DIFC DEWS Update - 10 December 2019

UPDATE: For details on the key changes DIFC employers should be aware of in Janaury 2020, see the article here.

Following on from our previous article on the DIFC Employee Workplace Savings Scheme (DEWS), the Dubai International Financial Centre Authority (DIFCA) held a Town Hall meeting on 10 December 2019.

This article provides an update on recent announcements with respect to DEWS. However, there are likely to be further clarifications once the amended DIFC employment law and DEWS regulations are published, which we expect to be published soon.

DEWS commencement date

The commencement date will now be 1 February 2020 and not 1 January 2020 – a direct consequence of employer feedback during the consultation.

The key dates will now be as follows:

• Go Live Date - 1 February 2020
• Employer Enrolment - 1 February to 28 February 2020
• Employee Enrolment - 1 March to 31 March 2020

All employers will have a grace period and must complete all steps to enrol to DEWS by 31 March 2020. In addition, employers who would like to use an alternative qualifying scheme will have until 31 March 2020 to obtain the necessary approvals and have the scheme set up. However, employers will need to make retrospective contributions to 1 February 2020 if they make use of the grace period.

Employees with less than 1 year service at 1 February 2020

We understand this was a contentious aspect of the consultation and the DIFC Authority (DIFCA) has subsequently altered how the proposed legislation will treat employees with less than 1 year of service at 1 February 2020.

Employees with less than 1 year service at 1 February 2020 will receive end of service gratuity (EOSG) on a pro rata basis. However, it is likely an employee will only be eligible for such EOSG once the employee completes a full year of employment.

Notice period at 1 February 2020

If an employee is working out their notice period as at 1 February 2020 the employee should not be enrolled on DEWS and instead will receive EOSG up to his termination date as per the previous EOSG scheme.

End of Service Gratuity transfer

In our previous article we discussed two key options for accrued EOSG:

• Option 1: The default position is that EOSG will accrue up to 31 January 2020 but will only be payable on termination of an employee’s employment and will be based on their final salary. This will require an employer to adjust the EOSG notwithstanding that the EOSG stopped accruing on 31 January 2020.

• Option 2: Alternatively, employers may decide to transfer the EOSG which has accrued up to 31 January 2020 into DEWS (or an alternative qualifying scheme). With this option, provided the employee agrees in writing, the employer’s obligations to their employee in respect of EOSG accrued up to 31 January 2020 will be extinguished in full.

However, the DIFCA has now provided for and clarified Option 3 in which employers may decide to transfer accrued EOSG up to 31 January 2020 without employee consent. Under Option 3, employers will be obligated to compensate employees in the event the DEWS payment on termination with respect to the EOSG amount contributed is equal to less than the EOSG amount which the employee would have otherwise been entitled to (as adjusted to account for salary changes) had it not been so contributed.

The DIFCA stated that the risk of topping up essentially goes both ways when an employer opts for Option 3. If the interest earned under DEWS is ultimately in excess of what the employee would have been otherwise entitled to (as adjusted to account for salary changes) had it not been so contributed, then the employer will be entitled to any additional interest earned from DEWS and not the employee. Therefore, the employee will only ever receive what they were entitled to under the old EOSG scheme if the employee does not provide consent (ie what they would have received under Option 1). In such circumstances, funds under Option 3 will be separated within DEWS from usual employer contributions for ease of calculating any shortfalls or earned interest.

As set out above, under Option 2, if the employee does provide written consent to the transfer of accrued EOSG the employer will not be liable for any potential shortfall and the employee will benefit of any interest earned from DEWS.

The mechanisms to deal with EOSG transfers and obtaining employee written consent are not entirely clear. We expect this to be clarified once the new law and regulations are published.

DEWS fees

Initially, there will be five primary funds within DEWS each with a different risk rating covering cash to equity based funds. The fees charged will range from 1.26% to 1.33% per annum depending on the type of fund. This percentage is charged on the value of the underlying assets and not on the contribution itself. The most expensive fund is the default fund which is low to moderate risk at 1.33% per annum. Unless employees opt for a different fund themselves, employer contributions will automatically go to the default fund.

There will be no other fees payable including no separate on-boarding fees or entry / exit fees. There are also no fees payable should an employer decide to subsequently transfer from DEWS to an alternative qualifying scheme (on or around the DEWS anniversary date).

Sharia compliant funds

The DIFCA is considering providing for three Sharia compliant funds with the following annual fees:

• Equities - 1.53% per annum;
• Sukuk - 1.68% per annum; and
• Cash - 1.43% per annum.

Target Return Rate

Depending on the fund selected in DEWS, the target return for employees is 2.8% to 6.8% per annum based on a 10-year average.

DEWS will be USD Denominated

DEWS will be entirely USD denominated (not AED). However, an employee can select the ultimate beneficiary for DEWS to be paid out as well as a different currency or bank account, subject to any sanctions.

Penalties

The DIFCA has clarified that employers will be liable for penalties for non-compliance. The penalty will be equal to USD 2,000 per employee per month. However, there will effectively be a 3-week grace period for employers each month for late payments before a penalty is imposed.

Employee contributions to DEWS

All contributions to DEWS will be paid through the employer’s payroll into DEWS and there are no maximum limits to such contributions. The usual manner for additional contributions by an employee to DEWS will be salary, however, DEWS will allow for lump sum payments at the employee’s discretion. Such lump sums could include commission or bonus payments.

Employer actions - short term

Employers will need to select an authorized signatory for DEWS to administer DEWS for that employer and respond to the DEWS survey. In addition, a Deed of Participation will need to be executed between each employer and Equiom as the Master Trustee for DEWS. This Deed of Participation will be available online on or around the go live date and the online registration process is expected to take 15 minutes.

Employee/employer education

The DIFCA has confirmed that there will be plenty of training and information available.

For employees and employers there will be a DEWS fact sheet, DEWS investment guides and also a DEWS contact centre for queries.

For employers, there will be an Employer Executive Guide which will set out information as to what the responsibilities are as an employer; how to complete the auto-enrolment and contributions; and how to educate and engage employees. Furthermore, each employer will have access to the DEWS employment portal which will contain additional information.

For employees, booths will be set up in the DIFC Marble Walk area so employees can ask questions to representatives. In addition, access will be granted to the online knowledge hub which will include a series of explanatory videos as well as information sheets. Zurich is also offering face-to-face in-office seminars to employees.

For further enquiries, please feel free to contact David McDonald.