Official vs Unofficial End-of-Service Savings Schemes: Who wins?

As readers of our pages know, the UAE End-of-Service Benefits (EOSB) landscape is evolving fast. The UAE introduced with Cabinet Resolution No. 96 of 2023 an investment-based voluntary Alternative End-of-Service Benefits System, while at the same time, a good number of providers continue to offer other workplace saving schemes which are outside the framework of Cabinet Resolution No. 96.

Hence, many companies are asking:

• Are these schemes the same? If not, what is the difference?

• Does it matter which one we choose? What are the risks and upsides of choosing the one or the other?

Let’s dive in!

The “Official” Schemes: What are they?

There is one key distinction between official and unofficial schemes: Official schemes are those implemented under Cabinet Resolution 96 of 2023 and the related MoHRE framework. According to the new rules, this is an optional alternative to the traditional gratuity system, and once employees are enrolled, the employer stops applying the old gratuity model for those employees.

In other words, an official scheme is not simply a funding vehicle; it is a legally recognised replacement of the (old) gratuity obligation for enrolled employees.

(On a side note, the so-called legacy gratuity - i.e., the gratuity that has been accumulated up and until the point of switch-over to the new system - still needs to be settled in the old way. Please read more on this here)

The official framework is tightly prescribed: Employers contribute 5.83% of monthly basic salary for employees with less than five years’ service and 8.33% for those with more than five years’ service, with payments due within 15 days of the beginning of each month. MoHRE’s guidance currently lists approved providers including Ghaf Benefits, Daman Investments, National Bonds and First Abu Dhabi Bank. More providers, we are told, are in the pipeline of obtaining approval.

The final important point to note about these official alternative EOSB saving schemes: They are voluntary now, but are set to become compulsory at some point in the near future. MOHRE has not published a timescale yet, but it is widely assumed that the new scheme will become mandatory across the UAE in the next few years.

The “Unofficial” Schemes: What is on offer?

By contrast, a number of attractive unofficial or market-led end-of-service savings arrangements are available in the UAE. These can be commercially sophisticated and highly valuable from an HR perspective, but unless they are part of the Cabinet Resolution 96 framework, they do not replace the employer’s statutory labour law liability. For example, HAYAH Insurance markets its Employee Secure Saver as a solution that can “ringfence” gratuity liabilities, provide enhanced employee benefits and offer digital access for both HR and employees. That is useful, but it indicates a mechanism to manage or pre-fund gratuity exposure rather than to replace the underlying legal obligation. That distinction becomes especially important in the unfortunate scenario when investments under an unofficial scheme perform poorly. If the arrangement is not an official statutory replacement, the employer remains on the hook for the full legal gratuity entitlement. That means if the invested assets underperform, the employer will have to fund the shortfall itself. This is not just a theoretical concern. For example, the Mercer Low / Moderate Growth fund (the default fund of the DIFC’s DEWS saving scheme) showed in 2022 a net loss of -9.9%. It took two years for the fund to make up for this shortfall.

Compensation & Benefit tools

At the same time, unofficial schemes can offer strategic advantages that go well beyond pure EOSB liability funding. They can be used as strategic HR compensation and benefits tools, allowing employers to shape reward models more creatively. HAYAH has stated that employers can decide their own contribution structures and vesting schedules, while Praxis explains that employers may fully match, partially match, or exceed employee contributions, and can also use savings plans together with long-term incentive structures for retention of key staff. This makes unofficial schemes particularly interesting for employers who want to differentiate their employee value proposition, support retention, or reward senior and globally mobile talent in a more tailored way.

Investment choice

Investment choice is another area where unofficial schemes can be compelling. HAYAH highlights a fully capital-protected AXA USD General Account and says its solution is otherwise product-agnostic through its partnership with AllFunds, enabling access to funds from established asset managers. Praxis states that investments can be made into a single investment fund or into funds from a range of investment managers, and that employees may access over 100 self-selectable assets, with the employer also able to appoint a preferred investment manager subject to due diligence. Sukoon’s GO SAVER offers a capital-protected option provided by Sukoon Insurance and Generali Global Pension, a selected list of independent funds including Shariah-compliant solutions, and risk-based portfolios offered by Franklin Templeton. These features help explain why many employers find unofficial solutions attractive even where they do not carry formal labour-law replacement status.     

What is the downside of unofficial schemes?

The risk, however, is that an employer may implement one of these unofficial schemes and later discover that it must still migrate into an official Cabinet Resolution 96 structure if and when the official regime becomes compulsory. In that case, the company may need to redo its provider selection, employee communicationation & training, provider contracts, payroll processes and other related arrangements. It may also have to unwind the previous investment accounts & sign agreements with all employees to transfer the funds to the new provider. In other words, a well-intentioned early move into an unofficial structure could create a lot of extra-work later on.

Is there a combined approach?

Some generous employers may conclude that the cleanest route is to use an official provider for the portion of end-of-service benefit that is intended to replace statutory EOSB under Cabinet Resolution 96, while using a separate unofficial savings or benefits platform for contributions above the legal minimum, such as matched savings, executive top-ups, incentive-linked contributions or bespoke vesting-based retention structures. That way, the employer secures the legal benefit of replacing statutory gratuity where possible, while still preserving the flexibility and richer reward design that unofficial schemes can offer.  But to be clear – we are talking here about going well above and beyond the legal minimum, and any additional contributions will have to be paid by the employer. For certain industries and areas where talent is scarce this me well be justified. For rank-and-file employees, perhaps not.

Conclusion

For employers in the UAE, the core lesson is simple: not every “end-of-service savings plan” has the same legal effect. Official schemes are a fully approved regulatory replacement for the old gratuity system and the obligations it puts on employers.

Unofficial schemes by contrast may be excellent strategic HR and investment tools, but they do not absolve companies from their labour law obligations regarding EOSB gratuity.

Whilst funding the EOSB liability per se is an excellent idea, employers need to be aware of the investment risk in case of a market dowturn. Finally, it is to be noted that the “official” schemes are set to become compulsory in due course, so employers are well advised to think through the consequences of having to comply to an official end of service saving scheme in the not too distant future.

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