UAE: DIFC to replace gratuities with low-cost savings scheme by Jan 2020
Source: Middle East Insurance Review | Jun 2019
The DIFC is reportedly pushing ahead with plans to replace expat workers’ end-of-service gratuity system with a funded, trust-based savings scheme by 1 January 2020, said media reports.
Under the proposed scheme, DIFC Employee Workplace Savings (DEWS) Trust, the financial centre will offer employees a choice of up to 12 passive investment funds. The new scheme will charge employee members an annual management fee of about 1.25-1.5% or lower, depending on the administrator appointed to oversee the project.
If the DIFC goes ahead with its plan, it will be the first entity in the UAE to overhaul the current gratuity system – a defined end-of-service benefit (EOSB) that all expatriate employees are entitled to after completing at least one year of service, said the reports.
The DIFC has reviewed the existing end-of-service gratuity system by considering global trends and changing demographics. It concluded that the current system needed to be reformed to reflect global best practices.
It is not clear whether the DIFC’s proposed scheme will be extended beyond the free zone to the rest of the UAE. Mr Jacques Visser, chief legal officer at DIFC, was quoted as saying, “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 establishing a defined contribution scheme in line with global best practices.”
But there have also been discussions at the federal level in the UAE to potentially place a new system for the mainland. In February 2019, a UAE official told a conference in Dubai that there is an urgent need to establish investment funds to manage retirement and EOSB for people working in the country. M