Emirates News Agency – UAE Pensions Authority explains employee contributions and end-of-service gratuity calculations

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ABU DHABI, 8th June, 2022 (WAM) — The General Pensions and Social Security Authority (GPSSA) today announced that pension contributions paid monthly to the authority on behalf of the insured (contributor) by an entity/company are calculated on the basis of the individual contribution salary.

The pension and end-of-service indemnity, paid at the end of employment, are based on the same salary, added the pension administration.

Mohamed Saqer Al Hammadi, Head of Pension Operations at GPSSA, explained that it is vital for policyholders to know more about the contribution salary, which shows the value of contributions paid by the insurer or their entity to the GPSSA. each month, and the pension (retirement salary) or end-of-service indemnity.

“The insured person must know the difference between the total salary, the contribution salary and the average contribution salary in order to find out the calculation salary for the pension (retirement salary) or the end-of-service indemnity, which he receive upon completion of their employment service,” Al Hammadi said.

“The total salary is all that the insured person receives at the end of each month from his employer, while the elements of the contributory salary in the public sector are: the basic salary in addition to the allowances and monthly payments fixed according to the Pensions Act, including Cost of Living Allowance, Child Allowance, Social Allowance and Housing Allowance, with a maximum of AED 300,000; whereas in the private sector, it includes whatever is stipulated in the employment contract, with a ceiling of AED 50,000.”

The average contributory salary is calculated in the public sector on the basis of the contributor’s salary during his last three years of work divided by 36 months. However, in the private sector, the sum of the last five years of work is divided by 60 months or the contribution period in both cases if the duration is less.

As an example, if the assessed salary of a public sector insured for the last three years of work has increased from AED 10,000 to AED 15,000 and then to AED 20,000 – the calculation is as follows: AED 10,000 x 12 months = AED 120,000 AED 15,000 x 12 months = AED 180,000 AED 20,000 x 12 months = AED 240,000.

These results are then added together: 120,000 AED + 180,000 AED + 240,000 AED = 540,000 AED.

The AED 540,000 is then divided by 36 months = AED 15,000 which would be the average contribution salary.

The same calculation is applied in the private sector but to the contributory salary of the last five years of employment.

Al Hammadi explained that the pension (retirement salary) is calculated on the basis of the average contributory salary multiplied by percentages, linked to the years of service.

“Fifteen years of service gives the insured 60% of the average contributory salary in the form of a pension, while 20 years of service gives the insured 70%. This percentage increases by 2% for each additional year spent by the insured after 20 years of service to reach the maximum pension, which is 100% after 35 years of service.

If an insured in the public sector has completed 20 years of service and is eligible for a pension (retirement salary), he will receive 70% of the average contributory salary.

If an insured person is entitled to an end-of-service indemnity, this is calculated on the basis of the average contribution salary. The gratuity is calculated on the basis of one and a half months of calculated average salary for each year of service from one to five years, two months of calculated average salary for each year of service from five to ten years, and a bonus of three months’ average calculation salary for each year of service exceeding ten years.

According to the previous example, if an insured person has completed 13 years of service, the end-of-service indemnity for the first five years will be calculated as follows: AED 15,000 (average contributory salary) x 1.5 (one and a half months ) x 5 (five years) = AED 112,500.

Over the next five years, it will be AED 15,000 x 2 (two months) x 5 (five years) = AED 150,000. The remaining three years will be calculated as AED 15,000 x 3 (three months) x 3 (three years) = AED 135,000.

In this case, the pension value for 13 years is AED 397,500.

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