This has led to a “critical need” to restructure the current retirement arrangement whereby most expatriate employees receive a one-off lump sum payment in the form of an end of service benefit (ECSB).
Nigel Sillitoe, CEO of Insight Discovery said: “Most expatriate employees in the GCC receive a one-off lump sum payment in the form of ‘end of service benefit’ or gratuity as opposed to the occupational pension schemes of many other countries. Leading financial, consulting and legal experts have raised concerns about this present system, its issues and challenges for both employers and employees.”
He said that understanding the issues that surround the EOSB system and its future evolution is of vast importance to all employers in the region. It is indeed a very topical subject as it affects the majority of expatriates and the implications of changing this system are considerable.
The report drilled down into employers’ EOSB obligations, payments and balance sheet provisions, and outlined how, in spite of legal provisions, the present EOSB system faces numerous challenges including the effective safeguarding of employee interests. The report also discussed the evolution of the present system, its’ possible replacement and subsequent implications for the financial services industry.
Sillitoe said: “We do observe an increasing momentum for desired change as some companies adopt innovative schemes to attract and retain key talent along with maintaining healthy balance sheets. While some GCC governments are looking into the problems of the present system, we think that the most likely and innovative solutions will be developed by the private sector.”
He added that if any regulatory framework is drawn, it will present itself with tremendous opportunities for fund managers, pension solution providers, life insurance companies and independent financial advisers.
Insight Discovery organised the consultative roundtable in partnership with Falcon Private Bank and Royal Bank of Canada. Other roundtable participants included Clyde & Co, Emirates, Mercer Consulting and SEI.
Key highlights of the roundtable report were:
• Balance sheets could be adversely affected if large EOSB payments are not allocated and planned properly, particularly in situations such as high numbers of employees departing at the same time;
• EOSB payments and allocations are seen to be used by many companies for other business purposes, and not to safeguard the employees’ legal entitlement;
• Unlike other markets where there is a huge move towards defined contribution schemes, the situation in the GCC is not underfunding – it’s rather non-funding;
• In spite of EOSB being legally binding, increasingly the number of issues and problems are rising and more legal cases are seen to be filed;
• Awareness and education is seen to be a key aspect, both for employers and employees about the EOSB system and its inescapable legal liability;
• The EOSB system may be looked upon by some as the GCC version of pension schemes in other countries, but it lacks the sophistication and transparency of provident and pension programmes of other countries, and more needs to be done in this context;
• If the EOSB system is restructured innovatively, it could result in more employer sponsored schemes offering greater benefits through economies of scale and could serve as a low-cost vehicle for employee savings and investment
