End of Service Benefits in the Middle East – Latest news

Chris Bulleyment, Head of International Pensions at Deloitte, considers changes to end of service benefits in the UAE.

See the full article here

The DIFC Authority has published its updated Employment Law and, critically, its Regulations on the Qualifying Scheme requirements under Article 66 of the Law, containing updates to the employee workplace savings regime that was first introduced in the region with effect from February 2020.

The updated Regulations in particular clarify the conditions that employers must meet to satisfy the mandatory funding obligation that now subsists, including where employers wish to make use of an alternative Qualifying or Exempt Scheme to the DIFC’s Employee Workplace Savings scheme (“DEWS”).

Combined with recent updates to the DFSA’s Rulebook (see latest update dated 24 August 2021 below) employers in the region, armed with a clear understanding of the legal and regulatory parameters of the new regime, should be much better placed to determine their approach to funding end of service benefits, both in the DIFC and beyond.

The updated Employment Law and Regulations can be found on our Publications page.

The DFSA has published its amendments to the DFSA Rulebook to give effect to the changes to the Employee Money Purchase regime in the DIFC (i.e. the funded workplace savings framework that was introduced in February 2020 to replace EOSB on a go forward basis), as set out for consultation in December 2020.

The Rulebook clarifies the regulatory requirements for Operators and Administrators in the DIFC as well as setting out the requirements that must be met for non-DIFC based Operators and Administrators operating an exempt scheme.

The updated Rulebook modules can be found here.

The DIFC Authority are currently yet to publish the final Law and Regulations updating the Employee Money Purchase regime in the DIFC.

We will continue to update these dedicated webpages with latest information provided by the DIFC. If you are an employer in the DIFC and would like to discuss how the upcoming changes may impact your organisation, please do not hesitate to contact one of the Deloitte specialists or your usual Deloitte adviser.

The DIFC’s Consultation Paper No. 1 of 2021 was published on 28 February 2021 and sets out a number of proposed changes to the Employment Law (the DIFC Law No.2 of 2019) and Employment Regulations relating to the Qualifying Scheme regime introduced into the DIFC in February 2020. This regime introduced a forward looking change to End of Service Gratuities, replacing future entitlements with a mandatory requirement for all employers operating in the DIFC to fund a workplace savings scheme on a monthly basis.

The consultation is broadly in line with the changes to the regulatory framework put forward by the Dubai Financial Services Authority (“DFSA”) in their Consultation Paper No. 137 published in December 2020, which can be viewed on Update: Thursday 17 December 2020.

Of particular interest to employers operating in the DIFC, the consultation confirms the intention to remove the option for employers to fund their mandatory savings requirement by establishing a non-DIFC ‘qualifying’ scheme. Employers wishing to fund a ‘qualifying’ scheme rather than participate in the DIFC’s Employee Workplace Savings (“DEWS”) scheme will be required to establish an Employee Money Purchase scheme in the DIFC. This means that the Operator and Administrator of the scheme will need to be both established in the DIFC and regulated by the DFSA.

The DIFC consultation also echoes proposals in the DFSA’s consultation on the extension to the current ‘exemption’ that applies to certain international arrangements operated by employers in multiple countries, that are also used for DIFC based employees. If an ‘exempt’ scheme is operated, there is no requirement for employers fund Gratuity Payments into DEWS (or any other ‘qualifying’ scheme). The proposals identify strict parameters that will apply to this new exemption for “Group Schemes” including that:

• The exemption shall be given in respect of specific employees that will need to be identified (and continually updated) to the DIFC;
• The benefits payable under this type of exempt scheme will need to be higher than the Core Benefits payable under the Employment Law; and
• Prior written consent of employees participating in the Group Scheme will be required.

Employers wishing to avail themselves of this exemption will need to comply with the above and, importantly, will need to consider the definition of “Group Scheme” carefully. The consultation makes clear that only “bona fide” schemes will be approved by the DIFC and that this will not include “… Schemes that have been devised only for a DIFC employer and its subsidiaries with the sole purpose to be funnelled into an international savings plan domiciled elsewhere.”

Other proposed changes of note include:

• A grace period of 12 months for employers to establish a qualifying or exempt scheme under the proposed rules;
• Charges that will apply to employers wishing to obtain a Certificate of Compliance or Exemption from the DIFC or make changes to the employees participating in an exempt Group Scheme; and
• The possibility of opening up the DIFC’s own Employee Money Purchase scheme (the “DEWS” scheme) for contributions by employers in other Commercial Free Zones in Dubai.

The consultation proposals and draft regulatory changes can be found here.

We will continue to update these dedicated webpages with latest information provided by the DIFC. If you are an employer in the DIFC and would like to discuss how the upcoming changes may impact your organisation, please do not hesitate to contact one of the Deloitte specialists or your usual Deloitte adviser.

The DFSA’s Consultation Paper No. 137 was published today and sets out a number of proposed changes to the regulation of providers involved in the DFSA’s Employee Money Purchase (“EMP”) regime (i.e. the funded workplace savings framework that was introduced in February 2020 to replace ESG on a go forward basis).

The consultation makes significant changes to the newly introduced regime. Of particular interest to employers operating in the DIFC, the consultation proposes the removal of the opportunity for employers to fund their mandatory savings requirement via establishing a non-DIFC ‘qualifying’ scheme. It also proposes an extension to the current exemption that applies to certain international arrangements, operated by employers in multiple jurisdictions, that are also used for DIFC based employees. Other proposed changes of note include:

• The prohibition of DIFC based Operators and Administrators from operating/administering non-DIFC based Employee Money Purchase schemes;
• The requirement for a DIFC based Operator to be a fully licensed legal entity in the DIFC (and not a branch), satisfying the requisite base capital requirements (although the draft regulations propose a 50% reduction in the applicable capital requirements to USD 500,000);
• Refinements to the rules relating to additional voluntary contributions made by DIFC based employees;
• Opening up the DIFC’s own employee money purchase scheme (the “DEWS” scheme) for contributions by employers in other Commercial Free Zones in Dubai.

The consultation is open for comments and suggestions until 17 January 2021.

The consultation proposals and draft regulatory changes can be found here.

We anticipate that a corresponding consultation from the DIFC Authority, with proposed changes to the employment law and regulations on employee Money Purchase Schemes, will be published at some point in Q1 of 2021.

We will continue to update these dedicated webpages with latest information provided by the DIFC. If you are an employer in the DIFC and would like to discuss how the upcoming changes may impact your organisation, please do not hesitate to contact one of the Deloitte specialists or your usual Deloitte adviser.

The Dubai International Financial Centre (“DIFC”) have released further information for employers who are considering opting into the DIFC Employee Workplace Savings (“DEWS”) plan including additional guidance on what to expect in the coming months. Below we have briefly summarised the information provided:

• The DIFC have asked employers who operate in the region to confirm who their assigned signatory will be for DEWS. The purpose of this is so the DIFC understand who will be the correct signatory for each Deed of Participation in DEWS, if and when employers choose to enter that scheme. Providing confirmation of their designated signatory does not commit employers to joining DEWS at the launch date.
• As mentioned in our previous update, the DEWS enrolment process should be open from 1 February 2020 and employers will not have access to the enrolment portal until that date. The enrolment portal will be pre-populated with information available on the DIFC registry and employers can therefore expect the process to be streamlined and to take no more than 30 minutes.
• Once the online DEWS enrolment portal is live and employers have initiated the enrolment process, login details will be sent to the designated signatory to sign the Deed of Participation electronically. The enrolment process and sign-off must be completed by 31 March 2020.
• The first contribution to the plan (whether this is to DEWS or an alternative Qualifying Scheme) needs to be made by 21 April 2020. This will cover the February and March contributions. Penalties of $2,000 per employee per month could be applied in the event of non-compliance.

We will continue to update these dedicated webpages with latest information provided by the DIFC. If you are an employer in the DIFC and would like to discuss how the upcoming changes may impact your organisation, please do not hesitate to contact one of the Deloitte specialists or your usual Deloitte adviser.

At the point of publication of draft regulations by the DIFC, Chris Bulleyment, the Head of International Pensions at Deloitte, considers what the changes mean for employers operating in the region and why this change represents such a fundamental shift in employee reward.

Watch video here.

The Dubai International Financial Centre Authority (“DIFCA”) has recently announced a Presidential Directive in response to COVID-19, which takes effect from 21 April 2020 to 31 July 2020 (known as the “Emergency Period”).

The Directive provides employers with greater flexibility and protection during the global pandemic and, in particular, provides certain relaxations in respect of employment regulations in the DIFC. In particular, the Directive permits employers to reduce an employee’s salary or impose unpaid leave.

In the context of Funded Workplace Savings, which replaced future accruals under the End of Service Gratuity (“ESG”) regime with effect from 1 February 2020*, where there is a reduction of salary under these new measures there will be a commensurate reduction in an employer’s mandatory Funded Workplace Savings contribution. In simple terms, an employer contribution to either the DIFC Employee Workplace Savings (“DEWS”) scheme or a Qualifying Alternative Scheme (“QAS”) remains at the relevant fixed percentage, based on an employee’s years of service, but in respect of the newly reduced salary.

Where there is a reduction of an employee’s salary under these new measures, the amount of any existing ESG liability (i.e. the amount of ESG accrued to 31 January 2020) will be based on the employee’s higher salary as of 29 February 2020 – it cannot be affected by these new measures. The same principle applies if any accrued ESG liabilities are subsequently funded into DEWS or a QAS.

Whilst the Presidential Directive relaxes some of the employment laws that govern employers in the DIFC, the key underlying fact is that employers are still required to make a mandatory contributions to a Funded Workplace Savings scheme, albeit potentially a reduced amount.

*Funded Workplace Savings, as a direct replacement for ESG, came into effect from 1 February 2020, although employers had until 30 April 2020 to commence funding into DEWS or a QAS.

The Presidential Directive can be found here.

We will continue to update these dedicated webpages with latest information provided by the DIFC. If you are an employer in the DIFC and would like to discuss how the changes to ESG impact your organisation, please do not hesitate to contact one of the Deloitte specialists or your usual Deloitte adviser.

Various key updates to the proposed replacement of ESG with funded workplace savings were announced today by the DIFC. These relate to both the DIFC Employee Workplace Savings (“DEWS”) scheme and Qualifying Schemes (“QS”) that employers may wish to establish as an alternative to DEWS.

Deloitte partner, Chris Bulleyment, is currently in the DIFC to participate in the DIFC panel event on QS alternatives and to discuss with clients how the upcoming changes – including the recent developments below – will impact employers and their approach.

Today, the DIFC have formally announced that:

• Timing
  
  • The go-live date for DEWS will be delayed to 1 February 2020 (previously this was set at 1 January 2020).
    
  • There is a grace period to 31 March 2020 for enrolment into DEWS or an alternative QS meaning that employers wishing to establish a DEWS alternative have a three month grace period from the original go live date to establish this and to obtain a Certificate of Compliance.
  • A Certificate of Compliance must be obtained before the 31 March 2020 deadline. More information, including forms for certification will be published by the DIFC shortly.
    
    
• Enrolment into DEWS
  
  • To enrol into DEWS from 1 February 2020, employers will need to sign and submit a Deed of Participation.
    
  • Following enrolment, employee data will be uploaded onto the DEWS platform during the month of March and employee accounts will be created.
    
    
• Contributions
  
  • Contributions into DEWS or an alternative QS will be backdated for the months of February and March, so there will be a need to “catch up” for contributions due for these months.
    
  • In the event that employers make contributions before 31 March 2020, they will not be liable for any profits or losses made in the scheme in the intervening period.
    
    
• DEWS Administration
  • The administrator for DEWS will make contact with employees once their employer has been enrolled into DEWS and has paid contributions into the scheme in order to confirm which fund(s) the employee wishes to invest into (and whether the employee wishes to made additional voluntary contributions into the scheme).
    
  • The DIFC has appointed the Chairman of the DEWS Supervisory Board.
    
    
• Investments under DEWS
  
  
  • We understand that employees will be permitted to split their investments across more than one fund option, for example 70% in a low to moderate fund and 30% in a moderate to high risk fund.
    
  • As we know, employees will have five investment fund options – low, low to moderate, moderate, moderate to high and high. The DIFC have published expected rates of return and fees per year for each fund option as follows:
    
    
    • Low – 2.8% expected return, 1.26% total fees
      
    • Low to Moderate – 5.5.% expected return, 1.33% total fees
      
    • Moderate – 6.3% expected return, 1.32% total fees
      
    • Moderate to High – 6.5% expected return, 1.32% total fees
      
    • High - 6.8% expected return, 1.31% total fees
      
      
  • Three Shari’a compliant fund options will be available under DEWS:
    
    
    • Equities - 1.53% p.a. total fees
      
    • Sukuk - 1.68% p.a. total fees
      
    • Cash – 1.43% p.a. total fees
      
      
• ESG lock in
  
  
  • Employees with less than 1 year of service as at 31 January 2020 will get a pro-rata, locked-in entitlement, based on what would be accrued at 31 January 2020 but only if they remain in employment for a full 12 month period.
    
    
• Further information from the DIFC
  
  
  • The DIFC are responding to requests for greater information and clarification and will shortly be issuing an Employer Executive Guide and a DEWS Member Guide with more information for employers and employees on what the upcoming changes and enrolment into DEWS mean. We will provide links to these documents once they have been made available.    

If you are an employer operating in the DIFC and would like to discuss how the upcoming changes impact your organisation, please do not hesitate to contact one of the Deloitte specialists or your usual Deloitte adviser.