Dubai Economic Development (DED) is planning to set up a pension scheme for expatriates residing and employed in Dubai. If this scheme takes off, it will make Dubai the first city in Middle East to provide such beneficial system for 1.79 million expats residing in the emirate. The new pension scheme will bring an end to 40-year gratuity scheme.
Presently, with no pension schemes for employees working in Dubai, firms provide end-of-service payouts which are calculated on the basis of employment and basic salary the employees get.
The main aim behind considering this scheme is to make Dubai the epicentre of business and residence. It will also enhance the welfare of expatriates and will provide proper residence mechanism in future. The scheme will also encourage employment and boost funds needed for the development projects taking place in the city.
Ali Ibrahim, Deputy Director of Planning at DED, said: ?The study of pension system for the expatriates is the part of ideas. It will cover both public and private sector, but it is still in its primary stage. The DED has also formed a specialised team to evaluate the idea and will present the findings to the concerned authorities for appropriate action.?
Financial analysts and experts have welcomed the decision and said it would boost investors’ confidence and improve standard of living in the region. Aref Al Muhairi, Executive Director of Dubai Statistics Centre, said: ?There is no doubt the proposed pension plan will ensure financial and social stability and create sufficient guarantees for expatriate workers in the emirate. This in turn will increase confidence in the domestic economy.?
Dr. Mohammad Al Asoomi,?UAE based economist, said: ?As it is applicable worldwide, pension funds usually contributes in different investments to help grow with the country?s economy.?
Fund managers in Dubai have welcomed the scheme as it would introduce sustainable money flow for long term and will also help in boosting economy of the region. The extra money will also help in strengthening local stock exchange.
Saleem Khokhar of Asset Management Group said: ?Overall both employers and employees gain from this pension as employers no longer has to dedicate time and resource to managing end of service benefits whilst employees enjoy the benefits and advantage of fully fledged institutional money managers looking after their assets and interest.?
Harun Kapetanovic, DED advisor, said: ?The first goal is the economic developments. As long term investors, pension funds globally play a major role in terms of developing markets, both equity and debt. If all the money is invested in UAE then it will be perceived as a form of tax.?
AFTER-EFFECTS PENSION SCHEME
Once this pension scheme comes to role it would help in doing more contributions which is already done by companies for gratuity, and will also protect company staff from insolvency. Meena Raza, HR Consultant at Aon Hewitt, said: ?It removes the risk of loss of end-of-service benefit due to insolvency of the employer.?
?If it replaces the end-of-service benefit and it is an eight percent contribution for employers, it shouldn?t technically effect balance sheet as you are supposed to be accruing for your end-of-service,? she added.
Financial experts feel that this new pension scheme will be irrelevant because country?s present residency rules don?t promote long term residency. Mike Hynes, managing partner at Kershaw Leonard says: ?A pension scheme is long term investment which will not fit to the current country?s regulation. The pension schemes are all about retirement. Right now there is no guarantee even if you bought a house that you could retire here. The rules and regulations of buying property are far from clear.?
Though financial groups in Dubai have welcomed this DED initiated scheme, there are some challenges need to be faced to convince employers to sign the scheme. ?Many employers are accustomed to funding end of service benefits from cash flow, when the need to make payments arises,? said Kaptanovic.
However, DED yet not said whether the scheme will be in voluntary basis or employees have to contribute for it. Officials of UAE?s largest construction are however feels that the companies which are implementing this plans will have immense problem.
Nick Tolchard, head of Invesco Middle East, expressed his concerns on how expatriates can expect the end of service benefits under the new scheme. ?If there is gratuity environment, clearly people would have amassed gratuity allowances. Arrangement needs to be done for the account of transmission.?
For many investors and financial experts, this is a quite complex issue which needs to be sorted out in the initial stage.
According to the survey, almost 71 per cent of people in the UAE lack savings and half of the population save less than their expectations. People are still uncertain about their future as they don?t have adequate support for financial stability. With this idea of saving and pension scheme, it will not only help expats, but also Dubai residents.
A previous attempt of creating a pension scheme designed by the General Authority for Pensions and Social Insurance was made in 2008, which failed to materialise.
Arabian Gazette asked the opinion of a Dubai-based IT analyst on the pension fund scheme. “Gratuity assures me that I have some accumulated amount when I leave my current employer. With pension funds, although maybe good for the country’s economy, the security or assurance of the funds is a question mark. If it is similar to the 401k plan in the US then I guess it is OK,” the female analyst cautious remarked?on condition of anonymity. “Another advantage with pension funds is that, even if my current company goes bust, my savings in pension funds are protected. In any case, only when we come to know of the details and nitty-gritty of it any further comment can be made,” the IT analyst added.
Sources: Gulfnews, Emirates 24/7, The National