UAE’s New End-of-Service Scheme: A Comprehensive Guide

UAE’s New End-of-Service Scheme: A Comprehensive Guide

UAE’s New End-of-Service Scheme: A Comprehensive Guide

The United Arab Emirates (UAE) has recently introduced a groundbreaking end-of-service scheme, offering an alternative to the traditional gratuity payment system. This new initiative is open to employees in both the public and private sectors, as well as those in free zones. Its primary aim is to safeguard end-of-service benefits while providing employees with the opportunity to invest their gratuity securely. In this article, we will delve into the details of this scheme, addressing the most frequently asked questions.

Is the New System Mandatory

The UAE’s new end-of-service scheme is not mandatory for employers; it is entirely optional. It provides an alternative for employers who wish to adopt a different approach to managing end-of-service benefits for their employees. Before delving into the new scheme, it’s essential to grasp how the existing end-of-service system works in the UAE. Gratuity is a lump sum payment made to employees at the conclusion of their employment. The calculation is based on the employee’s final basic salary. Eligibility for the end-of-service benefit is contingent upon an employee completing one year or more of continuous service with their employer.

How Does the New System Work?

The new end-of-service scheme will be overseen by the Securities and Commodities Authority in collaboration with the Ministry of Human Resources and Emiratisation. Under this system, a private sector investments and savings fund will be established. Eligible employees will have the option to invest their gratuity in various savings schemes, providing them with more control and flexibility over their financial futures.

As previously mentioned, the new end-of-service scheme is entirely optional for employers. Those who choose to participate will be required to make monthly contributions. Additionally, employers can select the categories of employees who can benefit from this system, allowing for customization to suit their specific workforce needs.

The new scheme is open to all employees in the private sector and free zones. This includes workers at all occupational levels and those with diverse work patterns. Furthermore, government sector employees are also entitled to join the system, albeit primarily for “savings and investment purposes.”

The new end-of-service scheme offers three primary investment options:

  1. Risk-Free Investment: This option prioritizes capital preservation, ensuring that the initial investment amount remains intact.
  2. Investment Options with Varying Risks: Employees can choose from investments with different risk levels, ranging from low to medium to high. This provides flexibility based on individual risk tolerance and financial goals.
  3. Sharia-Compliant Investments: For those who adhere to Islamic Sharia law, there will be investment options that align with these principles, ensuring compliance with religious beliefs.

End-of-service benefits, along with any returns accrued from the investment funds, will be disbursed to beneficiaries once the employment relationship terminates. In the unfortunate event of an employee’s passing, their nominee will receive the benefits, ensuring financial security for their loved ones.

The UAE’s new end-of-service scheme represents a significant step forward in providing employees with greater control over their financial future while ensuring the security of their end-of-service benefits. Employers have the option to adopt this system, and it is open to a wide range of employees, including those in the private sector, free zones, and even government employees for savings and investment purposes. With various investment options available, employees can tailor their approach to meet their unique financial goals and risk preferences. This initiative underscores the UAE’s commitment to enhancing the financial well-being and security of its workforce.

Summary of article by: Sahim SalimKhaleej Times

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