BE2C2 Report – A fifth of UAE companies face end of service liabilities of over $15 million, with 88 percent of GCC companies surveyed having no plan to fund gratuities due, according to a 2018 survey by global advisory and brokerage company Willis Towers Watson which covered 300 firms.
Out of all of them, only 20 percent said they offer a retirement or long-term savings plans for their employees.
Creating a savings system for end-of-service benefits in all sectors would be an important strategic step and will be the first of its kind in the region with others to follow, said some experts.
UAE is home to one of the world’s highest percentage of immigrants-
80 percent of the total population and 200 nationalities, and the largest number is from South Asia.
In 2018, remittances to home countries surged by 13.1 per cent- nearly $24 billion was remitted by these expats.
UAE government’s moves to enhance the gratuity scheme of expats and introduce a retirement scheme for the country’s foreign workforce- more than 80 percent of the Emirate population comprise foreign expats, has also been welcomed by the private industry.
Such a scheme for employers and employees is considered among best international practices that also include unemployment benefits.
Federal Authority for Government Human Resources (FAHR) held a meeting to debate the issues, according to a report by The Khaleej Times.
The FAHR meeting was with industry experts in the area and looked at some of the current best practices from around the world.
The new payback system once launched will enhance the current gratuity system and see the introduction of a private sector savings scheme.
The planned scheme would offer long-term financial security for expatriates, and “this will turn the UAE into a preferred global destination”, said many employers.
“This is no doubt an amazing news,” said Yusuffali MA, chairman and managing director of Lulu Group to Reuters.
“Majority of expatriates working here have always considered UAE their second home, thanks to the excellent standards of living, harmonious culture and the tolerant society prevailing in this great country. And I am sure any initiative toward a retirement fund would further boost the UAE’s image as one of the best countries to live and work in.”
Yusuffali said the move would work as a catalyst to attract and retain global talents. “Great news for all sectors, I must say,” he added.
Promoth Manghat, CEO of UAE Exchange, described the development as a ‘progressive’ move that will bolster the UAE’s position as a preferred place to live in.
“The discussions initiated by the Federal Authority for Government Human Resources towards setting up investment funds to manage retirement and end-of-service benefits are a commendable one. It clearly expands opportunities for savings for the expatriate community and will spur a renewed focus on financial planning. The wider socio-economic impact of the programme, especially in terms of its ability to facilitate financial security for the lower economic strata, will be significant.”
Manghat said the move would further enhance the UAE’s standing as a “preferred destination for talent and for the expatriate workforce in the region”.
Prasanth Manghat, CEO and executive director of NMC Health, said such investment funds are a global phenomenon, and the UAE has been at the forefront of fostering a conducive and fair ecosystem for investors, employers and employees alike.
“Majority of UAE residents depend on their end-of-service gratuity payment to fund their retirement, and the new system stands to help fund the retirement gap between the gratuity payment and an employee’s retirement costs.”
Earlier this month, it was announced that officials at the Dubai International Financial Centre (DIFC) plan to reform the end of service gratuity scheme the free zone offers employees, with new measures said to come into effect from 1 January 2020.
The financial free zone is planning to replace its current end of service gratuity system, where a lump sum is paid when a worker leaves employment, with the DIFC Employee Workplace Savings (DEWS) Trust savings scheme.
(BE2C2 Report is a data journalism initiative of Irshad Salim Associates, a New Jersey, USA, based consulting firm in association with BE2C2 in Pakistan)