Officials at Dubai’s Department of Economic Development (DED) said that they have completed a feasibility study to set up a pension fund scheme for expatriates by the end of the year, according to reports.
“We have finished the feasibility study for the project and DED are now consulting with local and federal partieswe are also coordinating with some parties in other emirates and are planning to hold workshops on the project,” Ali Ibrahim, deputy director general for planning and development at DED told Albayan newspaper.
“You can say the project is nearly readyonce we complete negotiations with other departments, we will seek government approval so the project can be launched by the end of the year,” he said.
The pension fund project is expected to be implemented in phases, and will cover expatriate employees in both the public and private sector.
When implemented, the scheme will prove extremely beneficial to expatriate workers and the overall economy, said Jahangir Aka, senior executive officer, SEI Investments Middle East.
While it’s a mandatory requirement for companies to put aside around eight per cent of an employee’s annual payroll for gratuity, this amount was misused during the financial crisis, said Aka.
“I think with the problems that happened in 2008 and 2009, some companies were using the money set aside [for gratuity] for working capital. So when they ended up in difficulty, effectively the employees became creditors to the company without realising it, and as a result the companies were not able to honour their obligations,” he said.
Also, in the past, companies could reinvest the amount [set aside] back in their businesses since they were growing rapidly. “Now, in the last three to four years, that’s not necessarily been the case, and as a result the money hasn’t grown.
“So one of the other things this fund provides is an opportunity to grow the money externally. This discipline is part of the maturity of any economy in any market,” said Aka.
Creating the pension scheme will also benefit the UAE’s capital market and asset management industry, he added.
But will companies find it easy to implement the new policy?
“The best companies in the UAE are already doing this for their employees, offering it as an incentive, ” said Aka. The new pension scheme will not necessitate the creation of a new pot of money, it will only formalise the existing system to better manage and monitor that money, he said. And hence, the new scheme will not burden firms already implementing it.
“The ones that will find it difficult are the ones that are in trouble and the ones that we need protection from as an employee,” he added.
Officials have not yet confirmed if the scheme will be made obligatory under law, but according to Aka, heavy handedness will not work.
“You have to create a transition plan and a phased methodology; I don’t think it is correct to get heavy handed. I think what ends up happening is that when employees become aware that there are good companies that offer these priviledges, they tend to start moving to work for those companies. And so that creates momentum,” he said.
Greater visibility and promotion of best practices are better for enforcement, said Aka.
“Also, in any event, there should be a period of transition and conversion and companies should be given time to introduce an alternative scheme,” he added.