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Pension fund for expats: Why it's necessary.

Summary: Early this year, the UAE government has announced that it will enhance and improve the end-of-service gratuity scheme.

Pension, retirement benefits, health insurance and gratuity all represent forms of compensating employees after several years of service. Although current labour legislations recognise the importance of mandatory end-of-service benefits (EOSB), there remains a need to create a pension fund that will ensure continued benefits for retiring employees, experts have said.

Lawyer Barney Almazar, a director at Gulf Law, said this is particularly important in the case of the UAE, where around 90 per cent of the workforce are expatriates.

"For an employee working in his or her own country, where the employer is mandated to contribute to one's social security services, the employee may rely on the state for healthcare benefits. But for an expatriate - unless the person opts to contribute voluntarily to his home country pension fund - there is no secured source of income after retirement," Almazar told Khaleej Times.

"In this regard, a viable framework is geared towards prefunding. The company and the employee can both contribute to a retirement fund, including post-employment healthcare coverage," he pointed out.

Almazar said employers can provide a graduated contribution during the employees' working years. Contributions can be channelled into a trust fund. Then, upon retiring, employees can access the savings in their accounts.

"As majority of the workforce are expats, relevant investment and portability provisions should be in place, giving the employee the ability to manage their individual 'savings' accounts. This also minimises the risk of employers not having set aside enough money to pay for the promised benefits," Almazar added.

Legal experts, financial analysts and medical professions also underlined that gratuities should not be considered as "a nice leaving bonus" because these are not sufficient to cover an employee's retirement expenses.

Prasanth Manghat, CEO and executive director of NMC Health, said: "Majority of UAE residents depend on their end-of-service gratuity payment to fund their retirement, and the new system stands to help fund the retirement gap between the gratuity payment and retirement costs. Such plans would also provide support for an individual's healthcare needs during his or her twilight years."

Early this year, the UAE government has announced that it will enhance and improve the end-of-service gratuity scheme.

According to Dr Abdulrahman Abdulmanan Al Awar, director-general of the Federal Authority for Government Human Resources (FAHR): "With the accelerating global technological advancements and the increased retirement age and years of service, there is an excellent opportunity and an urgent need in the region to establish investment funds to manage retirement and end-of-service benefits."

In a previous interview with Khaleej Times, he said: "What we are envisioning is for the UAE to provide the best environment to introduce a shift in our traditional way of thinking. It does not need to be at the federal level or run by the government, but there should be options for companies to start developing best practices and provide (investment) options for employees."

Almazar noted that Article 141 of the UAE labour law allows the employer to maintain its own pension scheme. The employee is given the option to be covered by such company-provided pension, in lieu of the traditional end-of-service benefit (EOSB) granted by Article 132.

"We have seen reforms being introduced to rationalise coverage, and the government is continually exploring non-traditional models to address retirement concerns, especially ensuring adequate funding and its efficient administration for the future, when the retiree's need becomes due," he said.

A mandatory pension fund will be ideal and the management of the fund must be transparent to ensure availability in the future, Almazar added.

But the bottomline is: Expat employees need to protect their future.

The purpose of severance pay or EOSB is to assist employees to be able to provide the needs of his family during the period of unemployment or retirement. On the other hand, pension benefits ensure that the retiree can live a comfortable life.

Angel Tesorero

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Publication:Khaleej Times (Dubai, United Arab Emirates)
Geographic Code:7UNIT
Date:Jul 5, 2019
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