In our earlier article published on 23 April 2019 (here), we commented on end-of-service gratuity (ESG) reform in the UAE.
The Dubai International Financial Centre (DIFC) is leading the evolution of the ESG regime from a defined benefit structure to a funded and professionally managed defined contribution plan, known as the DIFC Employee Workplace Savings (DEWS) scheme. DEWS is set to launch from 1 January 2020 and the DIFC recently finalised the selection of the key service providers of the replacement plan.
Equiom, a global trust services provider, is selected as master trustee with Swiss insurer, Zurich Middle East, who has been appointed as the scheme administrator. Mercer will assist Zurich as the scheme's investment advisor and Smart Pension, a defined contribution master trust pension scheme for UK employers, will act as the technology services provider. The regulatory aspects of the master trustee and duties of the scheme administrator will be overseen by the Dubai Financial Services Authority (DFSA).
The DIFC is the first jurisdiction in the UAE (and the region) pioneering change to the current end-of-service gratuity system. Under the proposed scheme, all DIFC employers and employees (who are not eligible for the GPSSA or equivalent state pension scheme) will be required to participate in DEWS, unless the employer is operating a qualifying system of their own and obtains a certificate of compliance from the DIFC. The guidelines for a qualifying system as an alternative will be provided after 15th September 2019.
DEWS, which aims to offer a low cost platform for employers to make end-of-service contributions to the plan, also allows employees the option to make voluntary contributions of up to 100% of their salary. The contribution by the employer will be the equivalent of the current gratuity accrual rate. Employees who prefer to avoid investment risk with their contributions can choose between a low, medium to high risk profile for investments made in respect of their voluntary contributions.
When an employee leaves DIFC employment, they will receive ESG for service up to the changeover date i.e. 31 December 2019 and the benefit from the new scheme. If the employee decides to transfer employment to a UAE onshore employer, for example, the employee can elect to withdraw or leave their funds in DEWS, but no further employee contributions towards the plan will be possible. The decision to leave funds in the DEWS scheme would see a management fee applied.
Following the appointment of the master trustee and scheme administrator, the next step in the changeover is the on-boarding process with DIFC employers and an outreach programme for employers to understand the transitional process to the DEWS scheme.
To discuss how the changes will affect your business, please contact our employment team