UAE’s 2023 Pensions Law: Key Reforms Unveiled for Contributions, Retirement, and Data Accuracy

UAE pension law

Effective from 2nd October 2023, the UAE Federal Decree Law No. 57 of 2023, commonly known as the “2023 Pensions Law,” was introduced, marking a significant milestone in the realm of pensions. This new legislation brings about vital amendments to the existing framework laid out in the UAE Federal Law No. 7 of 1999, as amended, also known as the “1999 Pensions Law.”

Let’s delve into the key provisions outlined in the reformed contribution scheme:

1. Increased monthly contribution rates under the new scheme.

2. Expansion of the pensionable salary cap.

3. Clear definition of service periods.

4. Comprehensive retirement guidelines and exceptions.

5. Emphasis on the accuracy of data submitted to authorities.

6. Streamlining calculations and payments of contribution amounts due to GPSSA (General Pension and Social Security Authority).

These reforms aim to ensure the long-term sustainability and effectiveness of the pensions system, benefiting both the individuals and the nation as a whole.

1. New Scheme Rates and Applicable Salary Details

 According to the 2023 Pensions Law, it is mandatory to contribute monthly to the General Pension and Social Security Authority (GPSSA) based on the employee’s full salary, including any incentive payments such as bonuses or commissions. Here are the respective contributions:

    – Employer: 15% OR 12.5% – Increase from 12.5% for insured applicable salary AED 20,000 or more.

   – Employee: 11% – Increase from 7.5%

   – Government: 2.5% – A new addition for monthly applicable salary less than AED 20,000, shouldered by the government to encourage Emirati employment.

 Therefore, the total new contribution is 26% for a monthly salary of AED 20,000 or more, and 23.5% for lower salaries, with the government covering the 2.5% difference.

2. Pensionable Cap

The new law has raised the maximum salary threshold for pension rates in the following sectors:

   – Public (Government) sector employees: salary cap increased to AED 100,000 (previously AED 50,000)

   – Private Sector: salary cap increased to AED 70,000 (previously AED 50,000)

3. Elaboration on Eligible Service Periods

Under the new Decree Law, insured employees are allowed to merge previous service periods with any employer covered by this law. They can also consolidate periods of service prior to obtaining UAE nationality, as well as prior service in entities approved by the UAE Cabinet upon the Authority’s Board of Directors’ suggestion.

The 2023 Pensions Law specifies that all contributions (employer, employee, and government) must be made during leave periods, even if they are unpaid. However, contributions are not required during periods of suspension without pay, agreed unpaid leaves, or when no salary entitlement exists. This provision also applies to those individuals governed by the 1999 Pensions Law.

4.Retirement Guidelines and Exceptions:

– Minimum Age and Subscription Period: The insured person becomes entitled to a retirement pension at the age of 55, provided they have a minimum subscription period of 30 years.

– Flexibility for Working Mothers: Recognizing the vital role of working mothers in society, the new law grants them more flexibility and benefits. It allows working mothers to apply for retirement pension entitlement at a younger age and with a shorter subscription period. They can also maintain their optional subscription during leave taken to care for their children, according to the specified terms and conditions.

– Optional Subscription for Postgraduate Study: The new law authorizes insurers to benefit from optional subscription if they request an unpaid leave for the purpose of pursuing postgraduate study.

– Purchasing Nominal Service Periods: Insured individuals can request the purchase of a nominal period of adjoining to be added to their actual service periods. To be eligible, they must have worked a minimum actual period of service of 25 years (or 15 years if they have reached the age of 60). The purchased period should not exceed 5 years for both men and women.

UAE’s 2023 Pensions Law: Key Reforms Unveiled for Contributions, Retirement, and Data Accuracy

5. Accuracy of Data Submitted to Authorities:

Employers are committed to providing accurate statements, data, and documents, including details of the insured’s salaries, for the purpose of calculating the arranged contributions in accordance with the provisions of this legal decree. Accurate data submission is crucial, as it will affect balance statements created at a later stage by the General Pension and Social Security Authority.”

6. Calculations and Payments of contributions to GPSAA:

The process of calculating and paying contribution amounts due to the General Pension and Social Security Authority (GPSSA) involves certain rules that apply to both government and private sectors. Here’s an overview:

a. Calculation Method:
   – The pension calculation is based on the average contribution account salary of the last six (6) years of the subscription period (or the entire contribution period if it’s shorter) for both government and private sector employees.

b. Payment Responsibilities:
   – In the private sector, the employer is responsible for making monthly contribution payments on behalf of the entity and the insured individuals.

c. Existing Employees:
   – For existing employees, the current contribution rates (20%) should be maintained for the months of October, November, and December 2023. However, starting from January 1, 2024, any difference in rates should be paid according to the new rates.

d.  New Employees:
   – For new employees joining from October 2023 onwards, monthly contributions should be paid at a rate of either 26% or 23.5%, depending on the provisions of the new Law No. (57) of 2023. The full contribution amount should be paid from the date of joining in October 2023, regardless of the actual date of joining.

The revisions to the 2023 Pensions law in the UAE are geared towards encouraging the employment of Emirati nationals and providing comprehensive guidelines for companies to adopt the new contribution rates, ensuring adherence to legal regulations.

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