Abuse of the Abu Dhabi Retirement Pensions and Benefits Fund - Khaleej Times Online

An excellent and tragic example of the law of unintended consequences:

"Since our aim is to reach maximum beneficiaries, we are being extra careful while processing such fraudulent applicants,” Rashid A. Al Hameli, Manager, Contributions & Benefits Section at the Fund exclusively told Khaleej Times.

“We understand that some people consider it a profitable business to start a company, name their own family members as employees, and thus get included in our schemes for national private company employees. Some applicants even include those above sixty or seventy who are in the high risk category,” Mr Hameli added.

Elaborating on the efforts of the Fund to tackle such violations, he said that an inspection team is appointed to verify the credibility of the applicants from the private sector. “If we suspect any foul play, we will ask the employer to produce the salary statements and the salary slips of his employees,” he said.

According to him, the Fund is facing difficulty in identifying the total number of nationals employed in the private sector since no database is available on the same.

This story is big.

A few years ago the UAE decided that nationals working for private companies would gain access to the pension plan available to nationals in the public sector. It was a good idea and I endorsed it. Nationals still make up less than 3 percent of the private sector labor force. I'd always thought most of that 3 percent were owners and silent partners. Seeing this report, now I guess many of the 3% are shadow workers there are only in the spirit of defrauding the government.

As long as nationals are going to be richly compensated in the public sector, it makes sense for the government to subsidize the employment of nationals in the private sector. But beware the law of unintended consequences. As the consultants to Bahrain emphasized in their report on labor market reform, the first step before implementing reforms is to make sure you have an information system (pdf) that can support your intentions.