75% of GCC employers fail to set aside assets for end-of-service benefits

The DIFC Employee Workplace Savings (DEWS) plan seems to be the need of the hour as it could drive the general economy in the region by reforming end-of-service benefits and align it with global retirement savings standards.

UAE firms have been found lagging their global counterparts regarding workplace savings plans, according to a recent study on end-of-service benefits (EoSB) by Zurich in the Middle East and Insight Discovery.

Three quarters of companies do not set aside ‘ring fenced’ assets to cover their EoSB liabilities and make these payments from their operating cashflow, thus putting a financial strain on the business, according to the report.

The DEWS Plan is a progressive end-of-service benefits plan introduced within the Dubai International Financial Centre (DIFC) to restructure the currently defined employee benefit plan into a funded and professionally-managed, defined contribution plan.

The initiative also offers a voluntary savings plan, allowing employees working in the DIFC to secure their financial future.

"The DEWS Plan combined with growing support for reform by various government bodies will likely see a wave of improved employee benefit structures for companies large and small in the region," said Reena Vivek, proposed Senior Executive Officer of Zurich Workplace Solutions.

In 2016, Zurich in the Middle East and Insight Discovery released a study which found that companies across the GCC faced a key dilemma in relation to the EoSBs paid to employees leaving an organisation.

The 2019 EoSB report follows on from research conducted three years ago. It shows a lack of progress in the way firms manage their EoSB liabilities.

If anything, the companies were found to be even more lacking than before. The study revealed that even those companies that do set aside assets for EoSB payments rarely cover the entire liability.

Furthermore, over half of invested assets are held in cash, meaning that investments do not keep pace with inflation and there is a clear mismatch between the short-term asset and what should be a long-term strategy.

“Feedback from financial executives in the region reveals a real need for funded and professionally-managed, defined contribution plans that incorporate a voluntary savings component for employees," said Vivek.

The only silver lining that the report cited was that 81 percent of those surveyed believe that mandatory funding requirements for EoSB would be a positive change.

(Writing by Mily Chakrabarty; Editing by Seban Scaria)

(mily.chakrabarty@refinitiv.com)

© ZAWYA 2019