The New UAE Pensions Law

The UAE has recently undertaken a large-scale overhaul of existing laws and regulations in an effort to address changes in the work environment and align UAE relations with international best practices.

On 2 October 2023 (the “Effective Date”), UAE Federal Decree Law No. 57 of 2023 (the “2023 Pensions Law”) was published and came into effect. The 2023 Pensions Law is the most significant change to the pensions landscape since the UAE Federal Law No. 7 of 1999 as amended (the “1999 Pensions Law”) was first published.

Importantly, the 2023 Pensions Law only applies to new Emiratis joining the UAE workforce. For all other Emiratis currently (or historically) employed in the UAE and registered for pension purposes with the General Pensions and Social Security Authority (“GPSSA”), the 1999 Pensions Law continues to remain the operative law (save as where expressly amended by the 2023 Pensions Law).

The key provisions of the 2023 Pensions Law for the private sector are summarised below:

1. Pension Contributions

In accordance with the 2023 Pensions Law, contributions should be made on a monthly basis to the GPSSA and calculated with regard to the employee’s full salary inclusive of any incentive payments (for example, bonuses or commission). The respective contributions are as follows:

• Employer: 15% (of which 2.5% will be paid by the Government where an employee earns less than AED 20,000)
• Employee: 11%

The total contribution therefore is 26%.

2. Pensionable Cap

Under the 1999 Pensions Law, the pensionable cap is AED 50,000 meaning that if an individual is earning more than AED 50,000, pension contributions will only be calculated on the basis of AED 50,000 and any additional earnings will not be considered for the purposes of pension contributions.

The pensionable cap under the 2023 Pensions Law is AED 70,000.

Interestingly, the provisions of Article 8 of the 1999 Pensions Law oblige an employer to make good any difference in respect of the payments made under the 1999 Pensions Law and a potential end of service gratuity entitlement where an individual’s salary exceeds AED 50,000 so that an employee who earns more than AED 50,000 per month is not disadvantaged by way of the cap. The 2023 Pensions Law does not provide for a similar benefit.

3. Service Periods

The 2023 Pensions Law provides that all contributions (employer, employee and government) should continue to be made during periods of leave, even where that leave period is unpaid (for example, where an individual takes more than 45 calendar days of sick leave, any further sick leave is taken on an unpaid basis). Contributions should also continue to be made during periods of secondment and study leave. However, where an individual is suspended without pay, has agreed a period of unpaid leave with their employer, or is otherwise not entitled to salary, contributions can be withheld. This provision also applies to those individuals governed by the 1999 Pensions Law.

Notwithstanding this, for those individuals subject to the 2023 Pensions Law, where an individual takes a period of unpaid leave for either study leave or childcare (female employees only), they may request that the contributions continue throughout the period of leave, provided that the individual pays all contributions due during that period.

4. Employer’s Obligations

In accordance with the 2023 Pensions Law, employers are obligated to:

• Register eligible employees with the GPSSA within one month of the commencement of their employment. Within 15 calendar days of the end of an employee’s employment, the employer must update the GPSSA. Failure to comply will result in fines being imposed by the GPSSA of AED 200 per day in addition to a one-off lump sum fine of up to AED 50,000 per employee.
• Provide the GPSSA with any and all documentation required in order for the employee’s contributions to be accurately calculated within 10 calendar days of the date of the initial registration application. Any delay will result in fines of AED 100 per day being imposed by the GPSSA. In addition, the GPSSA shall, in such circumstances, have sole discretion to calculate the contributions due to the employee. As such, there could be significant financial ramifications for non-compliance with this obligation.
• Pay contributions to the GPSSA on a monthly basis. The employee’s contributions should be deducted directly from their salary. Significantly, the 2023 Pensions Law provides that in the first and last month of employment, and even where the full month is not worked by the employee, the contributions should not be pro-rated.
• Ensure contributions are paid by the 1^st of the following calendar month for which they are due. Where contributions are paid late (beyond the 15^th of that month), the employer may be fined in the amount of 0.1% of 10% of the due amount per day.
• Ensure that contributions are made accurately having regard to the employee’s actual salary. Failure to do so can result in the GPSSA requiring the employer to pay an additional amount of 10% of the contribution due.

In addition to the above penalties, where an employer intentionally provides incorrect data to the GPSSA or intentionally refuses to provide the data requested by the GPSSA, with the aim of either unjustly obtaining funds from the GPSSA or preventing payment of the actual contributions due, the employer may be subject to a fine of up to AED 50,000 (per employee). The employer’s authorized representative may also be imprisoned.

NOTE: Contributions under the 2023 Pensions Law are payable from 1 January 2024. No late payment penalties or fines will be imposed upon an employer between the Effective Date and 31 December 2023.

5. Calculation of Pension

The amount due to an individual by the GPSSA is dependent on a number of different factors:

• Pension is calculated at a rate of 2.67% of the pension account salary for each year of the contribution periods. Upon reaching 30 years, this rate is increased by 4% annually up to a maximum of 100% of salary.
• The individual is entitled to pension from the date following termination of his employment (up to his death).
• The minimum monthly pension is AED 10,000 per month. Where the amount due (calculated as above) is less than AED 10,000 then the GPSSA will pay the difference.
• If the total subscription period exceeds 35 years, the individual shall be paid at a rate of three months for each year above the 35-year period calculated on the basis of the pension account salary.

How can we help?

It is important that all UAE companies (with the exception of those subject to the Abu Dhabi Pension Fund and Sharjah Pension Fund) are aware of the 2023 Pensions Law in respect of new Emirati hires to ensure that the provisions of the 2023 Pensions Law are complied with, and fines and other penalties are not imposed by the GPSSA (or otherwise).

If you are not sure whether the 2023 Pensions Law applies to you or would like support in understanding what you need to do to ensure you are fully compliant with the 2023 Pensions Law, please do let us know and we would be happy to support.