UAE moots pensions for expats

UAE moots pensions for expats

Expat workers in the UAE might soon be able to take advantage of pension schemes as a new report recommends to the government that overseas workers should be offered savings investment funds, local media has reported.

The fund would replace the traditional end-of-service gratuity popular in the Emirates and other Gulf states, though the lack of detail about employer contributions raise some questions.

The end-of-service gratuity calculates an amount based upon completion of a full year of employment.

“The scheme would be a major strategic step and a new experiment of its type in the region,” said the study, which was presented to the government, Gulf News reported.

The scheme would be open to both public and private sector workers, and “will have a positive impact socially and economically on all parties of the production cycle and stimulate the national economy,” according to the study.

The study proposes that an expat’s employer deducts a monthly sum to be invested, with a lump sum plus any interest that has accrued payable upon completion of service.

“The proposed fund will serve as a new model for expatriate employees’ participation in the investment decision,” the study said.

Fund-managing companies would run the scheme, said the study, which would use employees’ monthly deductions and the additional voluntary contributions, “to invest it in an optimal way that ensures good financial returns for the employees”.

The study described the proposed fund as a “vital and strategic project, which is based on the best global practices in the field.”

Questions remain to be answered

However, it might not be time for expats to celebrate just yet.

There is no mention of levels of contribution by the employer, for instance.

The report says that the new scheme “will help increase employee dues and reduce the expenses of employers, whether government or private bodies, thus stimulating the national economy”, according to Gulf News.

And the study recommended that employers’ participation in the fund should be voluntary, whether the employer is a private or public sector.

Better than the status quo

AES International is a London-based wealth management and advisory firm that specialises in expat finances and has good knowledge of the region.

Speaking to International Investment, chief executive Sam Instone, pictured above, said: “This is definitely an improvement on the existing situation, if it happens.

“Presently, companies pay a 13th month’s salary towards the end-of-service gratuity.

“However, governance is not as it is here in the UK, and that money can disappear on the balance sheet, by being presented as profit, for instance, and often ends up being paid out of cash.

“So if a company goes into liquidation, the employee’s ‘pension’ money is lost.

“By passing it over to a specialist firm, that money is, if you like, ring-fenced and protected.

“While the report doesn’t suggest any increase in employer contributions, at the very least, if such a scheme were effectively to protect that 13th month contribution – a little over 8% of pay – then that would have to be a good thing.”