Boal & Co First Qualifying Alternative Schemes approved in the DIFC

by Paul Colley, Director, Corporate Pensions

At the start of 2020 the long awaited DIFC employment law and associated regulations were enacted. In context this was arguably the biggest step change in employee benefits seen in the UAE and possibly the entire GCC in the last 20 years, replacing the end of service benefit gratuity model that is so familiar in the region.

 To understand why this change is so important and why it is now so necessary, it is important to have a short history lesson. For many years the region was seen as a transient location from an employment point of view. This has changed dramatically over the last 20 years in much the same way the UAE has changed.

The critical change event influencing the longer-term nature of expatriate tenure came in 2006. I was working in the region at the time and there was enormous excitement created when the emirate began to allow foreign ownership of real estate. This gave expatriate workers the very real opportunity to properly settle down in the UAE and make it more of a lifetime choice than a lifestyle choice. What has been missing in the years since 2006, amongst other things, is a corporate retirement savings market, or the legal compulsion for employers to offer a retirement savings plan.

The DIFC felt compelled to review its approach to EOSB, partly due to the financial risks associated with the final salary gratuity approach, but equally the lack of a globally recognised retirement savings benefit. The latter was seen as an impediment to its ambitious plans to grow and attract global talent and multi-national corporations into its structure.

  The arrival of DEWS, a little later than planned in March this year fulfilled the DIFC requirement. Less well publicised but equally important was the arrival, of the Qualified Alternative Scheme [QAS] guidelines. A number of employers had been pushing for an alternative to DEWS and especially those that already sponsored a money purchase type retirement benefit either in the DIFC or for their employees across the UAE or GCC. The guidelines arrived a little while later than DEWS along with a new regulatory section added into the DFSA GEN rulebook.

Throughout the DIFC consultation process we had been speaking to existing and prospective clients about what the law change might mean for them. During this period there was a lot of interest in the QAS potential. However, given it was quite late in the day before the regulations were finalised and published, a number of those interested Companies decided to defer until a later date.

 Somewhat surprisingly, given the short time frame there was still a small band of pioneering employers that were doggedly determined to pursue a QAS certificate of compliance. Some of this group already offered a money purchase savings plan to their employees in the Middle East through an International Pension Plan [IPP], and wanted to continue. Others just preferred to go their own way. Our team at Boal was intrigued by this challenge and readily agreed to help the clients willing to give it a go. I think it is fair to say it was a bigger challenge than originally anticipated, like anything new and untested always seems to be. 

 Despite the impact of Covid19 part way into the process we did manage to successfully guide three clients through to their certificate of compliance, thus moving QAS from a conceptual to a real possibility. As far as we are aware, at time of writing there aren’t currently any others.

To get to the QAS finishing line required a total re-design of the operational and governance structure of what we would consider for a standard IPP. As Trustees we had to morph into an “Operator” which in many ways is similar to what we do as Trustees but does have significant differences. Sponsoring employers found that they had to organise themselves into “Supervisory Bodies” and we all had to try and understand what something called an “Authorised Agent” was and who could be one.

 Despite the hurdles, with a monumental collaborative effort in a very short space of time and with only new legislation and each other for guidance, we got there and paved the way for any other pioneering employers that would prefer to plough their own furrows in the DIFC.

 There is a 60 day window preceding 1st February each year to either apply for or re-apply for a certificate of compliance. For anyone interested in pursuing the QAS route I would suggest you start now as missing the end of year window will mean waiting for another year before you can apply again.  

 If you want to know more we are always happy to have an informal conversation and help where we can so do get in touch.