Capturing money - the upcoming DIFC pension fund
The new Employment Law of the DIFC quite benignly mentions that firms may agree with their employees to contribute to a "pension scheme, retirement savings scheme or any substantially similar scheme, whether located in the UAE or elsewhere" - which seems to be quite fair.
What is unclear from the Law is that the DIFC has created its own MANDATORY pension fund called "DIFC Employee Workplace Savings Scheme" (or DEWS for short), for which any real detail (such as the prospectus) has yet to be disclosed although it is due to commence 1 January 2020. The stated intention is that firms must use this fund, although they may apply for exemption from this scheme if they can successfully apply for a certificate from the Company Registrar. Further details are expected to be released mid September, and we would expect many international companies to apply for this exemption as they will already have pension schemes in place.
DEWS could be a good arrangement for both employers and employees in the zone, if it provides an easily accessible, internationally benchmarked and comparable system. It will obviously provide more security to staff in the case that companies are struggling and reduce some of the complaints to the Small Claims Tribunal. However, it will put slightly more cashflow pressure on companies, and will also throw up earlier the debates over "Basic Wage", which is required to be "not be less than fifty percent (50%) of the Employee’s Annual Wage" as per the new DIFC Employment Law (which is a separate matter for employers to check for compliance).
We would expect to see 3-4 options (Growth, Balanced, Conservative at least) which are managed by large entities such as BlackRock, State Street, Vanguard, and the like, and for the funds to be spread across providers with fund fees ranging between 0.8 and 1.2% maximum based on current industry standards. In our view, no additional fee should be taken by DIFC Authority, as they will receive a rebate from the fund provider.
An excellent example would be to consider QSuper in Australia (voted the best pension fund manager in Australia in 2019 - and as a government fund, a good benchmark to use for DIFCA). QSuper provides a simple and clear structure, fantastic portal for investors, and spreads the risks across providers. Its fees for non-cash funds rate from 0.22% to 1.06% (for International Shares to Socially Responsible products respectively) which include all administrative fees. More details at https://qsuper.qld.gov.au/our-products/our-fees.
We will update this upon release of further information, including any recommendations to companies should they wish to make their own arrangements.