Why UAE employees need a proper retirement scheme.
The UAE is in a peculiar situation when it comes to employees' end of service and retirement benefits, mainly because around 90 per cent of its workforce are expatriates, who will only stay in the country for a certain period of time.
Analysts also say that companies are not obligated to set aside funding for end-of-service benefits (EOSB), which are often paid off the balance sheet and this practice exposes the employees to the bankruptcy of businesses.
Recently, however, reforms are being introduced to boost and rationalise the end-of-service benefits awarded to employees. These include exploring multiple policies and models to help companies attract and retain talents and ensure that retirements will be adequately funded, and not treated as a liability, a senior UAE official said.
According to Dr Abdulrahman Abdulmanan Al Awar, director general of the Federal Authority for Government Human Resources (FAHR): "The accelerating global technological advancements, the increased retirement age and years of service, leave no doubt that there is an excellent opportunity and an urgent need in the region to establish investment funds to manage retirement and end-of-service benefits."
He explained to Khaleej Times: "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 the employees.
Although there is no timetable set for the program, Al Awar noted that studies are being carried out to improve the system. This can be combination of an enhanced gratuity system and private sector employee savings schemes.
"These funds will provide saving opportunities to UAE employees and lift investment in our domestic economies, while considering market stability and the low risks associated with such investment opportunities in the country," he underlined.
Legal experts and financial analysts added that gratuities should not be considered as a nice leaving bonus because they are not sufficient to cover the employee's retirement costs.
According to Barney Almazar, director at the corporate-commercial department of Gulf Law, "the purpose of severance pay is to assist employees to be able to provide the needs of his family during the period of unemployment. It cushions his standard of living while job searching."
"On the other hand, pension benefits ensure the retiree will have comfort for the rest of his life, which in turn will benefit the government as he will not be a burden to the society," he added.
Payment of severance benefits to a leaving or retiring employee has always been a concern in the UAE, noted Almazar. He said: "We have had many instances where smaller companies have been unable to pay employees end of service gratuity or severance due to the fact that the company has gone out of business or has no available funds. It is not uncommon for employers to agree with the employee a time period where the money will be paid over a six- or 12-month period."
"We have also seen companies offering employees to cash out their accrued gratuity every three or five years. This allows the company to manage its cash flow and the employee to advance the receipt of his benefits (although forgoing the potential increase of salary in the future considering that the basis of gratuity is the current salary)," he added.
Almazar suggests a scheme where the company and the employee will both contribute to a retirement fund.
"The contributions of the company can then be in lieu of the end of service benefits. In this way, the risk of the company not being able to pay the EOSB to the employee upon termination is eliminated as the fund is credited to the employee's account on a monthly basis," he argued.
Almazar added that the legal framework may not be as straightforward compared to other countries as the UAE workforce are predominantly expatriates but the absence of legal framework should not be a barrier.
"As the UAE has no minimum wage and adopts a laissez faire approach in the labor market, by giving a better compensation and EOSB/retirement package, companies can attract the best talents," he underlined.
Sean Kelleher, CEO of inancial advisory firm Mondial LLC, shared the same view. He said: "There is a real need to provide a high-quality retirement scheme culture. This will certainly provide a diversification angle to the UAE economy and will definitely mark an improvement in the country's consumer industry."
Copyright [c] 2019 Khaleej Times. All Rights Reserved. Provided by SyndiGate Media Inc. ( Syndigate.info ).
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|Publication:||Khaleej Times (Dubai, United Arab Emirates)|
|Date:||Mar 15, 2019|
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