The Pension Law Recent Update

The new Pension Law in the UAE was recently issued and executed on 2nd Oct 2023 in line with international best practice. In this piece, we'll cover what obligations employers now have and the important points of the updated law.

It is important to note that the 2023 Pensions Law only applies to new Emirati nationals joining the UAE workforce. For all other Emiratis who are 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 be the applicable law (except as expressly amended by the 2023 Pensions Law).

The Law consists of 5 main points.   

Pension contribution rates

Under the 2023 Pensions Law, monthly contributions to the GPSSA are required based on the employee's full salary, including incentives. The contributions are as follows:

• Employer: 15%

• Employee: 11%

• Government: 2.5%

Pensionable cap

The 2023 Pensions Law has raised the maximum salary thresholds for pension rates in various sectors:

• Public (Government) sector employees: AED 100,000 (previously AED 50,000)

• Private Sector: AED 70,000 (previously AED 50,000)

Under the 1999 Pensions Law, the pensionable cap was AED 50,000, and contributions were calculated based on this amount for individuals earning more. The 2023 Pensions Law increases the cap to AED 70,000. 

It's important to note that the 1999 law obligated employers to compensate for the difference between pension contributions and potential end-of-service gratuity for individuals earning above AED 50,000. However, the 2023 law does not include a similar provision.

Employer obligations

In line with the 2023 Pensions Law, employers must:

• Register eligible employees with the GPSSA within one month of employment commencement. Failure results in daily fines of AED 200, plus a lump sum fine of up to AED 50,000 per employee for non-compliance within 15 days of employment termination.

• Provide necessary documentation for accurate contribution calculation within 10 days of initial registration. Delay incurs daily fines of AED 100, and GPSSA may unilaterally calculate contributions.

• Pay monthly contributions directly deducted from employees' salaries. Contributions are not pro-rated in the first and last employment months.

• Ensure timely payment by the 1st of the following month. Late payments (beyond the 15th) may incur fines of 0.1% of 10% of the due amount per day.

• Accurately calculate contributions based on the employee's actual salary. Failure may lead to an additional 10% payment requirement.

Intentional submission of incorrect data or refusal to provide requested data may result in fines of up to AED 50,000 per employee and potential imprisonment for the authorized representative.

Contributions are effective from 1st Jan 2024, with no late penalties or fines until 31st Dec 2023.

Calculations and Payments of contributions

The employer must provide accurate information, including the insured's salaries and necessary documents, for calculating contributions. This is crucial for the accuracy of balance statements issued by the General Pension and Social Security Authority.

Private-sector employers must adhere to the following:

• For existing employees, continue paying contributions at current rates (20%) for October, November, and December 2023. The difference should be paid according to new rates from 1st Jan 2024.

• New employees from 1st Oct 2023 will pay monthly contributions at the new rates (26% OR 23.5%) from joining work in October 2023.