Companies in the UAE now have the option to introduce a variety of pension plans into expatriate employee packages to help efforts to retain and reward top talent.
National Bank of Abu Dhabi, the capital's biggest lender, hopes that managed pension funds involving employer contributions will provide an attractive alternative to salary increases for companies facing soaring staffing costs.
The service "provides the employer a tool to remunerate and retain employees for their loyalty and commitment towards the company but also provides the employee a way to save for the future," said Samira Zakour, the chief marketing officer of NBAD Trust Services, which will oversee the plans.
The plans are similar to the 401(k) retirement savings account in the United States or defined contribution pension schemes, with companies expected to contribute towards employees' savings and investing them via a fund manager.
The Emirates has no specific laws governing pension contributions, which are mandatory in many developed countries, but retiring employees are instead provided with end-of-service or gratuity payments that are capped at a maximum of two years' wages.
UAE nationals' pension needs are provided for by the General Pensions and Social Security Authority.
The end-of-service payments leave expatriate employees, who are forced by law to stop working at the age of 65, with lump sums to fund their retirement.
"That really isn't going to be enough to retire on," said Nigel Sillitoe, the chief executive of Insight Discovery, a market research firm. "There's always a risk … that if the company goes belly up, you're not going to get a dime."
The pension plans on offer would be managed externally in an individual's name, avoiding this issue.
The plans would also provide NBAD with a means to grow its assets under management from Dh5 billion (US$1.36bn) at present, while it may also help to boost UAE market liquidity by channelling money that is typically spent or saved elsewhere into local and regional securities. The bank's asset management arm will also invest its pension plans globally.
NBAD said it was targeting Abu Dhabi companies in sectors including aviation, oil and gas and banking to sign up for the schemes. The bank would be quickly followed by other financial firms seeking to tap burgeoning numbers of corporations and family offices seeking to better manage gratuity payments, Mr Sillitoe added.
Falcon Private Bank said last year that it would seek to develop expatriate pension plans similar to those being proposed by NBAD.
Other companies have also sought to address employee retirement costs through other means, such as SEI Investments and Ryland Gray, which were appointed by Serco, the services company, to manage end-of-service liabilities.
In spite of tax-free incomes and generous "expat packages" that include perks such as housing and car allowances, UAE companies have found it hard to compete with developed markets to retain talent, with companies generally unwilling or unable to offer share options or other long-term incentives and plumping for higher cash salaries instead.
Base salaries, not accounting for allowances, bonuses and other perks, are expected to increase by an average of 5 per cent this year as companies strive to retain employees, according to a study by the recruitment group Robert Half.
The schemes would provide "a very valuable new tool to enable those employers to achieve and process a well-balanced remuneration strategy, which thus far this region has lagged by a little bit," said Simon Stirzaker,the senior manager for development and strategy at Royal Bank of Canada, which administers the pension plans on behalf of individuals. NBAD will be the trustee and the asset manager.