PraxisIFM, a financial firm licensed at Abu Dhabi Global Marketplace, is helping to manage the end-of-service benefit system in the UAE.
PraxisIFM now has under management $100 million of funds that UAE entities have ring-fenced for gratuity payments to staff who leave. PraxisIFM is safeguarding and investing these funds on behalf of its clients.
The company is working with UAE-based multinationals and sovereign wealth entities to segregate their end-of-service benefit liability from their main balance sheets, placing the funds in protected trusts.
Daniel Dickinson, Senior Executive Officer at PraxisIFM Trust Ltd, said: “We are finding that the majority of companies in the UAE are funding their end-of-service liability from their cash flow.
“This becomes a serious issue for the company if a large number of people leave at the same time. The key aspects are protection and diversification. There is no diversification of what is effectively employee’s pension pots.”
While there is no current legal requirement in the UAE for businesses to segregate their end-of-service liability, regulatory changes are in the pipeline. PraxisIFM expects a minimum legal requirement to be introduced in the near future and urges businesses to embrace any future regulation.
“It would be naive of business owners to think they can continue to fund end-of-service payments from cashflow over the long-term,” he said. “We urge them to look at this positively. A safe and secure end-of-service payout is an important tool in rewarding and recruiting the best staff.”
Business that establish the trusts have the option of investing the capital into funds and fixed deposit schemes. Dickinson urged caution in this area, insisting that protection of the funds remains the primary incentive.
In September 2016, PraxisIFM was granted trustee license from the ADGM Financial Services Regulatory Authority, giving clients access to a full range of services from its offices on Al Maryah Island. -- Tradearabia News Service