Dubai International Financial Centre is pushing ahead with plans to replace expat workers' end-of-service gratuity with a funded, trust-based savings scheme that offers employees a choice of up to 12 passive investment funds.
At a DIFC employers’ town hall meeting on Thursday, the centre said the new scheme will charge employee members an annual management fee of about 1.25 to 1.5 per cent or lower depending on the administrator appointed to oversee the project set to go live on January 1, 2020.
We are looking for liabilities to be funded but we are also looking for that cash liability to be taken off the balance sheet and managed by a third party organisation. The employee's money is being managed separately from the company.
“People are realising that the current defined benefit scheme is not working and, instead of shying away from the really complex and sensitive issues involved, it was imperative that the DIFC, as the most compelling and leading financial hub in the country, steps up to play a leading role in this project,” said Jacques Visser, the chief legal officer at DIFC.
If the DIFC goes ahead with its plan, it will be the first body in the UAE to overhaul the current gratuity system - a defined end-of-service benefit that all expatriate employees are entitled to after completing at least one year of service. The amount is calculated on the number of days worked and the departing employee's final salary.
At the Workers Incentives and End of Service Benefits Conference in Dubai in February, the government announced plans to "enhance" the gratuity payment and move it to a defined contribution scheme where contributions are paid based on their salary as they progress through employment with contributions invested on an employee's behalf.
This is the plan set to be adopted by DIFC, which began reviewing the benefit in 2016 by setting up a working party to assess whether there was an appetite for change. The centre then sent a proposal letter to all employers earlier this year, asking for feedback by March 28.
The results of the survey of 339 respondents found the average DIFC employee earns Dh43,800 with the average staff tenure nine years. Seventy-eight per cent of DIFC employees support the proposal to reform the gratuity and 54 per cent of employers already fund the existing end-of-service gratuity system.
“That’s good news because it means many firms will not see cash flow effects from our proposal,” said Christopher Payne of DIFC Group strategy.
However, of those that do fund the liability, 79 per cent do not keep the assets outside employer control.
“That is an important part of our proposal,” added Mr Payne. “We are looking for liabilities to be funded but we are also looking for that cash liability to be taken off the balance sheet and managed by a third-party organisation. The employee’s money is being managed separately from the company.”
Under the DIFC’s proposal, workers would see their existing benefits leading up to the January 1 implementation left untouched. That liability would remain an obligation for employers who will have to pay out when the employee leaves based on their final salary.
Then, from January 1, employers will contribute to the new scheme at the same level of benefit as the gratuity system, which the working group calculated as equivalent to 5.83 per cent of an employee’s monthly basic salary under five years and 8.33 per cent after five years of service.
“We are not seeking to change the level of benefit or costs,” said Philip Wheeler, senior manager and pensions actuary at EY, adding that employees will have the option to contribute more into the scheme as will employers who might want to use it as a talent attraction method.
While the master trust will be domiciled in DIFC for policy reasons and the Dubai Financial Services Authority will regulate the fund administrator, both the role of trustee and administrator of the investment platform will be put out to tender, with the DIFC looking for "global tier 1 service providers", according to Mr Payne.
When it comes to the funds selected, Mr Visser said there will be a maximum of 10 to 12 passive funds on the restricted platform, to ensure the annual management cost stays low.
Mr Wheeler said employees will be able to control how their money is invested, choosing between a cautious, balanced or aggressive portfolio. However, there will be a “sensible” default option for those unsure of what choice to make.
Some attendees at yesterday’s event questioned whether they would lose out as the contributions made into the new scheme will be based on their existing salary rather than their final salary as the current gratuity system is, making it a cheaper proposition for employers.
“The potential investment growth has a better compounding effect than slow salary growth," said Martin McGuigan, partner at Aon Retirement Solutions and McLagan in Dubai and a member of the DIFC’s working party, who added that his firm would pitch for the tender.
"Whilst there is still some associated risk on the investment side, global research shows the investment growth is better over the longer term than wage growth.”
UAE currency: the story behind the money in your pockets
Tales of Yusuf Tadros
Adel Esmat (translated by Mandy McClure)
Hoopoe
If you go...
Fly from Dubai or Abu Dhabi to Chiang Mai in Thailand, via Bangkok, before taking a five-hour bus ride across the Laos border to Huay Xai. The land border crossing at Huay Xai is a well-trodden route, meaning entry is swift, though travellers should be aware of visa requirements for both countries.
Flights from Dubai start at Dh4,000 return with Emirates, while Etihad flights from Abu Dhabi start at Dh2,000. Local buses can be booked in Chiang Mai from around Dh50
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Junichiro Tamizaki
Translated by Paul McCarthy
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Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
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Price, base Dh379,000
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Transmission: 8-speed auto
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- Engine: 3.9-litre twin-turbo V8
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Non-fungible tokens (NFTs) are tokens that represent ownership of unique items. They allow the tokenisation of things such as art, collectibles and even real estate.
An NFT can have only one official owner at one time. And since they're minted and secured on the Ethereum blockchain, no one can modify the record of ownership, not even copy-paste it into a new one.
This means NFTs are not interchangeable and cannot be exchanged with other items. In contrast, fungible items, such as fiat currencies, can be exchanged because their value defines them rather than their unique properties.
'The worst thing you can eat'
Trans fat is typically found in fried and baked goods, but you may be consuming more than you think.
Powdered coffee creamer, microwave popcorn and virtually anything processed with a crust is likely to contain it, as this guide from Mayo Clinic outlines:
Baked goods - Most cakes, cookies, pie crusts and crackers contain shortening, which is usually made from partially hydrogenated vegetable oil. Ready-made frosting is another source of trans fat.
Snacks - Potato, corn and tortilla chips often contain trans fat. And while popcorn can be a healthy snack, many types of packaged or microwave popcorn use trans fat to help cook or flavour the popcorn.
Fried food - Foods that require deep frying — french fries, doughnuts and fried chicken — can contain trans fat from the oil used in the cooking process.
Refrigerator dough - Products such as canned biscuits and cinnamon rolls often contain trans fat, as do frozen pizza crusts.
Creamer and margarine - Nondairy coffee creamer and stick margarines also may contain partially hydrogenated vegetable oils.
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Engine: 1.6-litre 4-cyl turbo and dual electric motors
Power: 300hp at 6,000rpm
Torque: 520Nm at 1,500-3,000rpm
Transmission: 8-speed auto
Fuel consumption: 8.0L/100km
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The Matrix Resurrections
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Engine: Electric motor generating 54.2kWh (Cooper SE and Aceman SE), 64.6kW (Countryman All4 SE)
Power: 218hp (Cooper and Aceman), 313hp (Countryman)
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Transmission: 9-speed auto
Fuel consumption: 6.9L/100km
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Bayern Munich 0 AC Milan 4
Milan: Kessie (14'), Cutrone (25', 43'), Calhanoglu (85')
UAE currency: the story behind the money in your pockets
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This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
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