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U.A.E.: New mandatory savings plan expected to launch February 1, 2020

Retirement
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January 17, 2020

The new plan moves foreign employees from the current defined benefit regime to defined contribution, with a grace period ending March 31.

Employer Action Code: Act

The Dubai International Financial Centre (DIFC) is introducing a new mandatory Employee Workplace Savings (DEWS) plan that will replace the current end-of-service benefit (EOSB) regime for foreign workers for future service. The most important change will be the switch from the current (predominantly) unfunded defined benefit (DB) regime to a funded defined contribution (DC) regime, the first of its kind in the Gulf Cooperation Council (GCC) region. Originally announced to go live in January 2020, the launch date has been delayed one month, with a grace period ending March 31, 2020, for employers to enroll covered staff and commence contributions.

Companies will have the option to offer a Qualifying Alternative Scheme (QAS) as an alternative to DEWS for funding the EOSB by applying for and obtaining permission from the DIFC Authority. Given the short time frames to set up a new QAS or adapt existing plans to be a QAS, then gain DIFC Authority approval — all by March 31, 2020 — most DIFC-based organizations will likely need to default into DEWS. Employers will have opportunities later to apply to opt out of DEWS in favor of an alternative QAS.

 
  Default into DEWS from 1 February 2020, decide on QAS later
February 1, 2020

DEWS launch

March 31, 2020

End of grace period to opt out with a QAS, or to enroll staff and pay contributions in DEWS

December 3, 2020

Start date of annual 60-day application period to opt out with QAS

Key details

The main aspects of DEWS as described by the DIFC and as set out in the October 2019 draft regulations (subsequently modified) are as follows:

  • DEWS will be a multi-employer master trust-based arrangement. Employers will be required to enroll all foreign workers in DEWS unless they already provide an approved QAS. Emiratis and other GCC nationals are exempt from the mandate but may participate voluntarily. Companies that have multiple entities in the DIFC will need to have separate DEWS accounts for each entity.
  • The DEWS provisions will only apply to service as from the launch date. Employers will have the option of either paying out employees’ previously accrued benefits upon termination or transferring their value to DEWS (or a QAS).
  • Employers must contribute 5.83% of monthly base pay to DEWS (or a QAS) during the first five years of service, after which the monthly contribution increases to 8.33%. Employees may opt to contribute to DEWS voluntarily.
  • Fees for DEWS will start at a minimum of 1.33% of plan assets for trust, administration and investment services, subject to periodic review. It is not clear if this includes all aspects within a Total Expense Ratio definition, and some funds offered may be more expensive (e.g., those that are Shariah-compliant). DEWS trustees will have a duty to develop a fee proposal by the end of the second anniversary of the DEWS launch date potentially amending how fees will be charged going forward (on a sliding scale) with regard to accumulated DEWS assets, including value-for-money and commercial benchmarking assessments. Service-provider appointments (administrator, trustee, investment fund provider) will occur every five years, including a review of fees.
  • We understand that DIFC companies will have an opportunity to opt out of DEWS in favor of a QAS by applying for (and receiving) approval during a 60-day period preceding February 1 every year. Subsequently, companies that have opted out using a QAS will be required to request and obtain a certificate of compliance annually for each QAS to which they contribute, during the 60 days prior to February 1.

Employer implications

Due to the various uncertainties around the final regulations and the brief window of opportunity to opt out of DEWS prior to its launch, most employers are expected to enroll in DEWS in the first year of operations and then consider their options when timescales allow. Given the relatively short annual window for the QAS application and approval process, the newness of DEWS operations and employers’ potential interest in QAS alternatives, companies that might want to opt out using a QAS should consider their options well before December 2020 in order to be ready to apply as early as possible for any QAS exemption.

DEWS is widely expected to be a bellwether for the development of other funded EOSB savings and investment plans across the region. The governments of Dubai, the U.A.E. and other GCC countries have long considered similar measures for EOSB liabilities under their own labor laws. The development and success of DEWS will be closely watched by employers and regional governments alike.

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