UAE gratuity: How to calculate end of service payments and pensions

The General Pension and Social Security Authority (GPSSA) explained ways by which insured individuals working in government and private sector entities can calculate their retirement pension and end-of-service gratuity as per the UAE Federal Pension and Social Security Law.

As an initial step, registered employees need to be aware of how their contribution salaries are calculated each month.

UAE gratuity and pension calculations

For government sector employees, the calculation method is based on five elements, namely:

• Basic salary (including monthly bonus and allowance specified by the UAE Pension Law)
• Cost of living allowance
• Children allowance
• Insured person’s social allowance
• A housing allowance with a maximum of AED300,000 ($82,000)

For the private sector contribution, salaries are calculated based on details stipulated in the employment contract with up to a maximum of AED50,000 ($13,600)

The second step includes deducting and calculating the average contribution account salary over the final three years of employment among government sector employees or for the entire contribution period if the service years are less than that.

The account salary for private sector employees is calculated over the final five working years or for the entire contribution period if the service years are less than that.

The average contribution account salary is calculated for each of the last three or five service years (depending on the sector type) multiplied by 12 months.

The amount is then collected and divided by 36 months for government sector employees and 60 months for private sector employees.

The final step includes calculating the pension account salary or end-of-service gratuity, whereby the pension is calculated based on the average contribution account salary according to the years of service.

A service period of 20 years grants the pension to the insured at a rate of 70 per cent of the average contribution account salary, and the insured is given an increase of 2 per cent for each year exceeding 20 years, while because there are some cases by which the pension is granted at a rate of 60 per cent for a period over 15 years, and at a maximum rate of 100% when the insured spends 35 years in service.

The insured is granted a bonus of three salaries from the pension account for any year exceeding 35 years in service.

Calculating a government and private sector employee’s end-of-service gratuity in the UAE is based on the average salary for calculating the gratuity, similar to the average salary for the contribution account that was extracted when calculating the pension, resulting in the insured receiving a bonus at the rate of 1.5 months’ worth salary for each year of the first five years of service from the average salary; while calculating the gratuity at the rate of two months for each year for the following five years of service, and at a rate of three months for each additional year.

The employee is eligible to receive their bonus starting from one to 19 years and 11 months of employment.

If an additional day is spent working, they will be eligible to receive the same pension amount since working for less than a month is calculated and considered as working one full month as per the UAE pension law.