Text size:

  • Small
  • Normal
  • Large
A proposed pension scheme for expats would be transferable between companies and cover all employees. Pawan Singh / The National
A proposed pension scheme for expats would be transferable between companies and cover all employees. Pawan Singh / The National

Employers resist expat pensions

Creating a pension scheme for the UAE's vast expatriate population is much more easily said than done, industry experts say.

The development of a federal pension plan for expatriates in the UAE may face opposition from businesses, industry figures say.

Further details of a proposed system of pensions for the UAE's expatriates emerged this week, replacing the current system of end-of-service benefits - lump sums paid at the end of a service contract and determined by the length of service.

The Dubai Department of Economic Development (DED) doused speculation that pensions for expatriates were imminent, saying talks remained at an early stage with nothing agreed upon.

But one of the biggest challenges is convincing employers to sign up for the scheme. Many employers are accustomed to funding end-of-service benefits from cash flow when the need to make payments arises, said Harun Kapetanovic, an adviser at the DED, at a roundtable discussion last month.

"We would like to develop an incentive-based scheme that will be attractive enough to get buy-in from all stakeholders, the Government, employers and employees alike," he said.

The Government provides pensions for UAE nationals but not for expatriates, who account for 88.5 per cent of the country's 8.2 million residents.

The proposed pensions would be transferable between companies and cover all employees, Mr Kapetanovic said.

The DED has not yet concluded whether the system would be voluntary or require contributions from employees, although it has suggested contributions could total about 8 per cent of payroll.

But a senior official at one of the UAE's largest construction firms said the difficulty for companies in implementing such plans would be immense.

"The logistics in this are so huge," said the official, who asked not to be named.

"The tenure of the workers or of staff isn't certain. They may come today and go tomorrow."

Employers may rail against what they perceive as an additional cost, but a system to replace the current end-of-service benefits is imperative for Gulf states and companies, said Jarmo Kotilaine, the chief economist at Saudi Arabia's National Commercial Bank.

"It's not necessarily an easy idea to implement, but it's a necessary idea," he said. "At the moment, these end-of-service benefits are unfunded liabilities, and companies are left to figure out how to pay them."

The plans would also be warmly received by the financial services sector, Mr Kotilaine said.

"In countries that have gone through a paradigmatic change in pensions, it has [yielded] significant benefits for its financial sector," he said.

Investment managers are currently trying to convert large companies to managing their end-of-service bonuses through third-party managers, a business that was growing rapidly, said Mike Lonergan, the director of corporate solutions for the Middle East and North Africa at Friends Provident International.

But a key concern was how those expatriates who have come to expect end-of-service benefits would be treated under any new pension initiative, said Nick Tolchard, the head of Invesco Middle East, an asset manager.

"If there's a gratuity environment, clearly people will have amassed gratuity allowances," he said. "Arrangements need to be made to account for that transmission."

An additional problem was deciding where pension funds were invested, given the varied nationalities of the UAE's population and competing vested interests, said Nigel Sillitoe, the chief executive at Insight Discovery.

"If you look to the mix of nationalities, you have a mix of British and Indian expats, who'll want the bulk of their assets invested in their homelands.

"It's quite a complex issue," he said.

ghunter@thenational.ae

Back to the top

More articles


Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Above, the private pool of Ocean Heights' five-bedroom penthouse flat. Courtesy Christie’s International Real Estate

In pictures: Penthouse flat is height of Dubai luxury living

A five-bedroom penthouse in Ocean Heights in Dubai Marina is on sale for Dh25 million and comes with a private pool and an unparalleled view of Dubai.

 The cooling towers of the Temelin nuclear power plant near the Tyn nad Vltavou in Czech Republic. The country wants to continue expanding nuclear energy capacity despite cancelling a tender to build two new units. David W Cerny / Reuters

In pictures: Best business images for the week to April 17, 2014

Here are some of the best business images for the week to April 17, 2014.

 Three generations of the Hakimi family tend to their stall Crawford Market in Mumbai. Subhash Sharma for The National

In pictures: Shopper’s delight at Crawford Market in Mumbai

Crawford Market is an old British-style covered market dealing in just about every kind of fresh food and domestic animal imaginable. Later on renamed Mahatma Jotirao Phule, the market remains popular among locals and visitors by its old name, taken from Arthur Crawford who was the first municipal commissioner of the city.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.

Events

To add your event to The National listings, click here

Get the most from The National