Brit firms to pay for UAE expats pension

Pension schemes for expat professionals in the UAE are finally gaining ground and this time it seems the British nationals are expected to benefit from a UK scheme that was launched last year.

Starting from October 2012, all employers in the UK are being required by law to make arrangements for their workers to be automatically enrolled into a pension scheme, says law firm Clyde & Co.

For the first time, employers are required to make contributions towards their workers’ pension savings. Workers covered, in many cases, include those who have been sent by their UK employers on secondments or other placements outside the UK to GCC countries, it adds.

Pension schemes are slowly picking up in the country. NBAD Trust Company (Jersey) Limited, the wholly-owned subsidiary of the National Bank of Abu Dhabi (NBAD), launched earlier this year a Wealth Builder Plan, a corporate trust solution that allows employers to offer their expatriates staff greater rewards through corporate savings and pension schemes.

However, a bigger percentage of expat population does not benefit from pension schemes in the country. According to the National Bureau of Statistics, expatriates account for 88.5 per cent of the UAE’s population of 8.2 million (2011). Many, however, buy pension schemes that are offered by financial institutions back home that offer them a monthly amount when they reach retirement age.

What the UAE law provides to expats is gratuity (as defined by the Labour Law) in the country that offers the expat professional a lump sum of money when they leave their job.

Pension schemes are an option across the world that entitles an individual a monthly income even when they retire from work. Recently, a pension scheme that promises social security for Indian blue-collar workers in the UAE was launched.

Coming back to the new scheme for British nationals in the GCC, this can raise some issues. “Within the GCC context, this requirement raises issues with respect to end of service gratuity which is a statutory benefit in the six GCC member states. It is a benefit designed to be in lieu of pension for foreign employees and in certain circumstances may be replaced by a pension or savings scheme (usually expected to be locally based),” say experts at the law firm.

The scheme is being rolled out gradually, with larger employers being required to comply first. All employers with more than 50 workers will have to comply by April 2015, and all businesses (other than start-ups established during the phasing-in period) will have come within the ambit of the legislation by April 1, 2017.

The Regulator has stated that employers need up to 18 months of preparation for automatic enrollment. This may seem a lengthy period, but it is important to ensure that you are in a position to comply properly with the obligations, the report by Clyde & Co added.

Just as with anything related to law, this scheme has its complexities. “The requirements of the legislation are somewhat complex. The main obligation on an employer is the requirement to automatically enroll ‘eligible jobholders’ into a pension scheme. A defined contribution scheme can be used for this purpose. Eligible jobholders are workers’ who work or ordinarily work in the UK, are aged between 22 and State pension age and have ‘qualifying earnings’ (currently GBP 9,440 per year).

“The employer will need to pay contributions totalling at least 3 per cent of the earnings of eligible jobholders in the band from GBP 5,668 to GBP 41,450. The employer can, however, opt, if it wishes, to comply with other contribution criteria which are substantially similar.

“An employer must enroll eligible jobholders into a UK pension scheme rather than a GCC-based scheme. However, where eligible jobholders are already enrolled in a GCC scheme on the employer’s staging date, the employer can leave them in that scheme as long as it satisfies certain criteria laid down in the legislation. This will require a careful analysis of whether the GCC scheme meets these criteria. In summary, it will do so if it is a defined contribution scheme which is subject to local regulatory oversight, meets criteria relating to tax relief, and the local regulatory rules ‘provide that some of the benefits applicable to the jobholder may be designated for the purpose of providing that jobholder with an income for life’ – in other words, a regular pension in retirement,” explain lawyers at the firm.

“Workers who are not eligible jobholders need not be automatically enrolled into a pension scheme, but they have the right to join a pension scheme. If they do so, they are entitled, in some cases, to receive the same employer contributions as eligible jobholders.

“The guidance from the Regulator states that a worker who is transferred to the GCC region (or anywhere else outside the UK) will probably be held to be still ordinarily working in the UK if his employment contract remains with his UK employer and it is expected that he will return to his duties in the UK at some future date. Similarly, an individual who is transferred to the UK will probably not be held to be ordinarily working in the UK if she retains an employment relationship with her overseas employer and she is expected to return to the overseas employer at the end of the placement.

“The situation is different if a worker is permanently transferred outside the UK, or if a temporary placement outside the UK is renegotiated so that it becomes a permanent one. In such cases, the worker will generally not be considered to be ordinarily working in the UK.

“In summary, it will not always be obvious whether a particular individual is or is not ordinarily working in the UK. In many cases, specialist advice will be required to make a judgement call on a particular worker’s status,” it adds.

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