Dubai International Financial Centre (DIFC) is set to replace expat workers' end-of-service gratuity with a low-cost savings plan that offers employees a choice of up to 12 passive investment funds.
The UAE is looking to "enhance and improve" the end-of-service benefits awarded to employees to help companies attract and retain talent and ensure firms can adequately fund the liability, according to the government. Nearly 60% of UAE workers depend on gratuity payments to partly of fully fund their retirement, according to a study from Old Mutual International and Quilter Cheviot.
The centre said the new scheme will charge employee members an annual management fee of about 1.25% to 1.5% or lower depending on the administrator appointed to oversee the project set to go live on January 1, 2020, The National reported.
People are realising that the current defined benefit scheme is not working and, instead of shying away from the really complex and sensitive issues involved, it was imperative that the DIFC steps up to play a leading role"
"People are realising that the current defined benefit scheme is not working and, instead of shying away from the really complex and sensitive issues involved, it was imperative that the DIFC, as the most compelling and leading financial hub in the country, steps up to play a leading role in this project," said Jacques Visser, the chief legal officer at DIFC.
The DIFC established a Working Group over two years ago to examine the various options available for reform of the end-of-service-gratuity.
There will be a maximum of 10 to 12 passive funds on the restricted platform, to ensure the annual management cost stays low.
Employees will also be able to control how their money is invested, choosing between a cautious, balanced or aggressive portfolio. However, there will be a "sensible" default option for those unsure of what choice to make.