The UAE Alternative Savings Scheme: An Update

July 09, 2024

Following the Cabinet and Ministerial Resolutions in October 2023 introducing a voluntary alternative scheme to statutory end-of-service gratuity, a committee formed of the Ministry of Human Resources and Emiratization and the Securities and Commodities Authority have now approved two investment companies to offer the voluntary alternative end-of-service benefits scheme (the Savings Scheme). All companies operating in the private sector, including those that fall within the jurisdiction of the Ministry, and companies operating in the free zones (with the exception of the Dubai International Financial Centre and the Abu Dhabi Global Market) can now choose to participate in the Savings Scheme.

Companies Can Now Subscribe to the Savings Scheme

The announcement by the authorities of the two investment companies approved to offer the Savings Scheme means that employers can now choose to opt into the Savings Scheme should they wish to do so. The investment companies have been authorized to launch savings funds that provide, as an alternative to statutory end-of-service gratuity, options that offer a capital guarantee and are compliant with Islamic Sharia.

The Ministry of Human Resources and Emiratization Ministry (the Ministry) has updated its website, which now contains detailed information on the subscription process to the Savings Scheme and the details of the approved providers. Companies can subscribe to the Savings Scheme by contacting one of the approved providers. The provider will then conduct a due diligence check and, once approved, set up the company’s account. The company can then start contributing their employer contributions to the Savings Scheme.

Contributions into the Scheme

The contribution rates to the Savings Scheme for full-time employees are:

  • 5.83% of the employee’s monthly basic salary if the period of service is less than five years
  • 8.33% of the employee’s monthly basic salary if the period of service exceeds five years

The contribution rates therefore reflect the current accrual rate of statutory end-of-service gratuity. An employee can also make voluntary contributions into the Savings Scheme. These contributions can either be deducted by the employer from the employee’s salary and transferred on the employee’s behalf into the Savings Scheme, or the employee can transfer the amounts directly to the Savings Scheme through one of the approved providers. Any voluntary contributions made by the employee should not exceed 25% of their annual salary.

Treatment of End-of-Service Gratuity

Employers have the option to choose whether they want to enroll any or all of their employees to the Savings Scheme. If the employer opts to participate in the Savings Scheme, end-of-service gratuity will stop accruing from the date the Savings Scheme is implemented by the employer. On termination of employment, an employee’s entitlement to end-of-service gratuity will be calculated from the commencement date of employment until the Savings Scheme implementation date. The calculation will be made based on the basic salary paid to the employee as of the Savings Scheme implementation date. The regulations issued by the Ministry in relation to the Savings Scheme do not currently provide an option to transfer any accrued end-of-service gratuity into the Savings Scheme.

Employers who choose to continue paying end-of-service gratuity to employees will do so based on the current accrual rates: (1) 21 calendar days’ basic salary for each of the first five years of employment, and (2) 30 calendar days’ basic salary per year for any period of service in excess of five years.

Next Steps

Participation in the Savings Scheme is optional for the employer. Therefore, employers can choose to continue to offer statutory end-of-service gratuity to their employees. However, as set out in the Cabinet Decision in 2023 that introduced the Savings Scheme, the Savings Scheme seeks to ensure that employees receive end-of-service benefits and are protected from inflation and from the insolvency or bankruptcy of the employer. Therefore, employees may be keen to participate in the Savings Scheme and press their employers to participate in it.

Nevertheless, if a company is considering opting into the Savings Scheme, it will be prudent to conduct a thorough analysis of the advantages and disadvantages of the scheme for the employer. Such considerations might include cash flow on the one hand (as the Savings Scheme contributions will no longer be on the employer’s books) and employee retention and competitiveness in the UAE market on the other.


If you have any questions regarding the Savings Scheme or end-of-service gratuity or would like more information on the issues discussed in this LawFlash, please reach out to either of the contacts below.