From 1 February 2020, employers will need to either (a) enrol eligible employees in the DIFC Employees Workplace Savings Scheme (DEWS) or (b) pay contributions to an alternative "Qualifying Scheme".
Your existing employee savings or pensions scheme may be a "Qualifying Scheme" if it satisfies the criteria set out below.
In most cases, changes will need to be made to your existing scheme in order to obtain the requisite approvals for the scheme from the DIFC Authority – we can help you with that.
Will my existing money purchase pension scheme meet the DIFC's criteria?
A money purchase pension scheme is one where the member's benefits are calculated by reference to the value of the contributions made by and on behalf of the member together with investment gains (or losses), rather than by reference to any formula.
If you currently operate a money purchase scheme, it will be a "Qualifying Scheme" if it satisfies a number of requirements, which are broadly:
- a certificate of compliance is obtained from the DIFC Authority;
- the employer pays a minimum of 5.83% of basic salary for the first five years of service and 8.33% of basic salary thereafter;
- it has a "supervisory body", such as trustees of a trust-based pension scheme, with the power to remove and replace the scheme's "operator";
- the scheme rules provide for:
- the assets of the scheme to be invested in investment funds selected by members, or in a default fund; and
- member contributions to the scheme to be invested in cash or near-cash assets;
- the scheme rules provide for the operator to follow-up where employers fail to pay the required contributions, and where necessary to report defaulting employers to the DIFC Authority;
- the benefits should become payable when the member leaves their employment (regardless of age), unless the member expressly decides to defer payment.
There are also extensive disclosure requirements in the regulations, including requirements to disclose fees and charges payable to the scheme or its service providers.
Will my existing defined benefit pension scheme meet the DIFC's criteria?
A defined benefit pension scheme calculates benefits by reference to a formula, such as an annual pension of a defined fraction of the member's final salary for each year of service.
Defined benefit schemes will be exempt from most of the new regulations and will be deemed to be a alternative Qualifying Scheme provided:
- the employer obtains the prior approval for the scheme from the DIFC Authority;
- the value of the defined benefits is greater than the benefits that would be obtained by paying the minimum employer contribution to a defined contribution scheme (the "value test"); and
- the defined benefit scheme is established in a recognised jurisdiction and subject to an equivalent level of regulation to that provided by the DIFC.
The exemption from the detailed requirements of the new regulations may make defined benefit schemes attractive to some employers although employers will need to check that the value test is met and be able to demonstrate that to the DIFC Authority.
Since the deadline for this year's applications for certification is 31 March, we recommend that you consider, as soon as possible, whether you wish to explore implementing an alternative to DEWS.
Addleshaw Goddard can assist with reviewing your existing scheme to check whether it meets the criteria and, if necessary, assist you with:
(i) making the necessary changes to ensure compliance with the new regulations; and
(ii) obtaining the requisite approvals from the DIFC Authority.
For more information, please contact: