The DIFC experience with pension reforms will be the test case for any changes Dubai intends to make in the near future. Image Credit: Supplied

Dubai: A new savings plan likely to roll out for employees across the UAE is expected to offer workers returns on their money through investments in multiple asset classes. The DIFC Employee Workplace Savings Plan (Dews) will replace the end-of-service gratuity by employers.

Instead of receiving a lump sum at the time their contract is terminated, employees will now have savings accounts managed by professional fund managers. The plan comes into effect today (February 1) for workers at the Dubai International Financial Centre (DIFC).

Mercer, the consultant serving as the investment adviser to DIFC on the plan, said the savings will go into cash, real estate investment trusts, equities, and fixed income — depending on each employee’s risk appetite.

Employees will be able to pick between "low", "low-moderate", "moderate", "moderate-high", and "high-risk" profiles, based on which their money will be allocated. Though employees have the option to change their risk profile whenever they please, Mercer is advising clients to avoid knee-jerk reactions to market fluctuations.

Set contributions

Employers will have to make a contribution of 5.83 per cent of every employee’s monthly basic salary (for employees who have less than five years’ service), and 8.33 per cent of the basic salary for employees who have longer service. Employees can also make voluntary additional contributions to their funds.

Managing the risk profile
* Those opting for lower risk will have most of their money go into cash and investment options focused on capital preservation (such money market instruments), while those who are more inclined to take risk will see a bulk of their money go into equities.
* The money will be invested in markets across the world, and employees will receive a fact-sheet of where their money is being invested.
* On a long-term basis, Mercer said the median returns are expected to be 2.8 per cent for the low-risk funds, while the riskier funds are projected to have a median return of 6.8 per cent a year. (With market fluctuations, Mercer pointed that short- to medium-term returns could be much higher or lower.)

“We know that employees love choice, but actually, when it comes down to it, they tend to want to have a default fund that most will end up going into,” John Benfield, lead partner and wealth leader for India, Middle East, Turkey, and Africa at Mercer said. “Because this is a savings plan rather than a pension plan, the default is low-moderate … which is a well-balanced fund with 50 per cent growth [assets] and 50 per cent defensive [assets].”

Mercer explained that all contributions will initially be invested in the default fund, which has the second-lowest risk profile, and then each employee can make changes to their risk appetite if they wish to. There will be no costs to move from one risk profile to another.


The funds will be handled by 10 managers offshore. The funds will all be dollar-denominated, Mercer said.

Benfield said that with this savings fund, employees will be able to take out their money when a contract is terminated. A pension plan, in comparison, only allows workers to withdraw money when they cross the retirement age.