United Advocates

UAE Announces End of Service Saving Scheme

On 4 September 2023, the UAE Cabinet approved a new system for employees in the private sector and free zones of the UAE. The scheme will be optional for employers to join.

The system will introduce a savings and investment fund from the private sector which will be overseen by the Securities and Commodities Authority (SCA) in coordination with the Ministry or Human Resources and Emiratisation. The scheme will be aimed at private sector and free zone employees, however, employees in government departments may also join the scheme for savings and investment purposes.

In the announcement of the new scheme, there were three investment options presented, according to the UAE Government Media Office, the following options will be available:

  • Risk-free investments that maintain capital;
  • Investments where the risk would vary between low, medium and high; and
  • Shariah-compliant investments.

The accrued savings and investment returns would be payable to the employees when their working relationship with their employer ends. In the long term, the scheme would cost less than the traditional system stated in Article 51 of the UAE Labor Laws, along with assisting in retaining foreign talent. It has often been stated by experts that UAE residents depend on their gratuity pay as a retirement fund.

Currently, there is no publicly announced timeline for the transition to and implementation of the scheme in the UAE. This scheme is the first of its kind at a federal level following the implementation of a similar end of service scheme introduced in Dubai for expatriate workers in government departments.

Companies that opt-in to the scheme are asked to pay a monthly contribution, the companies may choose which employment categories can benefit from the scheme.

The previous end of service gratuity system, which is still currently in place, was limited to the payment of a maximum of 2 years wages to the former employees, the new scheme would allow an employee to accrue much higher returns on their savings. This would align with the aim to safeguard workers’ savings and assist in guaranteeing their rights and achieving the financial stability of their families as stated by Sheikh Mohammed bin Rashid Al Maktoum.