Defined contribution end of service lump sum benefits in the UAE
What has changed?
The new alternative EOSB system, effective as of March 2024, sees company contributions to a selected, licensed DC scheme equal to 5.33% of basic salary per month in the first 5 years of company service, plus 8.33% of basic salary per month after the first 5 years of company service.
Whereas the existing EOSB lump sum is equal to 21 days of final basic salary per year in respect of the first 5 years of company service, plus 30 days of final basic salary per year for any remaining company service.
Please note that the calculation of the accrued EOSB prior to joining the alternative EOSB system will be calculated at the end of the employment relationship on the basis of the basic salary at the time of joining the alternative system (rather than the final basic salary at the end of the employment relationship). It may, however, be possible for companies to agree to maintain the final basic salary promise to maintain benefit expectations and reduce potential employee relations issues. Employees can also pay Additional Voluntary Contributions into the new system.
What does this mean for employers and pension plans?
Although the UAE Federal Cabinet Resolution came into effect in mid-October 2023, at this stage, we are unaware of any employers adopting the new voluntary alternative EOSB system.
This is at least in part because no licensed scheme yet exists for employers to join.
We understand there are some providers who have pending applications with the Emirates Securities & Commodities Authority and Ministry of Human Resources & Emiratization. At this point in time, we have no information on which providers may be seeking a license for their products, and we cannot comment on the likely timing of licensed options becoming available.