Pension market alert: Dubai introduced a new DC savings plan for foreign workers  

Implications for employers and employees

The Gratuity plan provides most foreign employees leaving service with a lump sum of 21 days of base pay for each year of service plus an additional 9 days of base pay for each additional year of service over 5 years, subject to a maximum Gratuity payment of two years’ base pay.

Contributions to the new alternative DC plan (“Qualifying Scheme”) are at the rate of 5.83% of base pay for the first 5 years of service and at the rate of 8.33% of base pay thereafter.

Accrual of Gratuity benefits will cease with effect from the day on which the new Qualifying Scheme commences, but subsequent increases to base pay will continue to be applied to accrued Gratuity benefits.

The proposals include a provision whereby the accrued gratuity benefit can be converted into a DC account balance, subject to employee consent. A transfer without consent would also be possible, but in this scenario, the company would remain liable for any shortfall of the relevant amount of the DC account balance at the time of service termination compared with the amount of Gratuity benefit that would have been payable.