How to Align Your Retirement Goals with UAE’s New Pension Laws
Planning your Retirement Plan in UAE effectively requires a solid understanding of the country's evolving pension framework. With the introduction of the Federal Decree-Law No. 57 of 2023, the UAE has modernized its pension system, primarily impacting Emirati nationals in both the public and private sectors. These changes bring about new opportunities—and responsibilities—for aligning your long-term retirement goals.
Understand the New Contribution Structure
Under the updated law, contributions to the pension fund have increased. Emirati employees are now required to contribute 11% of their salary, while employers contribute 15%. Additionally, for private-sector Emiratis earning under AED 20,000 monthly, the UAE government will contribute an additional 2.5%.
This updated structure means a higher total contribution, potentially leading to more substantial retirement benefits. As you plan for the future, it’s important to incorporate these new contribution percentages into your retirement projections and financial planning.
Evaluate the New Salary Caps
The pensionable salary cap has increased for both sectors. In the private sector, the cap has risen from AED 50,000 to AED 70,000, while in the public sector, it now stands at AED 100,000. This change means higher-earning employees will be able to contribute—and receive benefits—based on a larger portion of their income.
If you fall into the higher income brackets, this increase could significantly impact your future pension payouts. It is advisable to reassess your expected retirement income under the new salary caps and adjust your savings or investment plans accordingly.
Reassess Your Retirement Timeline
The new pension law maintains the minimum retirement age at 55, provided the individual has contributed for at least 30 years. However, there are special provisions for certain groups, such as working mothers with five or more children, who may be eligible for earlier retirement.
If your previous retirement plan included an earlier exit or was based on different contribution expectations, now is the time to revise it. Align your career duration with the required contribution period to ensure you qualify for full benefits under the law.
Consider Purchasing Additional Service Years
A valuable feature in the new pension system is the ability to purchase additional years of service. Individuals can buy up to five extra years to reach the required service period, which can be especially helpful for those with career interruptions or those approaching retirement without full eligibility.
This option allows you to accelerate your retirement plans or boost your pension entitlement. Evaluating whether this option is financially viable should be a key part of your retirement planning.
Leverage Portability Between Jobs
The reformed pension laws include greater flexibility and allow for portability of contributions when employees move between different sectors or companies. This is particularly useful in a dynamic employment landscape, where career changes are common.
Ensure that your contributions follow you across different employers, and verify with your human resources department that transitions are properly documented to avoid losing any service years.
Understand How Benefits Are Calculated
Under the new framework, pension benefits are calculated based on the average salary from the final six years of service. The rate is 2.67% per year of service for the first 30 years, increasing to 4% per year thereafter until the maximum payout is reached.
You should frequently review your projected pension based on these formulas to confirm that your expected income in retirement aligns with your lifestyle goals. Consider using financial tools or consulting with a retirement advisor to help with this calculation.
Complement Your Pension with Voluntary Retirement Savings
While the national pension provides a reliable foundation, it may not fully cover all your retirement needs, especially if you plan to retire early or have higher lifestyle expectations. In such cases, voluntary retirement savings plans, such as private pension schemes or employer-sponsored programs, can serve as valuable supplements.
These additional plans offer flexibility and investment opportunities that can help you reach your ideal retirement lifestyle. Start contributing early and consistently to take advantage of compounding returns.
Plan for Life Events and Career Gaps
The new law provides some protections for periods like maternity leave or study leave, but it's still essential to maintain contributions during any extended career gaps. If not, you may fall short of the required contribution years, which can delay retirement or reduce your benefits.
Anticipate possible career breaks and prepare accordingly by either maintaining voluntary contributions or planning to purchase service years later.
Final Thoughts
Aligning your retirement goals with UAE’s new pension laws requires a proactive and informed approach. The updated system offers increased benefits, higher contribution caps, and flexible options such as service year purchases and contribution portability. By reassessing your current strategy and integrating these changes, you can ensure your Retirement Plan in UAE remains strong and achievable.
Whether you’re just beginning your career or approaching retirement age, taking the time now to align your goals with the legal framework will set you up for long-term financial security and peace of mind.
