I work at a large UAE-based company where we are under increasing pressure to provide local expat employees with an international pension similar to the one we offer global expat employees. We’ve been holding off due to reports about the UAE overhauling the gratuity system. What’s your advice?
Gratuity and longer-term pension funding are much discussed topics and I think we can all agree on a few key facts: although they don’t address the pension/retirement issue, lump sum severance payments like end-of-service gratuity can work very well for globally mobile expats who typically spend only two or three years in each location.
This style of reward provides the ultimate flexibility and a clean break from any ties or residual benefits left behind in multiple jurisdictions. But for local expat hires who have chosen to make the UAE their long-term home, an end-of-service gratuity will never provide anything close to the funding required for a reasonable income in retirement and in fairness it was never designed to do so. The UAE has been exploring the concept and possible introduction of an expatriate pension framework but as yet there are no formal indications as to if or when or indeed what legislation will ultimately be passed.
In the absence of pension legislation I would advise your firm to continue to take a proactive approach and design or implement solutions that fit within the current framework.
There are solutions in the market place that are flexible and non-contractual in terms of future funding. So should reforms come about, solutions implemented now will either adapt to the new regulations and continue or they can be parked, transferred or discontinued without any financial impact or penalty. A large number of firms across the region, including government organisations, have already taken the progressive approach of implementing additional expatriate retirement programmes.
When it comes to retirement, having sufficient time to save and invest is going to be critical for your employees, so I would engage with a knowledgeable and competent corporate pension adviser who can help you design a programme and put a proposal forward. Corporate pension schemes can be designed to retain key members of your management team and incentivise them to stay with your company for the long term.
