In a significant development for residents of the United Arab Emirates, the Ministry of Human Resources and Emiratisation (MoHRE) has officially launched the Voluntary Alternative End-of-Service Benefits Savings Scheme. This new scheme, announced in September by H.H Sheikh Mohammed bin Rashid Al Maktoum, Vice President of the UAE and Ruler of Dubai, represents a substantial overhaul of the existing end-of-service benefits system. Here’s what you need to know about this groundbreaking initiative.
Who Does It Apply To?
The Voluntary Alternative End-of-Service Benefits Savings Scheme applies to both the private sector and free zone employees, encompassing a wide range of workers in the UAE. Importantly, it’s important to note that employers have the freedom to choose whether or not they wish to participate in the scheme.
End-of-Service Plan: How Does It Work?
This scheme introduces a new approach to end-of-service gratuity, aiming to provide employees with greater financial flexibility. Instead of receiving a traditional lump sum at the end of their service, employees can opt to invest their end-of-service gratuity in MoHRE-approved funds. This opens up the potential for increased returns, enhancing their final payout.
Employers are required to contribute to this scheme based on the duration of an employee’s service:
- For employees with less than 5 years of service, the contribution is 5.83% of their monthly basic salary.
- For employees with more than 5 years of service, the contribution is 8.33% of their monthly basic salary.
Furthermore, employees have the option to supplement this contribution with a percentage deducted from their monthly wage or a lump sum payment. However, this voluntary contribution cannot exceed 25% of their salary, regardless of whether it’s paid monthly or as a single installment.
Employers will have the responsibility of selecting and contracting with licensed investment funds. Each employer will work with a fund administrator, approved by the Securities and Commodities Authority in collaboration with the ministry. This administrator will provide services such as a fund manager and other entities, effectively serving as a broker for the investment process.
Employees are given the flexibility to withdraw all or part of their voluntary contributions or investment returns, subject to the regulations established by the fund manager. This feature ensures that employees can manage their financial assets as per their individual needs.
The scheme offers protection against the impact of inflation or deflation, allowing employees to safeguard and grow their end-of-service benefits through pre-approved investment funds.
Eligibility and Voluntary Participation
All private sector and free zone employees are eligible to participate in this scheme. There are no minimum salary requirements, making it accessible to a broad range of workers.
Crucially, participation in the Voluntary Alternative End-of-Service Benefits Savings Scheme is not mandatory for employers. They have the discretion to decide whether to enroll in the scheme. However, if they choose to participate, employers must register with MoHRE. Once registered, employers are committed to a minimum one-year participation, and the entitlements of employees who entered the scheme are preserved.
Employers who decide to participate must also determine which employee categories will be enrolled in the scheme. It’s important to note that employers have the right to recover the basic subscription amount if an employee is terminated within their first year.
This innovative initiative is set to redefine the end-of-service benefits landscape in the UAE, offering employees and employers a modern and flexible way to manage their financial futures. While it’s not mandatory, the Voluntary Alternative End-of-Service Benefits Savings Scheme presents a valuable option for those looking to invest in their financial well-being.