Picture for illustrative purposes only.


UAE Pension Authority explains pension, gratuity calculations


The General Pension and Social Security Authority (GPSSA) announced on Wednesday (June 8) that monthly pension contributions paid by a company or entity on behalf of an employee are calculated according to the individual’s contribution salary.

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

Mohamed Saqer Al Hammadi, Head of Pension Operations at GPSSA, said the pension gratuity will be paid once a person’s employment service ends.

“The insured must know the difference between the total salary, the contribution salary and the average contribution salary so that he or she becomes familiar with the pension calculation salary (retirement salary) or the end-of-service gratuity, which he or she will receive once their employment service comes to an end,” Al Hammadi said.

The total salary is all that the insured receives at the end of each month from his or her employer, while the elements of the contribution salary in the government sector are: the basic salary in addition to the monthly allowances and payments set as per the pension law, including the cost of living allowance, children allowance, social allowance and housing allowance, with a maximum of Dh300,000; whereas in the private sector, it includes everything stipulated in the employment contract, with a maximum limit of Dh50,000, Al Hammadi explained.

The average contribution salary is calculated in the government sector based on the wages of the contributor in their 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 contribution salary for an insured in the government sector for the last three years of work went from Dh10,000 to Dh15,000 then to Dh20,000 – the calculation goes as follows: 
Dh10,000 x 12 months = Dh120,000 
Dh15,000 x 12 months = Dh180,000 
Dh20,000 x 12 months = Dh240,000.

These results are then added, in this case to the total of Dh540,000. The Dh540,000 is then divided by 36 months, which means that Dh15,000 is the average contribution salary.

The same calculation is applied in the private sector but to the contribution salary in the last five years of employment.
Al Hammadi explained that the pension or retirement salary is calculated based on the average contribution salary multiplied by percentages, linked to the years of service.

Fifteen years of service gives the insured 60 percent of the average contribution salary as a pension, while 20 years of service offers the insured 70 percent.

This percentage increases by two percent for each additional year spent by the insured after 20 years of service to reach the maximum pension, which is 100 percent after spending 35 years of service.

If an insured in the government sector has completed 20 years of service and is eligible for a pension, he or she would receive 70 percent of the average contribution salary. If an insured is entitled to an end-of-service gratuity, it is calculated based on the average contribution salary.

The gratuity is calculated at the rate of a month and a half average calculation salary for each year of service from one to five years, an average calculation salary of two months for each year of service from five to ten years, and a three-month average calculation salary for each year of service exceeding ten years.

According to the previous example, if an insured completed 13 years of service, the end-of-service gratuity for the first five years will be calculated as follows: Dh15,000 (average contribution salary) x 1.5 (a month and a half) x 5 (five years) = Dh112,500.

In the following five years it will be Dh15,000 x 2 (two months) x 5 (five years) = Dh150,000. The remaining three years will be calculated as Dh15,000 x 3 (three months) x 3 (three years) = Dh135,000. In this case, the retirement value for 13 years amounts to Dh397,500. ICA/WAM/Expat Media

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