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If you live and work in the UAE, you should know that the newly unveiled voluntary Alternative End-of-Service Benefits Savings Scheme, is now in effect.
The initiative, which came into force on November 1, is not compulsory for employees or employers, and it does not have a minimum salary requirement to participate.
However, the UAE government through the Ministry of Human Resources and Emiratisation (MoHRE) and the Securities and Commodities Authority (SCA), has encouraged employees to opt for it, owing to a range of benefits.
According to MoHRE, the scheme aims to boost the ease of doing business and enhance UAE’s attractiveness to talents and expertise, as it offers investment returns on employees’ end-of-service gratuity by investing it in investment funds approved by the ministry and SCA.
Gulf Business spoke to Satish Rajan, group CMO, Innovations Group to understand the benefits of the new programme and the pros and cons for those enrolling in it. Innovations Group, a UAE-based human resource consultancy firm, offers a wide array of staffing and HR services.
Q. What are the benefits of the new end-of-service scheme? Should you switch to it?
There are multiple benefits to both, employers and employees, if they choose to switch to it.
Here are the top ones:
· This scheme does not have a minimum salary requirement and will allow most employees to make voluntary contributions.
· The savings scheme aims to ensure employees receive their end-of- service benefits, and protects them from inflation, default, or bankruptcy.
· It also aims to take advantage of various investment opportunities in economic activities in the UAE.
· This initiative is expected to boost competitiveness in the private sector and make employers more attractive to talent.
The key reason why employees should switch to this scheme, is it helps them protect their savings and grow at a steady rate of return, depending on the investment option selected.
Q. What are the emerging trends or changes in the participation of the companies?
This scheme was announced in September and implemented in November of this year, so it is too early to see the trends of participation by private sector companies.
One thing is for sure a lot of companies are considering participating due to various benefits associated with this. However, a thorough cost-benefit analysis should be done before opting into it as there will be a short-term impact on cash flows and expenses due to fund manager fees and charges.
Q. Which industries are you seeing a surge from when it comes to the new registrations?
This scheme does not target any industry and encourages all private sector and free zone companies to participate. We see registrations coming in from a range of industries as it gives them a competitive advantage in attracting talent globally as this scheme is in line with global policies of retirement savings plans.
Q. Have you observed any common misconceptions or concerns that employees have about the scheme?
This depends on how well employees are educated about this new scheme.
We don’t see any major concerns as the main aim of the scheme is to protect employee interests and encourage/cultivate a habit of savings. Employees are allowed to contribute over and above the employer contribution subject to 25 per cent cap on their monthly salary.
Q. What are the challenges that employees face in switching to the scheme? How can they overcome them?
The key challenge employees will face is to opt for an appropriate investment option. There are three options from which employees must select one:
· Risk-free investment: This maintains the capital amount.
· Investment options with risks ranging from low, medium, and high.
· Sharia–compliant investments: These would be options that adhere to the Islamic Sharia law.
While options 1 and 3 are straightforward, option 2 requires investment expertise and financial objectives for everyone depending on risk appetite. Employees should seek advice from investment and financial planning experts before choosing an investment option.
Q. Can you explain high-risk investment segment and what those opting for it know before opting for it?
Risks and reward goes hand in hand.
High-risk investments are those that have a greater chance of losing money than other types of investments. They often offer the potential for higher returns, but they also come with a higher risk of loss.
Those who are opting for high-risk investment options should be aware of the pros and cons of these funds and should assess their risk-taking ability.