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Wednesday, November 01, 2023

Voluntary Alternative End-of-Service Benefits Scheme goes into effect by Cabinet resolution, aiming to boost ease-of-doing business, generate investment returns for employees

In line with the Cabinet Resolution No. (96) of 2023 Regarding the Voluntary Alternative End-of-Service Benefits Scheme for Private Sector Workers – the Savings Scheme – the Ministry of Human Resources and Emiratisation (MoHRE) and the Securities and Commodities Authority (SCA) began implementing the new Scheme for end-of-service benefits.

The new Scheme invests end-of-service gratuity (or end-of-service benefits) of employees who are registered by their employers that subscribe to the Scheme.

The end-of-service benefits would be invested by well-proven investment funds approved by MoHRE and SCA, with the aim of achieving investment returns for the employees. The Scheme serves to enhance the economic impact of both the employer and the worker, supporting the UAE’s economic system.

The Scheme enhances ease of doing business and increases the attractiveness of the UAE labour market for national and international talent, cementing the UAE’s position as one of the most prominent destinations for living and working, offering innovative systems that allow workers to achieve the benefits they aspire to. The Scheme safeguards workers’ financial entitlements, providing them with opportunities to save and grow these benefits, earn returns on them, and reduce the frequency of labour disputes between employees and employers over end-of-service gratuity.

Participating in the Scheme is voluntary

In a media briefing held today at the MoHRE headquarters, the Ministry and the 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.

Workers will keep the gratuity they earned so far (prior to subscription to the new Scheme), however, the existing end-of-service gratuity system – as stipulated in the Federal Decree Law Regarding the Regulation of Employment Relationship – 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 gratuity will be calculated as per the new Scheme starting from the date the employee is registered in it, with all earnings (before and after the new Scheme) disbursed at the end of the contract with the employer.

Workers have the option to make additional contributions of approximately 25% of their total annual salary to increase their investment returns. They can also withdraw some or all the contributions and investment returns, based on the terms and conditions of the Scheme.
The new Scheme gives skilled workers the freedom to choose the type of available investment options, according to their investment preferences. However, unskilled workers are only included in the capital guaranteed portfolio.

The Scheme also allows voluntary participation for additional categories, giving self-employed individuals, those with freelance work permits, as well as non-citizen employees working in government entities or their affiliated establishments and subsidiaries, as well as UAE nationals working in the government and private sectors (in this case, employers remain responsible for paying contributions to the pension and social security authorities), the opportunity to register in the Scheme, with only additional voluntary contributions, aiming to protect, invest, and grow their savings, and then receiving them as an end-of-service gratuity.

His Excellency Dr. Abdulrahman Al Awar, Minister of Human Resources and Emiratisation, said: “The new Voluntary Alternative End-of-Service Benefits Scheme forms part of the ongoing efforts to develop the legislative infrastructure for the UAE labour market, in line with the government’s strategy to support ease of doing business and provide the highest standards of living, ensure the wellbeing of all workers in the country, and advance the UAE’s position as a leading global destination for attracting national and international talent.”
He added: “This initiative complements the existing Unemployment Insurance Scheme and insurance coverage for private sector workers, among other support programmes in the labour market, to create a comprehensive social protection system for workers in the UAE.”

Al Awar went on to emphasise that the new Scheme “provides diverse investment opportunities in the labour market, strengthening its stability and attractiveness to talent, where it provides workers with various opportunities that allow them to grow their benefits and savings, and ensure sound financial planning and stability for their families. 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.”

Dr. Al Awar asserted that “MoHRE is committed to collaborating with the Securities and Commodities Authority and private financial institutions to ensure the optimal implementation of the system and encourage private sector entities to register. This will have notable positive effects on the labour market and the UAE economy, increasing productivity, efficiency, and stability for workers in the work environment.”

For his part, His Excellency Mohammed Al Shorafa Al Hammadi, Chairman of the Securities and Commodities Board, said: “The UAE is making tremendous efforts to improve working conditions for all employees, with the government adopting ambitious visions aimed primarily at strengthening the innovation-driven knowledge economy. The new Scheme is one of the most notable innovations designed to protect workers’ rights and enable them to achieve their long-term investment goals.”

He added: “This Scheme promotes financial sustainability and improves quality of life for the community. It also provides diverse investment options that are based on international best practice and adhere to the highest governance and transparency standards.
“The Securities and Commodities Authority adopts a robust and comprehensive investment fund system that fully aligns with the UAE’s business environment.

“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.”

System governance

The Savings Scheme operates under a governance framework that ensures workers benefit from the investments made in their end-of-service package and earn returns on investment, provided their employers pay the basic monthly subscription to the Investment Fund according to employees’ basic monthly salary. These funds are then securely invested to safeguard employees’ rights and ensure stability for their families.

Employers have the right to withdraw from the Scheme, with the approval of the Ministry of Human Resources and Emiratisation, 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.

Supporting business activities

The Savings Scheme supports ease of doing business and efforts to attract and retain talent. It benefits from the strong infrastructure of licensed investment funds and approved service providers to manage end-of-service benefits for employees. Employers can focus on business activities, development, and capital building instead of operational matters related to managing and disbursing end-of-service benefits. This, in turn, enhances employee’s loyalty and increases satisfaction and productivity in the workplace by safeguarding workers’ financial interests and entitlements.

In the medium term, the cost incurred by the employer for participating in the new Scheme is lower than the cost for the current end-of-service gratuity system, as the contribution is calculated based on the basic salary in the month it was paid, not on the basic salary at the end of the service, which is always higher.

Workforce support

The Savings Scheme supports financial stability for workers, making sure they receive their end-of-service benefits regardless of the employer’s financial situation. Monthly contributions from the employer to the Scheme increase satisfaction, confidence, and productivity at work, thanks to the system’s governance procedures, which protect workers’ financial interests and rights.
Skilled employees – both citizens and residents – can also increase their end-of-service benefits by choosing high-return investment portfolios or by making additional contributions if they wish. The availability of voluntary contributions in the Scheme promotes financial awareness and planning for personal savings among employees and gives them the option to continue investing their benefits after leaving their jobs if they desire.

Operational government system

When a worker moves from their current employer to a new one, they may obtain their gratuity from the fund, based on their current employer’s contributions. Alternatively, they can opt to keep it in the fund until the investment matures, with the possibility of collecting it at any time. 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.

The Securities and Commodities Authority is responsible for granting licenses to investment service providers for conducting activities of the new Scheme, in accordance with the SCA’s standards and requirements. Regulatory authorities of financial free zones in the UAE oversee drafting and implementing legislation, regulations, and rules for the Scheme, to be applied on establishments under their jurisdiction and in line with their requirements.

The Ministry of Human Resources and Emiratisation handles the resolution of labour complaints from employers or beneficiaries regarding contribution amounts or end-of-service benefits before referring them to the relevant authorities. Additionally, MoHRE raises awareness about the new Scheme and conducts inspection campaigns to ensure employers comply with Scheme provisions.

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