The Securities and Commodities Authority (SCA) has approved the first three End-of-Service Benefits (EOSB) Savings funds as per the listing on its website sited on 10 October 2024. This approval marks a pivotal step in the implementation of the EOSB Savings scheme in the United Arab Emirates as per Cabinet Resolution 96/2023 that makes three investment options now available for companies to pay monthly EOSB contributions.
The newly approved funds are limited to capital guarantee options from two (of three) approved fund managers: Daman Investments and National Bonds. The lineup includes two Shari’ah-compliant funds and one conventional fund, as detailed in the table below.
Overview of the EOSB Savings Funds listed in October 2024
Umbrella Funds | Fund Name | Fund Manager | Fund Type | Risk Type |
Daman Investments’ End of Service Gratuity Saving Umbrella Fund | Daman Investments Capital Protection Fund | Daman Investments | Conventional | Capital Protection |
Daman Investments’ End of Service Gratuity Saving Umbrella Fund | Daman Investments Shari’ah Compliant Capital Protection Fund | Daman Investments | Shari’ah Compliant | Capital Protection |
National Bonds End of Service Umbrella Fund | National Bonds Capital Protected Shari’ah Compliant Fund | National Bonds | Shari’ah Compliant | Capital Protection |
Capital Guarantee Funds
Capital guarantee funds are expected to ensure that the initial investment (in this case, monthly EOSB contributions) is safeguarded while allowing for potential growth in savings through diversified, low-risk investments. For convention funds, examples of underlying assets could include fixed deposits, money market instruments and bonds, while Shari’ah compliant funds are expected to maintain the same capital protection benefits in line with Islamic investment principles, utilizing instruments such as wakala deposits and sukuk amongst others. In the case of bonds and sukuk, it is worth noting that the type of issuer and their respective ratings are important risk differentiators.
The approval of these three capital guarantee funds enables all employees in the UAE to participate in the EOSB Savings scheme. For unskilled workers earning AED 4,000 or less, capital guarantee funds serve as the sole investment option while, skilled workers will have the option to voluntarily transfer their savings to risk-based funds once these eventually become available.
Further details on the asset allocation, expected yields, average maturity, mechanism of capital protection and fees will be provided in an upcoming article.
Our view
The approval of these funds marks a significant milestone in the rollout of the EOSB Savings scheme, which is expected to become mandatory in due course. (We will share our insights on the anticipated timeline for compulsory implementation in an upcoming article).
With these funds now approved, companies looking to enroll in the EOSB Savings scheme should certainly begin preparing for this transition and exploring fund options. However, it is still early days, and companies should be reminded of a few key points:
Enrollment is possible only with a single fund manager, meaning that investment options will be limited to the funds offered by the selected fund manager. It is therefore advisable to explore the offerings of multiple fund managers, especially with reference to yields, capital protection mechanisms, (upcoming) risk-based options and fees.
We know of several other fund managers that are expected to be approved in the near future. Companies should consider waiting for the full line up of fund managers as factors such as service levels, and the user experience of their systems are also very critical aspects for a better employee experience.
Changing fund managers after enrollment will be challenging and restricted for practical reasons, which we will discuss in a separate article. Therefore, a comprehensive evaluation of fund managers and their fund options is crucial before making engagement.
More information on these funds will be covered in an upcoming article. Subscribe to our newsletter for direct notifications to your inbox.
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