Appointed firms will begin onboarding employers and employees through the second half of 2019
The Dubai International Financial Centre (DIFC) is looking to appoint service providers for its reformed end-of-service gratuity scheme by the end of July as it pushes ahead to put measures into effect by the first quarter of next year.
The planned DIFC Employee Workplace Savings (DEWS) Trust is a funded, trust-based savings scheme set to replace the existing end-of-service gratuity system.
“We have initiated competitive bidding (RFP) process to appoint the services providers to the scheme, such as the Master Trustee, the Administrator and Investment Advisor,” Jacques Visser, chief legal officer at DIFC Authority, told Zawya in a telephone interview.
“This process comes to a close in terms of submitting the proposals at the end of June, and we hope to appoint the services providers to the scheme at the end of July,” he said.
“They will then for the rest of the year start the process of onboarding each employer and their employees to bring them onto the DEWS platform so that at some point early next year, the scheme can go live,” he added.
“We’ve also since received the final implementation approval from the DIFC higher board on June 19, so that is very much on track,” he said.
Late last year, the DIFC’s higher board approved a detailed set of recommendations paving the way for changing the current end-of-service gratuity system to a savings plan where employers will contribute their accrued end-of-service liability into a savings scheme and employees will have the right to top up their own savings into the same scheme. (Read more here).
Those recommendations have since been extrapolated into a project plan with every single component of it, such as the supervisory board, the trustees, the scheme administrator and the underlying investment platforms having been considered in detail, according to Visser.
“All those components have now been discussed with international advisors, lawyers and the regulator and we are now in the process of moving on to implementation by drafting laws and regulations,” he said.
Extending beyond DIFC?
“What we are trying to do is to show to the rest of the country that we may have a better way of doing end of service benefits,” Visser said.
He said that reports stretching back as far as 2008 by the World Bank and 2012 by the Dubai Economic Development Department had highlighted the shortcomings of the current end-of-service gratuity scheme in the UAE.
“The fact that they’re not funded or not required to be funded, the fact that it is just sitting there as a liability on someone’s balance sheet and it is not being invested so that it can grow,” he said. “The fact that it is (an) unknown amount that is difficult for employers to provide for from an accounting perspective, it being dependent on how long were you working, and what is your final salary at termination, which is very difficult for employers to plan for, because they don’t know when employees will resign.”
Globally, employers have moved employees onto defined contribution schemes, where set amounts are paid in by both parties, and away from defined benefit schemes, which is essentially what the current end-of-service gratuity benefit is, according to Visser.
“Our thinking, knowing what the discussions are at government level where the same shortcomings have also been identified, that they’re also looking at alternatives,” he said.
In February, a UAE official told a conference in Dubai that there is an urgent need to establish investment funds to manage retirement and end-of-service benefits for people working in the country.
A recent survey has shown that around half of expatriates in the UAE are only able to save 5 percent or less of their monthly income, and only 16 percent of expatriates have set retirement planning as a financial priority.
With many UAE residents having little or no savings, retirement saving remains a major issue for many expatriates who face the consequences of inadequate financial planning later in life.
“We’ve tried to solve it for DIFC catering primarily to a sophisticated workforce,” Visser said, adding that any new scheme needs to be in line with global best practices.
“But we also wanted to show to the rest of country that here is a model that you can do on a DIFC platform, and you can do it in terms of the best practice standards globally. So we really hope that that the DIFC can provide a broader platform to the country in this regard,” he added.
On whether there is a specific date set for DEWS scheme to go live, he said: “I think the challenge for us given that this is obviously something brand new is to integrate our understanding of what the scheme should be with the expectations of regulators and service providers to the scheme.
“There is an immense amount of details in those dealings, so we are pushing very hard for Q1 2020 implementation, and we are still very positive in achieving that,” Visser said.