UAE end-of-service benefits initiative to encourage a 'culture of saving'

A new UAE end-of-service savings initiative launched by the government will enable workers to invest in their futures and help attract more overseas talent to the country, experts have said.

Sheikh Mohammed bin Rashid, Prime Minister and Ruler of Dubai, said on Monday the benefits system – primarily aimed at the private sector and free zones – would serve to “safeguard the savings of employees” and encourage financial stability for families.

The scheme is made up of three investment options, the UAE Government Media Office said.

These are: Risk-free investment that maintains capital; risk-based investment where the risk varies between low, medium and high; and Sharia-compliant investment.

Companies taking part are asked to pay a monthly contribution under the scheme.

At the end of service, employees will receive the savings they have accrued and the returns made from their participation in investment funds.

The system will act as an alternative to existing gratuity schemes, under which staff receive a lump sum when they leave their job.

Sheikh Mohammed said public sector workers will also be able to participate in the end-of-service system, for the purposes of savings and investments.

'Contributing to long-term stability'

Legal Consultant Dr Hassan Elhais, of Al Rowaad Advocates in Dubai, said the introduction of an alternative end-of-service benefits system for private sector employees and free zone workers in the UAE would provide an extra layer of financial security for workers.

“Unlike the traditional gratuity system, this alternative is flexible and enables employees to actively grow their end-of-service benefits through a range of investment options, supervised by the Securities and Commodities Authority and the Ministry of Human Resources and Emiratisation,” he said.

“This approach doesn't just safeguard employees' rights but also increases their savings, contributing to long-term financial stability for them and their families.”

He said the optional nature of this system provides employers with the freedom to opt in, which "makes it a win-win for all parties involved”.

“The fact that government sector employees can also participate amplifies the system's reach and impact, fostering a culture of savings and investment across different layers of the workforce.”

“Overall, this progressive initiative serves as an empowering mechanism for private sector employees, allowing them greater control over their financial future.”

Ruth Stephen, a specialist employment lawyer from Pinsent Masons, a multinational law firm with offices in Dubai, said the policy would support the UAE's growth as a global hub for skilled professionals.

“The ability for employees to invest and protect their accrued end-of-service gratuity marks a significant development in the UAE Labour Law,” said Ms Stephen.

She said the initiative would strengthen employee's statutory entitlements and “therefore bolsters the UAE as an international business hub at attracting and retaining top talent”.

“It will be interesting to see which employees take up this opportunity first and the momentum that follows.”

Hoda Mana, a recruitment consultant at KM Talent, an international recruitment and career coaching company with offices in the UAE, expects the savings initiative to bolster the UAE's status as a destination for overseas employees.

She said it would bring the Emirates in line with employment packages offered in countries such as the UK, the US, and Australia.

“This move also sets the precedent for other countries across the Mena region to follow suit,” she told The National.

“The UAE has always been at the forefront in the Middle East when it comes to safeguarding employee rights, whether for expatriates, international hires, or local staff.

“Speaking from personal experience, as an international expatriate employee in the professional field based in the DIFC, I have already benefited from a similar scheme for many years.”

“I am excited to share more information in the future on these types of alternative savings and investment plans to international candidates looking to come to the region.”

Investment plan

Sheikh Mohammed unveiled the savings plan while chairing a meeting of the UAE Cabinet in Abu Dhabi.

“The goal is to safeguard the savings of employees, which represent their end-of-service benefits in the companies they work for, ensuring their rights and providing stability for their families,” Sheikh Mohammed wrote on X, formerly Twitter, following the ministerial gathering.

“This system will be optional for employers to join and will involve the establishment of savings and investment funds from the private sector, overseen by the Securities and Commodities Authority in co-ordination with the Ministry of Human Resources and Emiratisation.”

The UAE has taken steps to promote the benefits of long-term savings in recent years.

In March 2022, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, announced that non-Emirati employees working in Dubai’s government and public sector could join a new savings pension plan.

A variety of investment plans were to be offered, some of which will be Sharia-compliant. Capital protection will be ensured for employees who do not wish to invest.

In October, National Bonds, the Sharia-compliant savings and investment company owned by the Investment Corporation of Dubai, unveiled a Golden Pension Scheme to help private-sector foreign employees with their financial planning.

The scheme will give employees working for registered companies a head start in retirement planning through returns offered by National Bonds, the company said.