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A new “golden” pension scheme designed to help expats save for retirement has launched in the United Arab Emirates.
The pension aims to close the financial gap between the 44% of expats who want to retire by age 55 and the 45% who have no retirement savings.
The problem has been exacerbated by an influx of expatriates as visa and residence rules have been eased.
The UAE has the second largest economy in the Arab world, after Saudi ArabiaAnd it attracts many skilled expatriates who want to retire and return home.
About 9 million people live in the UAE, but 85% (7.65 million) are expatriates.
What is a gold pension?
Golden Pensions was launched on 11 October 2022 by National Bonds, a savings and investment company backed by the Dubai Government, offering a range of financial planning products and services to UAE residents, including expatriates.
Highlights include:
- Members must be employees of a registered company.
- Employers can make a lump sum payment to cover their end-of-service gratuity, or a term deposit to cover any gratuity owed by the employee upon retirement.
- Employees can make additional contributions, with Dh100 (£24.13) being deducted directly from their wages each month.
Pension savers can adjust their contributions, provided the monthly deposits are above the minimum and receive a return on their savings in addition to any contributions made by their employer.
The benefit to business is that, amid stiff competition for skilled professionals, subsidized pension schemes may prove to be an attractive benefit and could improve employee retention and provide benefits for longer-serving employees. Provide long-term financial advantages.
Registered members can also add life insurance to their policy through the takaful system, where all policyholders share the risk equally and donate to a fund that invests according to the principles, excluding anything considered gambling.
Businesses can rest assured that they have set aside the funds they need for end-of-service retirement benefits, earn low-risk interest on the balance, or make ongoing contributions to employees’ retirement.
Pension Regulations in the UAE
There are marked differences between income, wealth and security in the UAE. In addition, while a large number of the population are expatriates, the social security system excludes them from applying for most government benefits.
The General Pensions and Social Security Authority (GPSSA) was established in 1999 to provide pension and social security benefits to UAE citizens. Pensions are paid when working age is exceeded or when someone is unable to work due to injury or disability.
Foreign nationals are not covered, and any resident who is not a citizen of a Gulf Cooperation Council (GCC) country has almost no access to any social security scheme.
UAE citizens can apply for retirement benefits from the age of 49 if they work in the government or private sector, or after 20 years of service.
End-of-service pay is a standard entitlement for nationals, but is only offered to expatriates with employment benefits.
Standard remuneration is calculated as 21 days’ pay per year or 30 days’ pay per year after five years of service.
The norm is for expats to contribute to workplace or personal pensions.
Businesses participating in a gold pension scheme will be guaranteed end-of-service gratuities and additional pension benefits by depositing the expected value into a fund or making monthly contributions.
Employees can make regular deposits from their payroll or roll savings into a pension plan if they wish.
Potential impact of UAE gold pensions
A gold pension plan is not a government plan. Uptake will depend on how many employers choose to register.
The scheme could prove beneficial as most expats in the region face complex decisions about whether to return home after retirement, the costs associated with private pension plans and the drawbacks of remaining in the UAE.
National Bonds Chief Executive Mohammed Qasim Al Ali, Say The program addresses a gap in business investment in end-of-service payments, which “not many companies do, deprives employees of these benefits”.
It is hoped that the golden pension scheme will encourage retired expats to stay in the UAE. It could also attract new expatriates who may be reluctant to relocate because of the risk of compromising their eligibility for state pension benefits at home or the complications of transferring pensions to alternatives such as QROPS or SIPP schemes.
HMRC Approval Qualified Overseas Pension Scheme (QROPS)British citizens can transfer their pensions without tax penalties, but the scheme does not cover the UAE.
Self-invested pension plans (SIPPs) is another option commonly used by expats. Still, they charge a fund management fee and often require a wealth manager or investment advisor, which can be expensive.
Fund investments through gold pension schemes are Sharia-compliant and exclude investments in industries such as gambling or those associated with high-interest borrowing.
Limitations of gold pension plans
While the product is advertised as a pension, it is more of a long-term savings plan that helps employers build wealth to pay end-of-service gratuities than the defined contribution or defined benefit schemes that are more common in the UK.
However, the discretionary contribution option for employees does mean they can treat the fund as a retirement savings asset and put a portion of their income into their plan, just like an auto-enrollment pension fund.
A relatively large employer of 9,000 employees joined the scheme within weeks, although it remains to be seen how many companies choose to participate.
UAE pensions are largely based on one-off end-of-service benefits rather than continuous pension income, so if employees do not contribute and employers only pay the minimum required gratuities, there is a limit to the services the fund can provide.
Foreign nationals who rely on a gold pension fund or other occupational pension scheme to fund their retirement will need to seek professional advice to ensure that benefits are adequate to cover expenses.
There is no national pension for foreigners in the UAE, so many may wish to continue paying guaranteed or contribution-based returns to private pension schemes, designed to provide financial security throughout retirement.
UAE Gold Pension FAQs
If enrolled in a workplace scheme, most employees are entitled to pension benefits from age 50 or after 20 years of service, whichever comes first.
Individuals working in the private or government sector can receive pensions from the age of 49 or from the age of 20 onwards.
The difficulty is that foreigners are usually only eligible for social security support and state pension funds if they are UAE nationals, in addition to workplace pensions or private pension funds.
Emirati employees can join the scheme through their employer – the organization needs to be registered before employees can start contributing.
Employers may choose to contribute to employee superannuation funds and may use this as an incentive, additional form of remuneration and employee retention policies.
Scheme members can contribute savings or rely on deposits from their employers, with direct deposits starting from Dh100 (£24.13) a month.
National Bonds has a Dh35m (£8.46m) rewards program in which individual contributors will be able to win prizes such as cash and cars.
Withdrawals are made in two tiers. First, employees can withdraw the funds they contributed to the plan, including any interest, at any time without restriction.
They cannot withdraw their employer’s contributions without the company’s permission. Under the employment contract, the employer will need to authorize access once the worker retires or leaves the job.
The plan is based on a proposal made in March 2022 by the Crown Prince of Dubai, who chairs the Executive Council.
He proposed that UAE employees should have a pension scheme that guarantees employee rights, allows foreign nationals living in the UAE to increase their savings, and ensures that end-of-service benefits are protected.
One of the underlying drivers could be that many expats move back to their country of origin after retirement due to a lack of pension income – some are only eligible for state pension schemes upon their return.
By introducing a gold pension scheme specifically for foreigners, it is hoped that the vast majority of expatriates in the UAE will choose to stay and contribute to the economy through taxes, property ownership and economic spending.
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