savings plan

UAE considering work savings plan for expats

by Ray Clancy on December 25, 2017

The Government in the United Arab Emirates is considering a work investment scheme for expats after a study recommended that overseas workers should be offered some kind of savings plan for retirement.

Traditionally expats in the UAE, and many other states in the Gulf region, benefit from an end of service gratuity, which is based on the number of complete years worked for an employer.

Savings Plan

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But now a report has suggested that a pension-style savings fund would be more appropriate and if it would be a first for the region if such a plan was put in place. It is not clear how much employers and employees would contribute.

According to the study, a new scheme would have to be made available to both public and private sector employees and it has suggested that employers would deduct a monthly sum to be invested in a scheme.

Employees could make additional voluntary contributions. Then, it is proposed, when an expat’s term of employment comes to an end they would get a lump sum plus any interest accrued on the investment.

‘The proposed fund will serve as a new model for expatriate employees’ participation in the investment decision,’ the study said. It suggests that fund management companies would run the scheme to invest in ‘an optimal way that ensures good financial returns for the employees’.

The idea has a lot of support as the study suggests it could help to stimulate the national economy and reduce the expenses of employers. But it does not suggest that any scheme that is introduced should be compulsory, leaving it up to employers to decide if they want to take part or not.

Experts believe, however, that employers would support the introduction of such a scheme. Currently they pay effectively a 13th month of salary which is put aside at the end of each year to make up the end of service payment.

It usually works with 21 days of salary for each year of service put aside for up to five years, then it increases to 30 days of salary for each year of service after that.

But there have been concerns expressed that the money that is put aside is not regulated and a formal scheme would not only see the sums invested but also make the whole payment system when an expat leaves simpler and also more transparent.

It would also offer expat employees more financial security as currently if a firm went out of business none of the end of service money is recoverable.

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