will have positive impacts on the employee's retirement, children education, and long-term investment plans.”
Ananda Shakespeare, CEO and founder of Shakespeare Communications added that she too welcomes the new UAE gratuity scheme. She added, “The scheme helps employers put aside the gratuity payments for employees in a transparent way, giving peace of mind to both parties. We welcome input from our employees into where that money is put aside, making sure that this is in line with their beliefs and values. Details on the scheme are not clear yet, but we’re excited by this new development, which we think is mutually beneficial to employees, small businesses and the wider society.”
It is anticipated that billions of untapped end-of-service benefits will be invested into the local economy, fostering a positive impact on the sustainability of returns and supporting growth and stability in the UAE market.
Mohammed Qasim Al Ali, Group Chief Executive Officer of National Bonds, feels that the recently approved optional system for end-of-service gratuities by the UAE Government will increase the attractiveness in the UAE’s labour market and will strengthen job security. Furthermore, it will empower individuals and corporations to invest in their future and support corporates with employee retention strategies.
82 percent of employees in the UAE are open to employers investing their end-of-service benefits, based on the outcomes of the 12th edition of the National Bonds Savings Index.
Al Ali added, “These decisions align with a series of strategic initiatives designed to enhance the country’s overall appeal across various sectors and attract talents. They also complement our efforts at National Bonds that aims to enhance employees’ end-of-service benefits in both government and private sectors. This comes in line with our strategic approach of achieving financial prosperity and ensuring a secure future for both UAE citizens and residents by offering optimal and sustainable solutions and programs.”
Founding Partner of White Window Real Estate and serial entrepreneur, Shraddha Barot Amariei feels that the UAE had limited provisions to secure an employee's financial well-being during and after their tenure. “Like pension schemes in other countries, this scheme effectively addresses the gap, strengthening economic stability and social prosperity. As a business owner and a strong advocate of people’s interests, I view this scheme as a forward-thinking measure that will stimulate secure investments in the region, offering individuals a dependable and comfortable retirement or transition from employment,” Amariei stated.
Business owners should collaborate with the regulatory entity responsible for establishing a savings and investment fund to ensure that the scheme’s implementation prioritises an employees’ interests and provides sound investment guidance, felt Amariei. This cooperation not only rewards employees for their dedicated service, but also cultivates a culture of commitment to employers and benefits the workforce and the country as a whole.