By Nina Johnston - Managing Director, Equiom Isle of Man
The End of Service Gratuity benefit has been the national ‘pension’ for expatriate workers in the UAE for more than 40 years, but the system has been criticised for its inability to cover the entire lifetime of a worker in the same way that a traditional pension would and has been referred to as a mid-career bonus by some.
The Dubai International Finance Centre (DIFC) recently launched a funded workplace savings plan for expatriate workers, which will replace the existing End of Service Gratuity system in early 2020, impacting more than 2000 companies currently registered in the DIFC. This announcement marks a significant step in labour law reform for the DIFC which has its own Employment Laws, separate to the federal laws of UAE.
The new platform, DIFC Employee Workplace Savings plan (DEWS), will be structured as a DIFC law trust with a DFSA regulated scheme administrator dealing with employer contributions and member engagement. Our DIFC company Equiom (Isle of Man) Limited (DIFC Branch) has been selected as the Master Trustee for the DEWS plan.
The funds for DEWS will be invested into 5-6 investment funds, which have been carefully selected by us as Trustees in conjunction with expert third party investment advice.
Some of the key features of the new plan are as follows:
- The employer will be required to contribute to the plan on a monthly basis.
- Employer contributions will be largely the same in the DEWS plan as they currently are in the End of Service Gratuity benefit, so employers should not expect to be disadvantaged cost-wise.
- Any accrued gratuities on the old system will remain intact until the changeover date when employees will then be put on the new savings plan. On their leaving date, employees will receive the amount earned from both their End of Service Gratuity and DEWS plans.
- In addition to employer contributions, employees will have the option to make their own contributions to DEWS if desired and will also be given a choice as to how their contributions are invested.
- The DEWS plan will be run as a master trust scheme by us as the selected third party fiduciary. It will be mandatory for employers in the DIFC to pay into DEWS, unless they already have a similar scheme in place that meets the qualifying criteria to gain an exemption from the DEWS plan.
- The employer has the ability to sign up to a robust platform without the need to incur hefty set up costs for implementing an alternative mandatory scheme. No initial set up costs for the DEWS plan are being levied by any of the service providers selected to run the plan, representing a significant cost saving to the employing companies.
Importantly, the funds will be legally held by Equiom as Trustee for the benefit of the employees as opposed to the funds remaining under the control of the employing company for them to utilise as they see fit. We are duty bound under the terms of the Trust Deed to hold the amount for the ultimate benefit of its members (the employees) and the trust creates that important segregation.
Separation of the end of service / retirement pot from the control of the company has long been a concern of employees in the region and, therefore, having an international trustee managing these contributions should bring significant comfort to both employers and employees and potentially improve staff retention and employee security.
As Master Trustees, our first priority was the selection of the scheme administrator, which has been confirmed as Zurich. Together with Mercer as investment advisors to the plan, we have been working tirelessly with Zurich, DIFC and Dubai Financial Services Authority (DFSA) behind the scenes since the beginning of August in relation to implementing the rules and making the appropriate amendments to the regulations and employment law to facilitate the introduction of this mandatory savings plan.
We fully appreciate that there are lots of questions coming from employers and employees within DIFC in terms of what this means for them and we have been populating an FAQs page on the DIFC website to address immediate queries. In the coming weeks there will be a series of events taking place in Dubai to share more details in relation to the particulars and processes for those joining the plan. This is a hugely positive step for employees in terms of End of Service Gratuity reform for expats and provides a secure platform to facilitate growth potential on the statutory entitlement. We are excited to be working with the DIFC and all of the stakeholders involved over the coming months as we roll out the DEWS plan for launch in 2020 and beyond.
We at Equiom have been providing similar services to UAE companies for more than 20 years and can administer plans from any of our offices in the Isle of Man, Jersey or Guernsey, all of which have specialist legislation in place to allow and afford GCC companies to establish savings plans. Equiom (Isle of Man) Limited (DIFC Branch) is regulated by the DFSA which enables it to provide trustee services (other than trustee of an express trust) in or from the DIFC.
Article updated 28/03/2022
Equiom Fiduciary Services (Middle East) Limited was established in March 2022. It replaces Equiom (Isle of Man) Limited (DIFC Branch) to accommodate the regulatory changes from the DFSA whereby operators of an Employee Money Purchase Scheme were no longer able to operate through a branch office and further supports Equiom’s commitment to End of Service reform across the region.
This marketing material is distributed by Equiom Fiduciary Services (Middle East) Limited, which is regulated by the DFSA. It is intended only for Professional Clients or Market Counterparties, as defined by the DFSA, and no other Person should act upon it.