Bold opening: Your UAE gratuity could grow faster than you think—and the Alternative End-of-Service Benefits (ESOB) Scheme is the tool to make that happen. But here's where it gets controversial: not everyone is aware of how this system works or whether it’s right for them. If you’re an employee in the UAE, you now have a powerful option to enhance your end-of-service funds through smart investing.
What is the Alternative End-of-Service Benefits (ESOB) Scheme?
Launched in 2023, the ESOB is a voluntary framework that directs end-of-service benefits into professionally managed investment funds instead of fixed payouts. This means your final settlement can grow over time, rather than just being a single lump sum.
Which is better — Alternative ESOB or traditional gratuity?
Choosing between the two depends on your financial goals. Here’s a clear comparison:
- Traditional gratuity: This is a fixed lump sum calculated from your basic salary. It only grows if your salary increases and is paid out when you leave the job.
- Alternative ESOB: Under this option, employers contribute monthly (typically between 5.83% and 8.33% of basic salary) into investment funds that are professionally managed.
The ESOB works best if you value potential investment growth over a guaranteed fixed payout. However, its availability hinges on your employer signing up for the scheme. If they do, you’ll be able to monitor and adjust contributions via the fund’s online platform.
How to sign up for the savings scheme
- The employer submits a request to MOHRE (the UAE Ministry of Human Resources and Emiratisation).
- The employer selects an approved investment fund and designates which employees to register, while ensuring that each employee’s entitlements from the previous period are preserved in line with Labour Law.
Accredited investment funds available to employees
- Ghaf Benefits
- Daman Investments
- National Bonds
- First Abu Dhabi Bank
Grow your gratuity: Voluntary contributions
You can accelerate growth by making voluntary contributions. You may contribute up to 25% of your total annual salary to an approved fund.
How to contribute
- Monthly payroll deductions
- One-time lump-sum transfers to the fund
These voluntary contributions earn the same investment returns as employer payments. They offer total flexibility and can be withdrawn at any time, either partially or in full.
What happens when you leave your job?
When your employment ends, you’re entitled to 100% of the employer-paid contributions plus all investment returns earned during your tenure.
You then have options: withdraw the funds immediately or keep them invested to continue growing. If you move to a new job, you can retain the same fund or transfer your savings to the fund chosen by your next employer.
Bottom line: The ESOB presents a meaningful opportunity to enhance your retirement readiness through professional investment management, provided your employer participates. If you’re considering this path, discuss eligibility and fund options with your HR team and review the prospective funds’ performance history and risk profile to align with your long-term goals.
