The end-of-service benefits scheme will have employees being active participants in building up wealth to secure their futures. Image Credit: Shutterstock

The UAE has long stood as a beacon of prosperity, drawing professionals from worldwide with its promise of growth. With the recent announcement on end-of-service investment schemes, it's clear that the country is setting sights not just on the present, but on a long-term future for its residents.

The UAE Cabinet approved plans to establish an end-of-service savings framework will see workplace savings schemes for both onshore and free zone employers. This follows the successful introduction of the DEWS scheme within Dubai’s DIFC in 2020, and recently extended to expat government employees.

Build up for post-retirement wealth

Although there are question marks over exactly how the new scheme will work, the overriding message is that this moves the country toward a culture where residents are encouraged to think about building sufficient wealth to sustain them in retirement. And with a regulatory environment which protects their interests, leading to the UAE being an increasingly appealing long-term home for people’s entire lives.

Historically, end-of-service gratuity was seen as a golden parachute – a lump sum pay-out that, while sometimes generous, was often devoid of long-term perspective. For many, it was a windfall to be enjoyed immediately and often utilised to leave the UAE, without much thought for the future. However, the new scheme signals a paradigm shift, turning this end-of-service benefit from a ‘defined benefit’ environment to a more dynamic ‘defined contribution’ setting.

Switch to Defined Contribution

In a defined benefit framework, the focus was primarily on the employer's obligation to provide a specific benefit on an employee's departure. Now, transitioning to a Defined Contribution, the emphasis shifts to the accumulated contributions and their investment returns. This change underscores a significant evolution in the UAE's approach to retirement – it's no longer about the immediate reward but about crafting a sustainable future.

With this evolution comes complexity. The new structure, while promising greater control over one's financial future, also demands a higher degree of financial literacy and planning. In an environment where employees have the autonomy to choose from risk-free investments, risk-based investments, or Sharia-compliant avenues, making informed decisions becomes paramount.

The UAE’s unique demographic adds another layer of intricacy. Many of its residents hail from different parts of the globe, bringing with them wealth and assets spread across jurisdictions. Managing cross-jurisdictional wealth is no small feat.

Differing tax laws, varied investment climates, and the nuances of international finance make it essential for residents to seek expert financial planning advice.

As the UAE transforms from a transient work hub to a permanent abode, the importance of sound financial planning becomes even more pronounced. The dream of retiring in the UAE, with its quality lifestyle and world-class amenities, is becoming increasingly attainable.

To realise this dream, residents must navigate the maze of international finance, ensuring that their wealth is not just preserved but grows.

This is where the role of financial planners becomes indispensable. With the landscape shifting from a simple end-of-service bonus to a more intricate investment structure, having a trusted planner to guide one through the complexities of global finance becomes not just beneficial, but essential.

The UAE’s new end-of-service initiative is more than just a policy change - it's an invitation to its residents to envision a life in the UAE beyond their working years, and to take proactive steps to turn this dream into reality.

The UAE sends a powerful message to its residents: ‘Your future is in your hands’. With the right guidance, the dream of a secure, prosperous retirement in the UAE is within reach and this new announcement is a trigger for a mentality shift.

As the country continues to evolve, it solidifies its reputation not just as a global powerhouse but as a nurturing home for those to retire within.