The UAE cabinet greenlit a scheme aimed at establishing savings and investment funds for employees in the private sector, including those working in free zones.
UAE attorneys Bashir Ahmed and Saurbh Kothari detailed the initiative on the SHRM website.
Under the newly approved system, employers can opt to partake in a scheme whereby they are mandated to make monthly contributions to a selected fund, a departure from the existing protocol of lump-sum end-of-service (gratuity) benefits payable upon termination of employment.
This scheme functions as an alternative, not a replacement, affording employers the discretion to participate.
The UAE Securities and Commodities Authority, in partnership with the Ministry of Human Resources and Emiratization, will oversee these funds.
Employees will be presented with three investment avenues: a risk-free option safeguarding the principal amount, risk-tiered investment options, and a sharia-compliant choice.
Upon leaving their role, employees stand to receive not only their amassed savings but also any investment returns yielded based on their chosen investment route.
Moreover, post-employment, individuals hold the choice to retain their fund, foregoing additional employer contributions, to potentially cultivate further returns.
While this scheme absolves partaking employers from end-of-service gratuity responsibilities, obligations to cover other end-of-service dues such as airfare and unused annual leave payments remain intact.
One significant upside to this initiative is the provision safeguarding a portion of the employees’ end-of-service benefits through mandatory monthly contributions, thereby offering some financial security even if a company encounters financial hardships.
Presently, this scheme stands unparalleled, save for the GCC national employee-targeted pension scheme and the provision enacted within the Dubai International Financial Centre.