Plans to reform the end of service gratuity scheme offered by Dubai International Financial Centre (DIFC) will come into effect from 1 January 2020, but it is not clear whether they will be extended beyond the free zone to the rest of the country, a leading executive said in a media report.
The financial free zone is planning to replace its current end of service gratuity system, where a lump sum is paid when a worker leaves employment, with the DIFC Employee Workplace Savings (DEWS) Trust savings scheme.
“The anticipated cost will be between 1.25 to 1.50 percent per annum, although this is still subject to the competitive tendering process that will commence shortly,” Jacques Visser, chief legal officer at DIFC, told news website Zawya, in a report on Sunday, adding that around 10-12 managed global investment funds will be added as part of the scheme.
However, Visser said it was not possible to say whether the proposal would be expanded to the rest of the UAE.
“We cannot speak for the rest of the UAE but the work done by the DIFC over the past three years has certainly gone a long way in terms of showing what is a workable solution when it comes to a establishing a defined contribution scheme in line with global best practice,” he told Zawya.
Earlier this year, the director-general of the Federal Authority for Government Human Resources said the UAE needs to set up investment funds to manage retirement and end of service benefits for employees in the UAE.
Inaugurating the first Workers Incentives and End of Service Benefits Conference in Dubai in February, Dr Abdul Rahman Abdul Manan Al Awar said authorities are conducting studies to improve the end of service benefits system, particularly as the age of retirement has increased.
The new system will possibly include an enhanced gratuity system and private sector savings scheme which will help retain talent in the UAE.
“With accelerated global technological advancements and the increased retirement age and years of service, there is an urgent need in the region to establish investment funds to manage retirement and end-of-service benefits, which will provide a saving opportunity to all employees in the UAE and the regional labour markets,” Dr Anwar said.
A fifth of UAE companies face end of service liabilities of over $15 million, with 88 percent of GCC companies surveyed having no plan to fund gratuities due, according to a 2018 survey by global advisory and brokerage company Willis Towers Watson which covered 300 firms.
Out of all of them, only 20 percent said they offer a retirement or long-term savings plans for their employees.
“Companies sometimes do not fund their liabilities in relation to their end of service benefits for their employees and introducing schemes that allow better governing of such liabilities will help those companies manage their balance sheet even better,” Dr Anwar said.
It is not currently mandatory for companies in the UAE to set aside payment for end of service gratuity. It is calculated as 21 days of pay per year of service for five years of service, and 30 days of pay per year of service thereafter. It does not, however, include allowances.