Gratuity vs Pension | Eligibility & Calculations in UAE

Gratuity and pension are both financial benefits provided to employees on retirement. Gratuity is a one-time end-of-service payment based on your years of work, while a pension is a monthly retirement income you receive after retiring. Gratuity suits all employees in the UAE, while pensions mainly apply to UAE nationals.

Difference Between Gratuity and Pension

Gratuity is a lump sum amount given to an employee after one year of continuous service. On the other hand, a pension is a monthly payment received after retirement to provide financial security. Here is a breakdown of it:

Gratuity

Here is the detailed guide about gratuity according to the UAE labour law:

Gratuity is a one-time payment given to an employee at the end of service after working at least one year.
It is calculated based on your last basic salary and how many years you worked.
For the first 5 years, you get 21 days’ salary for each year worked. However, after 5 years, you get 30 days’ salary per year.
The total gratuity cannot exceed the equivalent of two years’ salary.
If you resign before completing one year, you are usually not entitled to gratuity.
The gratuity is also different form Tip. Check out the details about gratuity vs Tip.

Pension

Here is the complete details about the UAE pension:

A pension is a regular monthly payment you receive every month after retirement to support your living expenses.
Mainly, UAE nationals working in the government and some private sectors are eligible for a pension.
Both employer and employee contribute a percentage of the salary to the pension fund during the working years.
The pension amount depends on your total contributions and years of service.
Expatriates usually do not get a government pension but can join a voluntary pension or retirement savings plans.

How Are Gratuity and Pension Calculations Different?

Here is a comparison table that will help to clarify the concept of pension and gratuity:

Aspect	Gratuity	Pension
Who is eligible	All private sector employees	Mainly UAE nationals; voluntary for expats
Payment type	Lump sum at the end of service	Monthly payments after retirement
Calculation basis	Basic salary and length of service	Contributions + salary history
Eligibility	After 1 year of continuous service	After contributing during a career
Purpose	End of service reward	Retirement income
Contribution by employee	No	Yes, usually a percentage of salary
Contribution by employer	No	Yes, usually a percentage of salary

Infographic comparing Gratuity and Pension in the UAE, including eligibility, payment type, calculation, and contributions

Eligibility Criteria

The gratuity and pension both have specific eligibility criteria. Below, I have provided a detailed guide about the eligibility for gratuity and pension in the UAE.

Eligibility for Gratuity

You must fulfill the following eligibility criteria to get gratuity in the UAE:

Must work at least one continuous year with the same employer.
Applies to all private-sector employees. UAE nationals and expats both can get gratuity.
Gratuity will be given be denied if you resign before completing one year.
Not given if dismissed for gross misconduct.

Eligibility for Pension

Mainly, UAE nationals working in government or private sectors under the pension law are eligible.
Must contribute regularly to the pension fund during employment.
Eligible to receive a pension after retirement or upon the end of service.
Expatriates are usually not eligible for mandatory pensions but can join voluntary plans.

Calculations of Pension and Gratuity In the UAE

Like every other factor, the calculations for gratuity and pension are different. Here is the complete guide to the calculations of pension and gratuity in Dubai:

Gratuity Calculations

Gratuity is calculated based on the monthly basic salary and the number of service years. For each of the first 5 years, you get 21 days’ salary per year worked. However, for every year after 5 years, you get 30 days’ salary per year. The MOHRE gratuity calculator is the best tool for gratuity calculations in the UAE.

For Example, if your basic salary is AED 15,000 and you have worked 4 years,
Daily wage = 15,000 ÷ 30 = 500 AED
Gratuity = 500 × 21 × 4 = AED 42,000

You can report to MOHRE if employer denies gratuity.

Pension Calculations

In the UAE, pension is calculated based on your contribution to salary. It includes your basic pay and some allowances. You and your employer together contribute about 26% of this salary each year.

For every year you contribute, you earn a small pension percentage starting around 2.67%. Over time, especially after 30 years, this percentage increases until it can reach up to 100% of your salary. When you retire, you receive this amount as a monthly pension to support you for life.

For Example, if your contribution salary is AED 15,000 and you contributed for 30 years,
Pension percentage per year = 2.67%
Total pension percentage = 2.67% × 30 = 80.1%
Monthly pension = 80.1% × 15,000 = AED 12,015 per month after retirement.

FAQs

No gratuity and pension are two different benefits. Gratuity is an end-of-service one-time benefit, while a pension is a monthly benefit given after retirement.

The UAE gratuity is a lump sum amount given at the end of service to an employee who has completed one year of work. While a pension is a regular monthly payment you receive every month after retirement to support your living expenses.

Conclusion

Gratuity and pension are both financial benefits given to an employee at the end of service. Gratuity is an end-of-service benefit given to an employee who has completed a continuous year of service. On the other hand, a pension is a regular monthly payment you receive every month after retirement to support your living expenses.

Both are financial support for an employee. HOWEVER, conditions, eligibility criteria, and calculations are different for both.

Different Between Gratuity VS Pension | Detailed Guide