In a significant move aimed at boosting financial security and providing investment opportunities for employees, the UAE Cabinet has adopted a novel system for managing end-of-service benefits in the private sector and free zones. This groundbreaking initiative is set to transform the way employees in the UAE save and invest their retirement funds. The announcement, made during a Cabinet meeting chaired by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, promises to protect workers’ savings and offer stability to their families.
The key features of the new end-of-service benefits system are as follows:
Optional for Employers: Employers in the private sector and free zones will have the option to join this system, making it a flexible choice that aligns with their workforce’s needs.
Savings and Investment Fund: A savings and investment fund will be established under the supervision of the Securities and Commodities Authority in coordination with the Ministry of Human Resources and Emiratisation. This fund will serve as the platform for investing employees’ end-of-service benefits.
Multiple Investment Options: Employees will have a range of investment options to choose from within the fund, ensuring diversification and catering to varying risk preferences.
Protecting Workers’ Savings
The primary objective of this innovative system is to safeguard the financial well-being of employees and their families. By allowing employees to invest their end-of-service benefits in a secure and regulated manner, the UAE government aims to ensure that these funds are not only preserved but also generate returns over time.
Inclusivity for Government Employees
One notable aspect of this system is its inclusivity. It is not limited to the private sector; government employees can also participate. This demonstrates the UAE government’s commitment to fostering financial security across all segments of the workforce.
Investment Options
The system offers three investment options:
1. Risk-Free Capital Guarantee: This option provides a secure and guaranteed return on investment, minimizing risks for employees who prioritize capital preservation.
2. Varied Risk Investments: Employees can opt for investments with varying risk levels, including low, medium, and high. This flexibility allows individuals to tailor their investment strategies to their risk tolerance and financial goals.
3. Sharia-Compliant Investments: In line with Islamic finance principles, Sharia-compliant investment options will also be available for those who seek ethical and compliant investment avenues.
Cost Efficiency for Employers
For employers, the new end-of-service benefits system is expected to be cost-effective in the long term compared to the traditional gratuity system. Additionally, it will enable companies to attract and retain talent by offering more attractive and flexible end-of-service benefits packages. This can contribute to enhanced employee satisfaction and loyalty.
Addressing Dependency on Gratuity
One of the critical issues this system aims to address is the dependency of UAE residents on gratuity as their primary retirement fund. By providing alternative and potentially more lucrative investment options, the UAE government seeks to reduce this reliance and promote a culture of financial planning and investment.
Public Willingness to Invest Gratuity
Recent surveys indicate that a significant portion of UAE workers is open to having their gratuity funds invested on their behalf. This demonstrates a growing awareness of the potential benefits of managed investments over traditional lump-sum payments.
Dubai’s Pioneering Efforts
It’s worth noting that Dubai had already taken pioneering steps in this direction in 2022 by introducing an end-of-service savings scheme for expatriates working in government departments. This integrated system offered a range of savings opportunities and investment portfolios to boost benefits and savings.
The introduction of the new end-of-service benefits system in the UAE marks a significant milestone in enhancing financial security and investment opportunities for employees. By allowing both private and government sector workers to invest their end-of-service benefits in a regulated and diversified manner, the UAE government aims to provide long-term financial stability and prosperity for its workforce. This forward-thinking initiative also aligns with global trends in retirement planning and underscores the UAE’s commitment to fostering a culture of financial responsibility and investment.
