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UAE’s New End-of-Service Savings Scheme: How Employees Can Grow Their Gratuity

The Ministry of Human Resources and Emiratisation (MOHRE) is calling on private sector companies to enroll in the Voluntary Savings Scheme, a modern alternative to the traditional end-of-service gratuity system.

This innovative program marks a significant shift, offering employees a unique opportunity to invest their end-of-service benefits in leading, approved investment funds and potentially grow their savings for the future. This guide will walk you through everything you need to know about this new scheme, from how it works to who is eligible and what it means for both employees and employers.

What is the New End-of-Service Savings Scheme?

For years, the end-of-service gratuity has been a lump-sum payment that employees receive upon leaving their jobs. While this system has served its purpose, the new savings scheme introduces a modern, investment-based model designed to offer greater financial security and growth potential.

The primary goals of the new scheme, as outlined by MOHRE, are to:

  • Protect employee savings by placing them in regulated investment funds, safeguarding them from inflation and unforeseen circumstances like employer insolvency.
  • Promote a culture of investment by giving employees the tools and options to grow their end-of-service benefits.
  • Enhance the UAE’s attractiveness as a top destination for global talent by offering a competitive and modern benefits package.

How the Scheme Works for Employees?

The new scheme is designed to be flexible and accessible. Here’s a breakdown of how it functions:

  • Voluntary Participation: It’s important to note that this is a voluntary scheme, meaning employers can choose whether or not to enroll their employees.
  • Employer Contributions: For participating companies, employers are required to make monthly contributions to an approved investment fund on behalf of their employees. The contribution rates are:
  • 5.83% of the employee’s basic monthly salary for the first five years of service.
  • 8.33% of the employee’s basic monthly salary for service beyond five years.
  • Voluntary Employee Contributions: Employees have the option to contribute an additional portion of their salary to the scheme—up to 25% of their total annual salary—allowing them to further boost their savings and investment potential.
UAE End of Service Savings Scheme

Investment Returns for Participating Employees

One of the most significant advantages of the new scheme is the potential for reliable investment returns. The system is designed to grow assets and enhance financial wellness, with gratuity payouts guaranteed regardless of an employer’s financial situation.

  • Investment Fund Options: Employees can choose from a range of investment funds tailored to their risk appetite and financial goals. Skilled workers have the freedom to select from the full range of investment portfolios, while non-skilled workers are automatically placed in capital-guaranteed portfolios for their protection.
  • Approved Investment Fund Providers: The scheme is managed by reputable and officially approved investment fund providers, ensuring your savings are in safe hands. The three approved funds are:
  • FAB Fund (First Abu Dhabi Bank)
  • Lunate Fund
  • The National Bonds Sukuk Fund
  • Increased Financial Awareness: The scheme empowers employees to manage their personal savings strategically. They can also choose to keep their savings invested to continue growing even after leaving a job.

Broad Benefits for Participating Companies

The new scheme isn’t just beneficial for employees; it also offers significant advantages for employers, with MOHRE highlighting key advantages for participants.

  • Enhanced Reputation: The scheme enhances a company’s reputation as a forward-thinking, employee-centric organization that prioritizes financial security. This helps boost employee loyalty, productivity, and attract top talent.
  • Financial Stability: By making regular monthly contributions, companies can better manage their long-term financial liabilities. The cost to employers is lower in the medium term compared to the traditional gratuity, as contributions are based on the basic salary at the time of payment, rather than at termination when salaries are typically higher.
  • Streamlined Administration: The scheme simplifies the administration of end-of-service benefits, allowing companies to focus on their core operations.

New Categories Eligible for Participation

The new savings scheme is designed to be inclusive. The Ministry has recently extended voluntary participation to three additional categories:

  • Self-employed individuals and freelance permit holders.
  • Non-UAE nationals working in government entities, institutions, and affiliated companies.
  • UAE nationals employed in both the public and private sectors.

These groups can now opt into the scheme to securely preserve and grow their savings. It is important to note that employers must continue to contribute on behalf of UAE nationals to the relevant pension and social security schemes as required by law.

Accessing Employee Entitlements

The process for accessing your funds is straightforward and designed to give you control over your savings, especially when changing jobs. If you move to a new employer, you have the option to either withdraw your savings from the fund or keep them invested. Your new employer may then continue contributions to the same fund or choose a different fund manager.

How are Benefits Paid Out?

The disbursement process is managed in coordination with your employer and MOHRE.

  • The Role of the Employer and MOHRE: To initiate the disbursement of legal entitlements, the employer must first terminate the contractual relationship by canceling the employee’s work permit via MOHRE. The employee then chooses either to withdraw the savings or continue the investment without making additional contributions.
  • Withdrawal of Voluntary Contributions: Your personal voluntary contributions are flexible. You can request a partial or full withdrawal at any time through the designated administrative service provider.

Key Considerations for Employees and Employers

A smooth transition is key for both parties. For employees whose companies opt into the scheme, any service period prior to enrollment will have its end-of-service entitlements calculated according to traditional labour law. From the date of enrollment onward, benefits will accrue under the new savings system. All accumulated benefits—both old and new—will be paid out together at the end of the employment relationship.

Before making any decisions, it’s a good idea to understand what your gratuity would be under the traditional system. You can use a Free Gratuity Calculator to get an estimate of your end-of-service benefits, which can help you make a more informed choice about the new savings scheme.

The Future of End-of-Service Benefits in the UAE

The new end-of-service savings scheme is a clear indication of the UAE’s commitment to creating a world-class environment for its workforce. By aligning with global best practices in retirement and savings plans, the UAE is not only enhancing the financial security of its employees but also strengthening its position as a leading global business hub.

Frequently Asked Questions (FAQs)

No, the scheme is voluntary for employers to join.

While there are capital-guaranteed options available (and mandatory for non-skilled workers), any investment carries some level of risk. It’s important for skilled workers to choose a fund that matches their risk tolerance.

Your accrued gratuity up to the point of joining the new scheme is protected. It will be calculated based on the traditional system and paid out along with your new savings at the end of your service.

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