The UAE’s shift towards a funded end-of-service benefits model is gaining traction, with a pilot voluntary savings scheme introduced by the Ministry of Human Resources and Emiratisation (MOHRE). In parallel, the Dubai International Financial Centre (DIFC) continues to expand participation in its mandatory DIFC Employee Workplace Savings (DEWS) plan. The question facing many expatriate employees today is no longer when gratuity is paid but how it should be structured.
Since the launch of the scheme, early adoption trends suggest that private sector employees in the UAE mainland may opt to move away from the traditional lump-sum gratuity model and instead participate in an investment-based scheme that offers the potential for long-term savings and retirement planning. But the decision is nuanced, involving trade-offs in risk, return, liquidity, and employer compliance.
How the voluntary scheme works
MOHRE’s voluntary scheme is governed by Cabinet Resolution No. 96 of 2023. Employers contribute monthly to approved investment vehicles on behalf of eligible employees, primarily skilled workers earning Dh4,000 or more. Unskilled workers are directed to capital-protected instruments, while others can choose from a range of funds, including Sharia-compliant and global equity options.
For now, adoption is voluntary. Employers that opt-in can offer employees the opportunity to build personal wealth over time, although gratuity liabilities already accrued remain with the company unless transferred into the new system.
Zurich Workplace Solutions, one of the early service providers for the DEWS model, says the scheme marks a “progressive, financially sound approach” for employers and a secure, transparent system for employees. “It transforms a future liability into a predictable, manageable cost,” said Varghese. “And for employees, especially those across lower and middle-income bands, the change brings enhanced security and visibility over benefits.”
Comparing gratuity vs investment-based savings
The traditional gratuity system, an unfunded liability, relies on employers to pay a lump sum upon termination based on years of service. While this model has remained the norm across the region, it has faced criticism for lacking security, especially in insolvency cases or volatile industries.
By contrast, according to Wilson Varghese, Senior Executive Officer at Zurich, the new investment-based model moves benefits into a regulated and ringfenced fund overseen by trustees. For employees, this brings ownership and potentially higher returns, though market risk becomes a factor.
“Employees need to understand that their final payout could fluctuate with fund performance,” said Erkin Kamran, CEO of Traze. “While high earners may benefit from long-term capital appreciation, lower-income workers must be cautious, particularly since contributions are only on basic salary.”
Singapore’s Central Provident Fund (CPF) and the UK’s auto-enrolment pension system are often held as benchmarks. Both mandate contributions and offer structured retirement solutions. The UAE’s approach is more flexible but may offer less comprehensive coverage if employers or employees do not contribute voluntarily.
Operational challenges and employer compliance
Companies enrolling in the scheme face initial administrative burdens: setting up systems for monthly contributions, updating contracts, and managing payroll integrations. There are also liquidity implications, as monthly payments replace accrued liabilities.
For businesses with workforces across DIFC and mainland UAE, legal harmonisation adds another layer of complexity. “Compliance interpretation and systems integration remain pain points,” said Varghese. “But companies that treat this as an employee experience transformation rather than just a regulatory shift are seeing better results.”
Kamran agrees, noting that “legacy gratuity liabilities still need to be settled,” making the shift gradual and hybrid in the short term. MOHRE has published penalties for non-compliance. However, further guidance is needed, especially on transferring accrued benefits and supporting small to mid-sized enterprises (SMEs) during onboarding.
Demographic and behavioural shifts
Initial data from DEWS and market surveys suggests growing interest, particularly among younger workers. Zurich’s internal research shows that Gen Z employees are the most proactive in making voluntary contributions and tend to choose growth-oriented funds.
“Expatriates from regions with limited or no state pension infrastructure are more inclined to actively engage with a workplace savings plan as a long-term financial planning tool,” said Varghese.
Senior professionals are also using the scheme as a portfolio diversification tool, choosing a blend of conservative and high-yield funds. Across job levels, a common theme is emerging: employees want visibility, ownership, and flexibility in how their benefits grow.
A recent study by Mercer found that over half of UAE employees are unsure whether they’ll retire comfortably, while 74% say employer-matched savings are now “essential” in their benefit expectations.
Regulatory landscape and next steps
According to Varghese, the DIFC set a high benchmark with DEWS, offering regulatory certainty, independent governance and a clear framework for transition. This has significantly accelerated confidence and uptake within the DIFC jurisdiction and Dubai Government and Free Zone Authorities.
“MOHRE’s introduction of a voluntary workplace savings scheme is a major step forward in extending this vision across the UAE, and there are already 6 qualified Schemes with more expected,” he said. Employers who are looking to be early adopters in this voluntary phase will need to solve for key areas like:
- Portability across employment sectors and geographies.
- The replacement process for legacy gratuity accruals,
- Clarity on contribution models and payroll integration,
- Tax, legal and financial treatment of contributions,
However, key uncertainties remain around the transferability of legacy entitlements, taxation of contributions, and cross-border portability, especially relevant for a mobile expat workforce.
“Regulatory clarity has improved,” said Kamran. “But we need more detailed guidance to drive broader adoption, especially if a mandatory model is eventually introduced.”
The UAE is positioning itself among global peers by modernising its workforce benefits structure. The move from gratuity to savings aligns with the country’s longer-term vision of enhancing labour market competitiveness, attracting international talent, and encouraging financial inclusion.
Whether this scheme becomes the new standard or remains a parallel option will depend on three key factors: employer uptake, regulatory momentum, and employee trust in financial markets.
For now, workers and HR departments alike must weigh the benefits of predictable payouts against the risks and rewards of long-term investment. For a mobile, youthful, and increasingly financially literate workforce, that trade-off may become easier to accept.
