The notable move towards boosting employee benefits and financial security led the UAE government to introduce a voluntary initiative, the alternative end-of-service savings scheme, for free zone workers and private sector employees.

The entire concept behind the EOS or End of Service Scheme remains fundamental to ensure better financial security for the employees post their employment. Conventionally, the EOS schemes become structured around the huge pension plans or payments. But, recently, alternative EOS schemes have attained huge traction that offers employees flexibility and huge potential for greater savings return.

In our post today, we will examine the entire space for the EOS schemes and explore ways to maximize savings while ensuring better financial stability in the long term.

Overview of Traditional EOS Schemes

Before learning about the different EOS schemes, it is important to understand the fundamentals of traditional schemes. Generally, such schemes induce their employers to impose periodic funding contributions that the employees accumulate over their tenure across the company. After termination or retirement, the employees obtain a huge payment or monthly pension relying on the scheme terms and contributions.

Challenges with Traditional Schemes

Although the conventional schemes offer good financial security, they arrive with their challenges. One of the notable cons is the need for more flexibility across having access to funds. Employees would garner restricted control over how and when they can get their savings withdrawn and would often fail to match their individual goals. The low rates of interest and the fluctuations in the market would have a notable impact on the returns on investment that would reduce the value of the savings that are accumulated.

The Rise of Alternative EOS Schemes

The alternative end-of-service savings scheme has evolved as a notable option for employees in search of major control and greater flexibility on their achieved savings. Such schemes comprise an array of withdrawnhat include cash balance pl, employee stock ownership plans, and IRAs or individual retirement accounts among the rest. Unlike the conventional schemes, the alternative EOS schemes offer their employees greater autonomy in fund management and possibly greater returns on investment.

Exploring ESOPs

ESOPs are one of the prominent alternative EOS schemes, specifically among firms seeking to incentivize employee ownership. 

Cash Balance Plans

The cash balance plans come with the combination of features of both the conventional pension plans and well-defined contribution plans that offer its employees the predetermined perk after retirement. Unlike any conventional pension plans that get calculated for the perks relying on the salary and service tenure, the plans offer employees a distinctive account balance growing annually with credit interests. It will help ensure greater clarity and fund portability, enabling employees to track their savings in the best way.

Individual Retirement Accounts (IRAs)

IRAs are yet another option for employees looking to boost their savings outside of the conventional EOS scheme. The accounts offer tax benefits and a wide range of investment options, including bonds, stocks, and mutual funds. Contributions to an IRA instead of the conventional EOS scheme help employees diversify their retirement savings and achieve greater returns in the future.

Factors to Consider

Whenever you start to consider the alternative end-of-service savings scheme, there are different factors you should take into account to ensure that it aligns with your financial goals and tolerance to risk, and these include:

  • Risk Profile: Assessment of the comfort level with possible risk to investment and opting for a scheme matching your tolerance to risk. The alternative EOS schemes involve investments made across the financial markets carrying the inherited risks of potential loss of capital or volatility.
  • Tax Implications: Learn about the tax implications across the varied schemes and how they impact the savings overall. The conventional EOS scheme generally offers tax-deferred growth, which indicates the contributions made with the taxes that get paid after the withdrawal. Alternative schemes such as IRAs and ESOPs offer numerous tax benefits, like tax-free withdrawals and tax-deductible contributions.
  • Employer Match: Know if your employer is offering aligned contributions for the specific schemes while deriving the perks of such scopes to boost savings. Several employers would incentivize participation across the EOS schemes by matching a number of employee contributions to offer their free money towards retirement savings.
  • Vesting Periods: Be aware of the vesting times linked with the alternative EOS scheme since they impact your ability to access the funds. Vesting time often dictates when you become entitled to the employer's contributions or the perks obtained across specific schemes.

Conclusion

Try to increase your savings with the assistance of an alternative end-of-service savings scheme that takes into account many things, such as the effects of taxes, risk tolerance, and investment options. However, it is necessary to do proper research while talking to financial advisors so that the chosen scheme is in line with your individual financial objectives and goals.