Monday, Oct 05, 2015

Dubai: Across the GCC, public pension funds amount to $397 billion (Dh1.45 trillion), representing nearly a quarter of GDP and $15,000 per national, a study has revealed. However the sector is mired with issues.

The first is the sustainability of public pension funds for nationals, given the relatively small size of the funds, demographics and the gap between contribution and benefit levels, George Triplow, Mena Wealth & Asset Management Leader, EY, said in a statement.

Secondly, there is a growing recognition by many employers that end of service benefit (EOSB) payments received by expatriates are neither adequate nor suitable as an alternative to a pension, Triplow added.

The size of GCC pension funds is relatively low, compared with employer-provided pension funds in the UK, for example, where these assets are larger than GDP and funds per individual are nearly four times the GCC average.

Kuwait has the best capitalised fund, relative to the size of its economy and citizen population. This follows an initiative to recapitalise the pension fund from the budget since 2008, filling an actuarial deficit that had been estimated at nearly $40 billion. In international terms, its assets relative to population are similar to those of the UK’s pension funds.

Qatar’s pension assets are also sizeable relative to the population, following a capital injection from the Ministry of Finance in 2012. Since then, Qatar’s General Retirement and Social Insurance Authority appears to have focused heavily on investment in local equities, including stakes in major companies.

Saudi Arabia naturally has the largest pool of pension assets. Assets are split between the Public Pensions Agency (for public sector workers) and the General Organisation for Social Insurance (for private sector workers). The two often co-invest in companies together and alongside the Public Investment Fund. Aside from stakes in dozens of major listed companies, they also invest in private companies.

However about 85 per cent of the pension assets are invested abroad, mainly in US Treasuries managed by the Saudi Arabian Monetary Authority.

Staff Report

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