End of Service Benefit Reform
May 6th 2019, 11:31 am
#1
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End of Service Benefit Reform
So... you lucky folks in the DIFC.
Rumour is from 2020, the EOS benefit will no longer be accrued and paid by your employer when you leave. It will be settled in cash each month... into a trust held by the government - they will kindly invest it for you and in return for this excellent work charge you around 1.5%. When you leave you will get the value of your investment back, which I expect to be at least a 2-3x* so all will be well.
*the value of your investment may go down as well as down.
Rumour is from 2020, the EOS benefit will no longer be accrued and paid by your employer when you leave. It will be settled in cash each month... into a trust held by the government - they will kindly invest it for you and in return for this excellent work charge you around 1.5%. When you leave you will get the value of your investment back, which I expect to be at least a 2-3x* so all will be well.
*the value of your investment may go down as well as down.
Last edited by Millhouse; May 6th 2019 at 11:34 am.
May 6th 2019, 1:13 pm
#2
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Location: Abu Dhabi via Barcelona
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Re: End of Service Benefit Reform
To be fair I think this is a good move, it means the company you work for is compelled to pay the gov your eos, they then take a percentage however you're guaranteed to get it (no more the company can't afford to pay you it).
As I see it anyway.
As I see it anyway.
May 6th 2019, 2:20 pm
#3
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Re: End of Service Benefit Reform
I’m sure that was exactly the first thought the government had.
May 6th 2019, 3:26 pm
#4
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Joined: Aug 2010
Posts: 90
Re: End of Service Benefit Reform
1.5% is eye watering. The expense ratio on my self managed portfolio is currently 0.22%.
May 6th 2019, 5:13 pm
#5
Account Closed
Joined: Feb 2011
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Re: End of Service Benefit Reform
Time to ask to cash it out early then
May 7th 2019, 6:29 am
#6
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Re: End of Service Benefit Reform
No more "company cant afford to pay", but surely a start to "sorry, your investment went down, so you wont get anything"
May 8th 2019, 6:46 am
#7
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Joined: Jan 2014
Posts: 105
Re: End of Service Benefit Reform
Based on all the stories of the employer not being able to pay, I think it’s a good move. I have also heard of instances where employers have come up with questionable reasons to terminate employees and withhold their end of service.
Some corrections to the above statement:
1. Money will be held in a trust but the investment choice will be managed by the employee based on available strategies and options. They are saying 10-12 options to start with.
2. The % charge includes administration charge and all fees in so there should be no extra fee. They are expecting the charge to go down further as part of the tender process.
3. An employer has the option to set up their own scheme provided the money is off the balance sheet and managed by a third party. This can only be a good thing as it guarantees you get your money and don’t loose it with your employer.
4. Employees will have the option to contribute themselves to use as a savings plan, if they choose to do so.
5. No localization requirements to start with and they money will be invested in global funds.
Above information is based on what DIFC said in their info session, let’s see how it unfolds. Sometimes change is good, even in Dubai.
Some corrections to the above statement:
1. Money will be held in a trust but the investment choice will be managed by the employee based on available strategies and options. They are saying 10-12 options to start with.
2. The % charge includes administration charge and all fees in so there should be no extra fee. They are expecting the charge to go down further as part of the tender process.
3. An employer has the option to set up their own scheme provided the money is off the balance sheet and managed by a third party. This can only be a good thing as it guarantees you get your money and don’t loose it with your employer.
4. Employees will have the option to contribute themselves to use as a savings plan, if they choose to do so.
5. No localization requirements to start with and they money will be invested in global funds.
Above information is based on what DIFC said in their info session, let’s see how it unfolds. Sometimes change is good, even in Dubai.
May 8th 2019, 7:55 am
#8
Knee deep and rising
Joined: Sep 2011
Posts: 3,007
Re: End of Service Benefit Reform
Does this mean your final EOS will be smaller overall amount as it builds up over your service as a percentage of your salary at that time, rather than a multiple of your final salary?
May 8th 2019, 8:00 am
#9
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Re: End of Service Benefit Reform
May 8th 2019, 8:52 am
#10
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Joined: Jan 2014
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Re: End of Service Benefit Reform
DIFC plan kicks in for all accruals post Jan 1 2020. Anything accrued before will still be the employers responsibility. Service will be frozen at Jan 1 2020 but the final calculation will be based on salary at time of leaving.
Post January 1 2020 employers will need to make contributions equivalent to the end of service accrual based on service. For anyone under 3 years it equates to around 5.3% (equivalent of 21 days) of base pay and anyone over 5 years is around 8.3% (equivalent of 30 days).
The selling point is it is cost equivalent as the employer should be accruing for end of service anyway, which in reality only a minority do. DIFC purposely stayed away from mandating old accruals as many companies will go bankrupt since they are using employee money to fund day to day operations.
Hope this helps.
Post January 1 2020 employers will need to make contributions equivalent to the end of service accrual based on service. For anyone under 3 years it equates to around 5.3% (equivalent of 21 days) of base pay and anyone over 5 years is around 8.3% (equivalent of 30 days).
The selling point is it is cost equivalent as the employer should be accruing for end of service anyway, which in reality only a minority do. DIFC purposely stayed away from mandating old accruals as many companies will go bankrupt since they are using employee money to fund day to day operations.
Hope this helps.
May 8th 2019, 8:53 am
#11
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Re: End of Service Benefit Reform
Based on all the stories of the employer not being able to pay, I think it’s a good move. I have also heard of instances where employers have come up with questionable reasons to terminate employees and withhold their end of service.
Some corrections to the above statement:
1. Money will be held in a trust but the investment choice will be managed by the employee based on available strategies and options. They are saying 10-12 options to start with.
2. The % charge includes administration charge and all fees in so there should be no extra fee. They are expecting the charge to go down further as part of the tender process.
3. An employer has the option to set up their own scheme provided the money is off the balance sheet and managed by a third party. This can only be a good thing as it guarantees you get your money and don’t loose it with your employer.
4. Employees will have the option to contribute themselves to use as a savings plan, if they choose to do so.
5. No localization requirements to start with and they money will be invested in global funds.
Above information is based on what DIFC said in their info session, let’s see how it unfolds. Sometimes change is good, even in Dubai.
Some corrections to the above statement:
1. Money will be held in a trust but the investment choice will be managed by the employee based on available strategies and options. They are saying 10-12 options to start with.
2. The % charge includes administration charge and all fees in so there should be no extra fee. They are expecting the charge to go down further as part of the tender process.
3. An employer has the option to set up their own scheme provided the money is off the balance sheet and managed by a third party. This can only be a good thing as it guarantees you get your money and don’t loose it with your employer.
4. Employees will have the option to contribute themselves to use as a savings plan, if they choose to do so.
5. No localization requirements to start with and they money will be invested in global funds.
Above information is based on what DIFC said in their info session, let’s see how it unfolds. Sometimes change is good, even in Dubai.
May 8th 2019, 9:14 am
#12
Forum Regular
Joined: Jan 2014
Posts: 105
Re: End of Service Benefit Reform
Actually the fees quoted 1.25 -1.5% is all in with no additional fee and the government is not set to make any money from it. As per their statement DIFC plans to hire a tier 1 global consulting/ administration firm to manage the scheme, there will be no government involvement. The trust has to be local or in DIFC to comply with DFSA regulations and to make sure they can go after someone if things go wrong. The job of the trust, which will be independent of the provider, is to make sure they keep the provider on task. The trust will then be regulated by DFSA to make sure they are delivering as per promise and working for plan members.
The government benefit is that they might ,in future, ask a certain percentage of the money be invested in local markets but DIFC recognizes this is not possible today.
Fund options will be the same as you get in global markets, very similar to how UK or other employer trust based schemes work. This is very similar to an employer provided plan with the exception your money is locked in until termination and not retirement age. Even at termination you will have the option to cash out or leave the money invested in the scheme.
All of the above was shared at the DIFC info session last month.
The government benefit is that they might ,in future, ask a certain percentage of the money be invested in local markets but DIFC recognizes this is not possible today.
Fund options will be the same as you get in global markets, very similar to how UK or other employer trust based schemes work. This is very similar to an employer provided plan with the exception your money is locked in until termination and not retirement age. Even at termination you will have the option to cash out or leave the money invested in the scheme.
All of the above was shared at the DIFC info session last month.
May 8th 2019, 9:30 am
#13
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Re: End of Service Benefit Reform
Thanks for the info. That’s very clear.
Are you advising them? 😁
Are you advising them? 😁
May 8th 2019, 9:50 am
#14
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Joined: Jan 2014
Posts: 105
Re: End of Service Benefit Reform
You are very welcome.
Not advising but in the same industry so have to stay informed on the changes. Being neutral I think this is a great thing and will help attract talent considering the golden days are over and you’re now competing in the open market for talent. Time will tell.
Not advising but in the same industry so have to stay informed on the changes. Being neutral I think this is a great thing and will help attract talent considering the golden days are over and you’re now competing in the open market for talent. Time will tell.
May 9th 2019, 5:18 am
#15
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Joined: Jan 2017
Posts: 177
Re: End of Service Benefit Reform
Does that mean you don't get dinged for 2/3's of your EOSB if you resign?