The General Pension and Social Security Authority (GPSSA) announced today that pension contributions paid monthly to the authority on behalf of the insured (contributor) by an entity/company 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, explained that it is vital for insured individuals to learn more about the contribution salary, which shows the value of the contributions paid by the insurer or their entity to the GPSSA every month, and the pension (retirement salary) or the end-of-service gratuity.
“The total salary is all that the insured receives at the end of each month from his/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 AED300,000; whereas in the private sector, it includes everything stipulated in the employment contract, with a maximum limit of AED50,000.”
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 AED10,000 to AED15,000 then to AED20,000 – the calculation goes as follows: AED10,000 x 12 months = AED120,000 AED15,000 x 12 months = AED180,000 AED20,000 x 12 months = AED240,000.
These results are then added: AED120,000 + AED180,000 + AED240,000 = AED540,000.
The AED540,000 is then divided by 36 months = AED15,000, which would be 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 (retirement salary) is calculated based on the average contribution salary multiplied by percentages, linked to the years of service.
If an insured in the government sector has completed 20 years of service and is eligible for a pension (retirement salary), he/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: AED15,000 (average contribution salary) x 1.5 (a month and a half) x 5 (five years) = AED112,500.
In the following five years it will be AED15,000 x 2 (two months) x 5 (five years) = AED150,000. The remaining three years will be calculated as AED15,000 x 3 (three months) x 3 (three years) = AED135,000.
In this case, the retirement value for 13 years amounts to AED397,500.
