HZLegalIn-Depth Guide to UAE’s Federal Law by Decree No. (57) of 2023

Introduction

Federal Law by Decree No. (57) of 2023 concerning Pension and Social Security marks a landmark shift in the UAE’s approach to social welfare. This law not only reinforces the existing pension framework but also introduces comprehensive measures aimed at ensuring the financial security of the UAE’s workforce. The decree applies to a broad spectrum of workers in both public and private sectors, offering a more robust safety net for nationals. This article delves into the intricacies of the law, exploring its objectives, scope, controls, contributions, and the entitlements it guarantees.

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Background and Legislative Intent

The UAE government introduced this law as part of its broader strategy to enhance social protection for its citizens. Recognizing the importance of a stable and secure retirement, the law was crafted to address gaps in the previous pension framework, which was governed by Federal Law No. (7) of 1999. By updating and expanding the provisions, the new decree aims to:

1. Strengthen Financial Security for Retirees:

   • Ensuring that individuals who have contributed to the workforce are not left without adequate financial support during their retirement years.

2. Enhance Social Cohesion:

   • By offering equitable social security benefits, the law fosters a sense of security and belonging among UAE nationals, contributing to social stability.

3. Promote National Employment:

   • The law encourages the employment of UAE nationals by mandating employer contributions, making it financially viable for businesses to hire local talent.

4. Standardize Pension Benefits:

   • The law sets a uniform framework for pension calculations and entitlements, providing clarity and consistency across different sectors.

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Key Definitions and Concepts

Article 1 of the law lays down critical definitions that form the foundation of the decree. These definitions are pivotal in interpreting the law’s application and understanding the rights and responsibilities it confers.

1. State:

   • Refers to the United Arab Emirates, the jurisdiction where this law is applicable.

2. Government:

   • This encompasses the UAE federal government, including its various ministries, public bodies, and institutions. It also covers local government entities within the Emirates that choose to be governed by this law.

3. GPSSA (General Pension and Social Security Authority):

   • GPSSA is the central authority tasked with administering the pension and social security system. It oversees the registration of employers and employees, collects contributions, and disburses benefits.

4. Employer:

   • Defined broadly, this term includes any entity—public or private—that employs national workers. It covers federal and local government agencies, public and private companies, and even international missions operating within the UAE.

5. Insured:

   • A national worker who is employed by an entity covered by the law and who contributes to the pension system. The insured individuals are the primary beneficiaries of the law’s provisions.

6. Pensioner:

   • An individual whose employment has ended and who is entitled to receive a pension as per the law.

7. Beneficiary:

   • These are individuals, typically family members, who are entitled to receive a share of the pension in the event of the insured’s death.

8. Work Injury:

   • Defined as any injury resulting from an accident occurring during or as a result of work. This also includes accidents occurring while commuting to or from the workplace.

9. Total Disability:

   • A condition where the insured is permanently unable to engage in any gainful employment due to a physical or mental impairment.

These definitions ensure clarity in the application of the law, allowing all stakeholders—employers, employees, and legal authorities—to understand their rights and obligations.

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Scope of Application

The scope of application under the Federal Law by Decree No. (57) of 2023 is broad, covering a wide range of employees across various sectors. The law is designed to be inclusive, ensuring that as many national workers as possible are protected under the social security system.

1. Public Sector:

   • The law is applicable to employees working in federal government agencies, public bodies, and institutions. It also includes public companies and banks where the federal government has a stake. Local government agencies within the Emirates can opt to be included under this law if they choose to do so.

2. Private Sector:

   • The law covers private sector employers who hire national employees. This includes both large corporations and smaller businesses, provided they employ nationals in any capacity.

3. International Missions:

   • The law extends to employees working in regional and international missions, as well as foreign political missions operating within the UAE. This ensures that nationals working in these often-exempted areas are also covered by the pension system.

Exemptions:

• Certain categories of employees are exempt from the provisions of the new decree, particularly those who are already covered under the older Federal Law No. (7) of 1999 or any other preceding pension laws. This includes:
  • Existing Pensioners: Individuals who are already receiving a pension under the previous law or any prior legislation continue to be governed by those rules, even if they take up new employment with a covered employer.
  • Employees with End-of-Service Gratuity: Nationals who have received their end-of-service gratuity under the old law are also exempt, provided they continue employment with the same or a new employer.

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Controls for Insured’s Subscription

To qualify as insured under the pension and social security system, employees must meet specific criteria. These controls ensure that only those who are eligible are covered, maintaining the integrity and sustainability of the pension fund.

1. Age Requirements:

   • The law stipulates that the insured must be at least 18 years old but not exceed the retirement age of 60 years. This age range is considered the most appropriate for workers to contribute to the pension system.

2. Medical Fitness:

   • Upon initial employment, the insured must be declared medically fit to work. This assessment must be carried out by an authorized medical body and documented in a report. This report is a mandatory requirement that must be submitted to the GPSSA when enrolling the insured in the pension system.

3. Documentation:

   • Accurate and official documentation is required to prove the insured’s age and other relevant details. This documentation is typically provided by a recognized authority within the UAE and must be submitted to the GPSSA upon the first subscription. Any amendments to the recorded age must be made within one year of the initial subscription to be valid.

4. Employer’s Responsibility:

   • Employers are responsible for ensuring that these controls are met before registering an employee with the GPSSA. Failure to comply can result in penalties or the invalidation of the employee’s subscription, which could lead to legal and financial repercussions for the employer.

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Contributions and Subscriptions

The law outlines specific requirements regarding contributions to the pension system, with distinct roles for both employers and employees. These contributions are essential for funding the pension and social security system, ensuring that it remains solvent and capable of meeting its obligations.

1. Employee Contributions:

   • Employees are required to contribute 11% of their subscription account salary towards their pension. This contribution is deducted from their salary by the employer and paid directly to the GPSSA.

2. Employer Contributions:

   • Employers must contribute 15% of the subscription account salary for each insured employee. This contribution is a critical component of the pension system’s funding. In the private sector, the government may subsidize part of the employer’s contribution—specifically 2.5%—to encourage the employment of nationals. This subsidy applies to national employees whose subscription account salaries are less than AED 20,000.

3. Subscription Account Salary:

   • The law defines the subscription account salary differently for public and private sector employees:
     • Government Sector: The subscription account salary includes the basic monthly salary plus certain allowances, such as the cost-of-living allowance, social allowance for children, and housing allowance. However, the subscription account salary is capped at AED 100,000.
     • Private Sector: For private sector employees, the subscription account salary is determined by the employment contract, with a minimum threshold of AED 3,000 and a maximum of AED 70,000.

4. Payment of Subscriptions:

   • Subscriptions are due on the first of each month, covering the previous month. Employers must ensure timely payment to avoid penalties. If there is a delay in payment, an additional amount of 0.1% of the due subscriptions will be charged for each day of delay, up to the total amount of the subscription.

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Pension Entitlement and Calculation

Pension entitlement under the Federal Law by Decree No. (57) of 2023 is calculated based on several factors, including the length of service, the cause of the end of service, and the salary on which contributions were made.

1. Eligibility for Pension:

   • To be eligible for a pension, an insured individual must reach the retirement age of 60 and have a minimum subscription period of 15 years. This ensures that the pension is awarded to individuals who have made a substantial contribution to the pension fund during their working life.

2. Pension Calculation:

   • The pension is calculated based on the pension account salary and the length of service:
     • The pension is determined at a rate of 2.67% of the pension account salary for each year of service up to 30 years.
     • For every year of service beyond 30 years, the pension increases by 4% per year, up to a maximum of 100% of the pension account salary.
     • The minimum pension is set at AED 10,000 per month, with the government covering any shortfall to ensure this minimum is met.

3. Special Entitlement Cases:

   • The law provides special pension entitlements in cases of total disability, work-related injuries, and death. For example:
     • Work-Related Death or Total Disability: If an insured individual dies or becomes totally disabled due to a work-related injury, the pension is calculated as if the individual had 35 years of service, or based on the actual service period, whichever is more beneficial.
     • Partial Disability: In cases of partial disability resulting from a work injury, the insured is entitled to compensation, calculated based on the degree of disability. The compensation is a one-time payment of up to AED 75,000, depending on the severity of the disability.

4. Nominal Service Periods:

   • The law allows insured individuals to purchase nominal service periods to increase their pension entitlement. This can be done under specific conditions, such as having completed 25 years of actual service or being at least 60 years old with 15 years of service.

5. Pension for Ministers and High Officials:

   • Special provisions apply to the Prime Minister, his deputies, and ministers. Their pension is calculated differently, starting at 50% of their pension account salary if they have served one year or less, with increments for each subsequent year of service.

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End-of-Service Gratuity

For employees who do not meet the criteria for pension entitlement, the law provides an end-of-service gratuity. This gratuity is a lump sum payment made to the insured or their beneficiaries.

1. Gratuity Calculation:

   • The end-of-service gratuity is calculated based on the duration of service:
     • First Five Years: One and a half months’ salary for each year.
     • Next Five Years: Two months’ salary for each year.
     • Beyond Ten Years: Three months’ salary for each additional year.
     • The gratuity is calculated based on the pension account salary, ensuring that it reflects the employee’s actual earnings during their service.

2. Beneficiaries:

   • In the event of the insured’s death before receiving the gratuity, it is paid to the beneficiaries as per the provisions of the law. If there are no beneficiaries, the gratuity is distributed according to the inheritance laws under Islamic Sharia.

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Penalties and Compliance Measures

To ensure adherence to the law, various penalties and compliance measures have been instituted:

1. Fines for Non-Compliance:

   • Employers who fail to register employees, pay contributions on time, or provide accurate data to the GPSSA may face significant fines:
     • A fine of up to AED 50,000 for each employee not registered or for providing false data.
     • Employers are also liable to pay back any amounts incorrectly withheld from employees.

2. Judicial Enforcement Officers:

   • GPSSA employees designated as judicial enforcement officers have the authority to investigate and enforce the law. They are empowered to conduct investigations and impose penalties for violations within their jurisdiction.

3. Priority of GPSSA Dues:

   • The law grants GPSSA’s dues priority over other debts, meaning they must be paid before any other financial obligations in the event of an employer’s insolvency or liquidation.

4. Lawsuit and Appeals Process:

   • Insured individuals, pensioners, or beneficiaries have the right to appeal decisions made by the GPSSA. However, any claims must be submitted within five years of the date they become due, and lawsuits can only be filed after exhausting the appeals process.

5. Exemption from Judicial Fees:

   • Lawsuits filed by the GPSSA, insured individuals, or beneficiaries in connection with the application of the law are exempt from judicial fees. These cases are considered urgent, and courts are authorized to expedite the enforcement of judgments.

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General Provisions and Final Clauses

The law includes several general provisions that ensure its effective implementation and integration with existing legal frameworks:

1. Calculation of Periods:

   • All periods mentioned in the law are calculated according to the Gregorian calendar, ensuring consistency in legal proceedings and compliance deadlines.

2. Exceptional Pensions and Bonuses:

   • The law allows for the granting of exceptional pensions or bonuses in special cases, such as for individuals who have provided significant service to the state or for families affected by public disasters.

3. Repeal of Conflicting Provisions:

   • Any previous legal provisions that conflict with the new decree are repealed, ensuring a unified and consistent legal framework.

4. Entry into Force:

   • The law came into effect on the date of its publication in the Official Gazette, ensuring that its provisions are legally binding from that point forward.

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Conclusion

Federal Law by Decree No. (57) of 2023 concerning Pension and Social Security represents a comprehensive and forward-looking approach to social protection in the UAE. By covering a broad range of employees, ensuring fair contributions, and providing robust entitlements, the law secures the future of UAE nationals. It is essential for employers, employees, and legal practitioners to understand and comply with this law to fully benefit from its provisions.

As the UAE continues to evolve, this law is a testament to its commitment to safeguarding the welfare of its citizens, ensuring that they enjoy financial security and dignity in their retirement years. Whether you are an employer, employee, or policymaker, understanding the nuances of this law is crucial for navigating the UAE’s legal landscape.