Do employees commonly participate in private pension schemes established by their employer? Further, if an employee is transferred as part of a business acquisition, is the transferee obliged to honour existing pension rights or provide equivalent rights?
It is uncommon for employees to participate in employers’ private pension schemes. The UAE Labour Law (8/1980) provides expatiate employees with an end-of-service gratuity payment.
End-of-service gratuity is calculated based on an employee’s length of service and basic salary (at the termination date). If an employee has more than one year’s continuous service with the employer at the time of termination, they may be entitled to an end-of-service gratuity payment.
Subject to certain exceptions, end-of-service gratuity is calculated as follows and capped at two years’ pay:
- 21 calendar days’ basic pay for each year of service for the first five years; and
- 30 calendar days’ basic pay for each year of service beyond the first five years.
Employees can receive a pro rata payment for the entire length of service. The payment is generally reduced where an employee resigns with less than five years’ service. Gratuity is not payable where an employee is dismissed for gross misconduct or an employee employed under a fixed-term contract resigns with less than five years’ service.
As an alternative to end-of-service gratuity, employers can offer a private pension scheme if it is no less beneficial than the end-of-service gratuity entitlement. Under the Labour Law, employees can still elect to take end-of-service gratuity if it is more favourable to them.
In the Dubai International Financial Centre (DIFC) free zone, the requirement for DIFC employers to pay an end-of-service gratuity has been replaced with an end-of-service benefits plan known as the DIFC Employee Workplace Savings Plan (DEWS), into which DIFC employers must make regular contributions for their employees (or into another alternative qualifying scheme). This DEWS plan replaces end-of-service gratuity and introduces a savings scheme more aligned with the private pensions scheme model. The DEWS scheme will take full effect in February 2020.
UAE and Gulf Cooperation Council nationals can participate in state pension and social security schemes.
If a transferring employee has the benefit of a private pension scheme with the selling company, the employee must negotiate this benefit with the buyer as part of their new employment contract. While the buyer need not offer such benefits, it is important to attempt to mirror the existing employment benefits as much as possible to ensure that the employees will wish to transfer.
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