How is the pension system structured in the UAE for citizens and expatriates?

Pension system of the UAE in 2022

In 2022, according to the Mercer CFA Institute's International Pension Index, the United Arab Emirates ranked 25th among the 44 countries with the most developed pension systems. Iceland, the Netherlands and Denmark ranked first, with average monthly pension payments of around $2,800-$2,900.

In the Emirates, retirees can receive up to 10,200 dirhams, which is approximately equal to 2,778 dollars per month. This amount is ensured through indexing: each year of work experience exceeding the minimum of 20 years adds 2%. The maximum work experience considered for indexing is 35 years. If the total duration of employment exceeds 35 years, retirees are entitled to payments equal to the average salary for three months.

Problems of the pension system for foreign workers

Nevertheless, it is worth noting that one of the main issues with the UAE's pension system is the low level of engagement among foreign workers. To change the current situation, the Dubai government initiated a series of programs in 2022 aimed at creating favorable conditions for expats so that they can accumulate pension funds on par with local citizens.

In this article, we will examine the mandatory pension payments that foreigners working in the Emirates may receive, as well as explore options for private pension savings for them.

Minimum retirement age for UAE citizens

As for local citizens of the UAE, the minimum retirement age is set at 49 years. This rule was introduced in 2016 as part of changes to the federal law, which previously set the retirement age at 50. Government authorities concluded that citizens can start receiving pension payments at 49 years old if they have at least 20 years of total work experience by that time.

If the required service period was accumulated earlier, the pension does not start being paid until the age of 49. The legislation in the UAE clearly distinguishes between two concepts: "retirement age" and "entitlement to pension payments." Without a minimum work experience of 20 years, receiving pension payments is impossible, and both men and women can start receiving their pension only at the same age.

Structure of pension contributions

The structure of pension contributions in the UAE has some similarities with the Russian model:

• Employers are obliged to remit pension contributions in the amount of15%from the monthly earnings of their employees.
• In Abu Dhabi, employers are required to allocate additional resources.5%from the employee's salary to the pension and social security fund (GPSAA).

Conclusions

Thus, despite a number of positive aspects, such as the possibility of retiring earlier and the high amount of benefits, there are various factors that can complicate the process of accumulating pension funds for foreign employees in the UAE. It is important to consider both the positive and negative aspects in order to make informed and conscious decisions regarding the formation of future pension savings and to effectively navigate the complex pension system of the country.

Pension contributions in the UAE

In other emirates, such as Dubai, employees independently contribute 5% of their salary to pension savings. Employers, according to the law, are required to make pension contributions for citizens of the United Arab Emirates aged 18 to 60, provided they have undergone a medical examination confirmed by the relevant medical institution and GPSA.

Protection of the rights of people with disabilities

The UAE legal system emphasizes the protection of the rights of people with disabilities, often referred to here as aspiring citizens. If medical professionals and the GPSA confirm that such employees are able to work, employers are obliged to provide them with jobs and may not deny them employment because of their health.

Moreover, they must ensure an accessible environment for performing work duties, including the installation of special signs for the visually impaired. All capable individuals who are considered goal-oriented have the right to receive a pension alongside other employees.

Social benefits for those in need

In cases where UAE citizens are unable to perform work functions due to health reasons, they have the right to seek social assistance. This support is available not only for people with disabilities but also for other categories in need of help:

• elderly people
• widowers
• women who have gone through a divorce
• wives of foreign citizens who have no permanent income

The government provides this assistance not only in the form of funding but also through various social benefits.

Pension conditions for foreigners

As for pension conditions for foreigners, the retirement age in the UAE is set at 60 years. Foreign citizens are not entitled to receive a state pension upon reaching this age or based on the number of years spent in the workplace. Reaching the age of 60 only indicates that a person is no longer considered capable of work, but they can continue to work until the age of 65.

In order to remain in the workplace after reaching the age of 65, it is necessary to obtain a specialized permit from the Ministry of Human Resources and Emiratisation (MOHRE). Older employees must renew this license, known as a work card, annually.

Severance pay for foreign workers

If foreign workers have worked in the UAE for more than one year and decide to resign, they are entitled to severance pay from their employer, but the amount cannot exceed two months' salary for two years. In the private sector, severance pay is calculated based on the following principle:

• If the experience is between 1 to 5 years, the employee receives compensation equal to their salary for 21 days for each year worked;
• If the service life exceeds 5 years, then the first five years are calculated based on a 21-day salary, and for the subsequent years, it is based on a 30-day salary.

Thus, the pension system in the UAE is designed to protect the interests of both local users and foreign workers, as well as to assist those who find themselves in difficult life situations.

Pension system in the UAE

In the field of public finances in the United Arab Emirates, there is a pension accrual system organized as follows: for employees with a work experience of one to five years, a payment of 30 days' salary is made for each year worked during this period. If the length of service is from five to ten years, the payment amount for each year worked increases to 45 days' salary. For those who have worked for more than ten years, a payment equal to 60 days' salary is provided for each year of work. All these calculations are based on the average salary received over the last five years.

Insufficient financial support

Nevertheless, this financial support does not always ensure a decent standard of living in the Emirates after retirement.

Corporate pension payments

The corporate pension payment system includes the DEWS initiative, which is a private pension insurance scheme operating in the Dubai International Financial Centre (DIFC) free economic zone. As part of this project, companies located in this zone are required to contribute to a collective pension fund on behalf of their employees.

Employer responsibilities in the DEWS system

As part of the pension provision in the DEWS system, employers are obligated to make pension contributions for their employees. These contributions are calculated not based on the salary received, but at a fixed rate that exceeds the amount received by the employees.

• Employees who have worked at the company for less than five years receive contributions from their employers of no less than5.83%from their base salary.
• If the employee has more than five years of service, this percentage increases to8.33%from their earnings.

Contributions during maternity leave

In addition to this, during the period when an employee is on maternity leave or caring for a newborn, the employer continues to make contributions to the DEWS program. These contributions are calculated based on the average salary of the employee.

Additional employee savings

In addition, employees have the right to independently increase their pension savings using their own funds. This can be done through regular payments of a fixed amount, a percentage of their salary, or a one-time contribution. However, it should be noted that monthly contributions must not exceed the employee's salary amount.

Receiving funds through the DEWS program

As for receiving funds from the DEWS program, the contributions made by the employer become available only after the employee retires or is dismissed. However, program participants can partially withdraw the funds that have been added to their personal account.

• Such operations are allowed to be performed no more than twice a year.
• The amount shall not exceed30%from the balance on the savings account.

Exit from the DEWS program

If an employee decides to leave the company of his/her own volition, he/she has the right to withdraw from the DEWS program and receive his/her savings, which will be transferred to his/her personal bank account. Former employees can also remain in the program and continue to receive pension benefits starting from49-year-oldage.

In the event that a DEWS participant does not live to reach retirement age, their pension savings are transferred to their legal heirs.

Retirement visa in Dubai

A separate aspect is the retirement visa in Dubai. Previously, many foreign workers were forced to leave the United Arab Emirates immediately after the end of their employment, as the validity of their work visa was terminated with the end of their contract.

However, starting from2020Foreigners have been given the opportunity to apply for a retirement visa in Dubai, which allows them to legally continue residing in the UAE after completing their working career.

Conditions for obtaining a pension visa

A retirement visa can be issued to foreigners who have reachedThe 55-year-oldage, as well as those who have worked in the UAE for more than15 yearsThis visa is issued for a period of time.5 yearswith the possibility of subsequent extension for an unlimited period.

Thanks to this reform, many foreigners can become owners of a new life in Dubai, enjoying all the benefits that living in this city offers.

Introduction

In conclusion to the article about the pension system in the United Arab Emirates, I want to emphasize the importance of understanding the rules and opportunities available to both citizens and expatriates.

Achievements of the pension system

Despite the significant achievements of the Emirates in the field of pension provision, such as the indexing of pension payments and fair working conditions for people with disabilities, there are still certain challenges, especially for foreign workers.

Features for expatriates

As we have seen, the pension system differs for citizens and foreigners, which requires expatriates to take a more active approach to accumulating retirement funds. The lack of rights to a state pension for foreigners creates the need for a conscious choice of suitable private pension programs to ensure stable financial resources for old age.

Social responsibility

In addition, State support for needy citizens remains an important aspect, which emphasizes social responsibility and the desire to create conditions for a decent life. It is gratifying to know that the Emirati authorities are taking measures to improve the well-being of all residents, including significant attention to pension savings and workers' rights.

Conclusion

Thus, the pension system in the UAE, despite its shortcomings, offers competitive conditions for ensuring a decent standard of living after retirement. I hope this article has provided you with a clear understanding of the existing mechanisms and opportunities available in this rapidly developing country.

Key points

• Indexing of pension paymentscontributes to the improvement of retirees' well-being.
• Lack of a state pensionFor expatriates, there is a need to choose private programs.
• Support for citizens with disabilities- an important aspect of social responsibility.
• Active planningnecessary for financial security in old age.