UAE: Voluntary savings system not part of end-of-service benefits

Asma Ahmed - | UAE

The Ministry of Human Resources and Emiratisation has affirmed that the involvement of private sector workers in the "alternative savings system for end-of-service benefits," whether through additional monthly contributions or lump-sum payments from salaries, does not constitute part of the employees' end-of-service benefits.

Instead, it serves as an additional opportunity for employees enrolled in the system to enhance their savings.

This savings system channels the funds allocated for end-of-service rewards into approved investment funds, aiming to foster employees' savings and capitalize on investment returns. It operates as an optional alternative to the existing end-of-service gratuity system in the private sector, wherein participating establishments allocate monthly percentages to the investment fund accounts of registered employees.

Responding to inquiries from its website visitors and social media followers, the Ministry clarified that the savings system aims to secure workers' end-of-service benefits, shield them from inflationary pressures or employer insolvency, and promote savings and investment opportunities within the country.

Under this system, a full-time employee's basic monthly subscription is calculated at 5.83% of their monthly basic wage for service periods up to five years and at 8.33% for service periods exceeding five years. Employees are entitled to all subscription amounts and investment returns, provided that the basic monthly subscription is transferred to the investment fund account within 15 days of each month.

Employees have the option of making additional voluntary contributions from their total wages, either monthly or as lump sums, to boost their savings and encourage investment. These contributions, limited to 25% of the total wage monthly or annually, do not constitute part of the end-of-service benefits.

Furthermore, employees can withdraw or adjust their voluntary contributions according to the investment fund's regulations, with the entitlement ending upon termination of employment. The optional alternative system offers diverse investment options, including a capital guarantee portfolio, risk-based investment options, and Sharia-compliant investment funds, catering to various risk preferences and financial objectives.

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