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UAE pensions and the end of end-of-service-gratuity

  • Market Insight 21 December 2020 21 December 2020
  • Global

  • Insurance 2021 - the year ahead

The United Arab Emirates has historically operated an end of service gratuity (EoSG) model whereby all employees are entitled to receive a payment at the termination of their employment calculated by reference to their period of service. Historically, employers have accrued this liability on their balance sheet but have not proactively funded such arrangements. This left employees exposed to the solvency risk of their employers.

The Dubai International Financial Centre (DIFC) launched an alternative to the EoSG model in April 2020 whereby employers were required to pay into a money purchase scheme. Contributions are based on a proportion of an employee's salary (either 5.83% or 8.33% of basic salary depending on period of service) and the employee is entitled to select from a range of model investment portfolios based on their risk appetite. DIFC employers had the option to contribute to the DIFC Employee Workplace Savings Scheme which is administered by Zurich or to register an alternative qualifying scheme.

It is expected that the DIFC model will be rolled out to the wider UAE thereby bring an end to the EoSG model. This will create opportunities for life insurers and pension funds to offer qualifying schemes to employers in UAE.


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