The government has issued a decree (Cabinet Decision no. 96/2023) to introduce a voluntary alternative system for end-of-service benefits (EOSB). The decree allows employers in the private sector and free zones to fund future EOSB accruals for employees via contributions to individual defined contribution (DC) accounts. Currently, employers — with the exception of those in the Dubai International Financial Centre (DIFC) free zone — are required to pay a defined benefit (DB) lump sum based on pay and service to employees at the end of employment (including upon retirement, resignation and death). In the DIFC, the mandatory EOSB accruals were shifted to a DC basis starting in February 2020 within the DIFC Employee Workplace Savings (DEWS) plan.
Following are the main parameters of the new system, effective October 10, 2023:
The new system will give employers an option to avoid taking on new unfunded DB EOSB accruals by replacing them with DC contributions, though selecting the option may also accelerate cash requirements. Presumably, employers that meet the current EOSB mandate through a separate qualifying plan may continue to do so (as was the case in the DIFC). Employers should monitor further developments and consider whether they will choose to participate in the new system.
For further insights on this reform, please refer to U.A.E.'s bright future: Pioneering end-of-service benefits reforms.