The development of a federal pension plan for expatriates in the UAE may face opposition from businesses, industry figures say.
Further details of a proposed system of pensions for the UAE's expatriates emerged this week, replacing the current system of end-of-service benefits - lump sums paid at the end of a service contract and determined by the length of service.
The Dubai Department of Economic Development (DED) doused speculation that pensions for expatriates were imminent, saying talks remained at an early stage with nothing agreed upon.
But one of the biggest challenges is convincing employers to sign up for the scheme. Many employers are accustomed to funding end-of-service benefits from cash flow when the need to make payments arises, said Harun Kapetanovic, an adviser at the DED, at a roundtable discussion last month.
"We would like to develop an incentive-based scheme that will be attractive enough to get buy-in from all stakeholders, the Government, employers and employees alike," he said.
The Government provides pensions for UAE nationals but not for expatriates, who account for 88.5 per cent of the country's 8.2 million residents.
The proposed pensions would be transferable between companies and cover all employees, Mr Kapetanovic said.
The DED has not yet concluded whether the system would be voluntary or require contributions from employees, although it has suggested contributions could total about 8 per cent of payroll.
But a senior official at one of the UAE's largest construction firms said the difficulty for companies in implementing such plans would be immense.
"The logistics in this are so huge," said the official, who asked not to be named.
"The tenure of the workers or of staff isn't certain. They may come today and go tomorrow."
Employers may rail against what they perceive as an additional cost, but a system to replace the current end-of-service benefits is imperative for Gulf states and companies, said Jarmo Kotilaine, the chief economist at Saudi Arabia's National Commercial Bank.
"It's not necessarily an easy idea to implement, but it's a necessary idea," he said. "At the moment, these end-of-service benefits are unfunded liabilities, and companies are left to figure out how to pay them."
The plans would also be warmly received by the financial services sector, Mr Kotilaine said.
"In countries that have gone through a paradigmatic change in pensions, it has [yielded] significant benefits for its financial sector," he said.
Investment managers are currently trying to convert large companies to managing their end-of-service bonuses through third-party managers, a business that was growing rapidly, said Mike Lonergan, the director of corporate solutions for the Middle East and North Africa at Friends Provident International.
But a key concern was how those expatriates who have come to expect end-of-service benefits would be treated under any new pension initiative, said Nick Tolchard, the head of Invesco Middle East, an asset manager.
"If there's a gratuity environment, clearly people will have amassed gratuity allowances," he said. "Arrangements need to be made to account for that transmission."
An additional problem was deciding where pension funds were invested, given the varied nationalities of the UAE's population and competing vested interests, said Nigel Sillitoe, the chief executive at Insight Discovery.
"If you look to the mix of nationalities, you have a mix of British and Indian expats, who'll want the bulk of their assets invested in their homelands.
"It's quite a complex issue," he said.