Pension Scheme in UAE

Understanding Pension Schemes in the UAE

Pension schemes are like special savings plans for when you finish working and are older. They're important because they give you money regularly after you stop working, so you can buy things you need and enjoy your life without worrying about money.Emirates nationals are eligible to receive financial support upon retirement under the Pension Scheme in the UAE.In the UAE, there are two types of pension plans. mandatory pension schemes and voluntary pension schemes. Mandatory Pension Scheme is where your employer and you save a little money from your salary each month, and when you retire, you get money regularly from this savings pot. The other type is voluntary, where you can choose to save extra money for better benefits when you retire.

Recently, The UAE government made some important changes to the pension system with Federal Law No. 57 of 2023. It made rules about how much money you get when you retire, when you can retire, and how the pension system works for people working in government or private companies. These changes are meant to help everyone have enough money for a good life after they finish working.

Mandatory Pension Scheme for Emiratis

The Mandatory Pension Scheme in the UAE is for Emiratis,An Emirati pension payment is provided as a form of social security to retired UAE citizens.which means it's for all UAE nationals who work in government jobs or private companies. Here are the main points about this scheme:

Who are Eligible 

To qualify for the mandatory pension scheme, you must be:

• You need to be a UAE national.
• You should be working in either the public or private sector.
• For public sector jobs, there's no minimum age to join. You automatically join when you start working for the government.
• In the private sector, you need to be at least 18 years old and healthy enough to work.
  

Contribution Rates

The mandatory pension scheme requires contributions from Both employees and employers to put money into the pension scheme. The new rule from November 2023 says that a total of 26% of the employee's salary goes into the scheme.

If you work for the government, there are fixed percentages for how much you and your employer contribute.

In the private sector, Emirati employees put in 11% of their salary, and the employer puts in the rest, which is 15%.Government Support for Low-Income Emiratis:

The UAE government understands that it can be tough for employers who have workers earning low wages. So, they decided to help out by adding 2.5% more money to what the employer already contributes. This extra money goes to Emirati employees in private companies who earn less than AED 20,000 that counts towards their pension. This way, everyone, no matter how much they earn, can join the pension scheme and have a better future after they stop working.

Calculation of Pension Benefits 

• Your pension amount depends on factors like your salary and how long you've been contributing.
• Instead of looking at just your final salary before retiring, they now calculate your average salary over the last 6 years you worked.
• The UAE government sets a minimum monthly pension amount to ensure everyone receives a basic level of income after retirement. This minimum amount is currently set at AED 10,000.
• If you contribute for more than 35 years, you get extra benefits when you retire. 

When Can You Retire

• The retirement age to get pension benefits is 60 years old.
• You can retire earlier, but there might be conditions or penalties, like getting less money or having to keep contributing until you're 60.
  

Voluntary Pension Scheme 

The Voluntary Pension Scheme is a new option for saving money for retirement in the UAE, especially for people who work in private companies. It's meant to replace the traditional end-of-service gratuity system, giving employees a way to save for their future over the long term.

• Employers in any private company can decide to join the scheme and offer it to their employees.
• Employees working in companies that have this scheme can choose to join and save money for their retirement.
• The old end-of-service gratuity system is still there, but the Voluntary Pension Scheme is a new choice for those who want to save more for retirement.
• It will take time for more companies and employees to start using this new scheme.
• Each company will have its own way for employees to join the Voluntary Pension Scheme. It should be easy for employees to understand and sign up for.
• In this scheme, how much you save can change based on how much you earn and how long you've worked.
• For example, if you earn more, you might save a higher percentage of your salary.
• For Employers: It helps them know how much they need to contribute and can attract and keep good employees.
• For Employees: It's a way to save more money for retirement and possibly get a bigger payout later compared to the old gratuity system.
• Overall, the Voluntary Pension Scheme gives people a better way to plan for their retirement by saving money over time.
  

Golden Pension Scheme (A Modern Approach to Employee Benefits) 

The Golden Pension Scheme from UAE National Bonds is a modern way for companies to improve their employee benefits. It's different from the usual end-of-service gratuity system because it offers a structured way for employees to save money over a long time for their retirement. Companies can decide to put in a large amount of money at once or regularly contribute on behalf of their employees. This gives them flexibility in managing their budget and cash flow. The money employees put into this scheme is invested in ways that follow Sharia law, which can lead to good returns on their retirement savings. 

Also, employees can get bonuses and rewards through profit sharing and National Bonds' rewards program, which encourages them to save more. For businesses, this scheme is a cost-effective way to meet their end-of-service gratuity responsibilities while helping their employees plan for a secure financial future. Overall, the Golden Pension Scheme offers a customizable and potentially more rewarding option for companies to handle employee retirement benefits.

Changes in UAE Pension Law (Federal Law No. 57 of 2023)

• The maximum salary used for calculating pensions for Emiratis working in the private sector has been increased to AED 70,000 per month.
• Pension calculations for both government and private sector employees will now be based on the average salary of the last 6 years.
• There are new rules that allow retirees to combine their pension with income from a new job, as long as they meet specific criteria.
• Employees on unpaid leave can continue making pension contributions according to the guidelines set by the General Pension and Social Security Authority (GPSSA 

Retirement Planning for Expats in the UAE

Expatriates, those who are not citizens of the UAE, are not required by law to contribute to a pension fund for their retirement, unlike UAE citizens who have a mandatory pension system. This difference means that expats need to take extra care in planning and saving for their retirement independently. Unlike some countries where retirement savings are deducted from salaries, expats in the UAE must actively set aside money for their future needs. 

End-of-Service Gratuity System 

In the UAE, when expats leave a job after completing a specific period of employment, they receive a lump sum payment known as end-of-service gratuity. This payment serves as a form of retirement compensation.There is no official pension plan for non-citizens, hence the main focus of expat pension plans in the UAE is employer-provided end-of-service gratuity payouts.However, there are specific conditions to qualify for this gratuity. Typically, you need to have worked for at least a year with the same employer to be eligible for this benefit. If you leave your job voluntarily or are terminated for reasons like misconduct, you may not receive this gratuity.The end-of-service gratuity Scheme is at the heart of the UAE Pension for Expats.

Eligibility for Gratuity

• You usually need to work for at least a year with a company to qualify for gratuity.
• If you leave your job without a valid reason or get fired for misconduct, you may not receive gratuity.
  

Calculating Gratuity

• Gratuity is based on your basic salary and the number of years you worked. The formula is: Gratuity = Basic Salary x Number of Years Worked x Two Months.
  

Limitations of Gratuity

• It's a one-time payment, not a regular income like a pension.
• While it's your right under UAE law, there can be issues like company financial problems or disputes that affect getting gratuity.
  

To ensure a stable financial future after retirement, expats should consider other ways to save and invest, like personal savings plans or exploring options to transfer pension contributions from their home country if possible.

Expat Retirement Planning Strategies 

• Begin saving and planning for retirement as soon as possible to benefit from compounding interest and long-term investment growth.
• Explore voluntary pension schemes or employer-sponsored retirement plans if available, and understand how they work and contribute to your retirement goals.
• Put your savings into different things, like stocks, bonds, or real estate. This helps reduce risks and can give you more money in the long run.
• Set aside a portion of your income each month specifically for retirement savings, making it a consistent habit.
• Consult with a financial advisor who knows about money and retirement planning. They can help you in creating a plan that suits your needs.
• Understand how taxes work on your savings and investments, both in your home country and in the UAE. This can help you save more money.
• Think about how much money you might need for healthcare when you retire. Make sure you have the right insurance.
• Regularly review your retirement plan, investment portfolio, and savings goals, making adjustments as needed to stay on track towards a comfortable retirement.
  
  

Retirement Planning for UAE Citizens and Expatriates

In the UAE, UAE citizens have a mandatory pension scheme where money is taken from their salaries to help them when they retire. This makes sure they have money coming in regularly after they stop working. Expatriates, who are people from other countries living and working in the UAE, can choose to join pension scheme in UAE, but they have to actively decide to do this. Both UAE citizens and expatriates get a lump sum of money called end-of-service gratuity when they leave a job after working for a certain time. However, it's important to save extra money or invest it in other ways for a comfortable retirement.

Everyone, including expatriates who don't have to contribute to a pension scheme, needs to plan for their retirement. Since there's no fixed pension system for expats, they have to save and invest on their own. If there are voluntary pension schemes available, expats can think about joining them. It's also smart to look at different ways to invest money for the future. The earlier you start planning for retirement and have a clear plan in place, the better your life will be after you stop working. This helps make sure you have enough money and feel secure during your retirement years.