Across the GCC, company sponsored Workplace Savings plans are rarely offered to expatriate employees, with most employers offering only the statutory End of Service Benefit (EoSB) as a savings/retirement linked benefit. Basic estimates total the current EoSB liability sitting on GCC based companies’ balance sheets to be over a staggering USD400 billion with USD100 billion of that amount sitting in the UAE alone.
In February 2020, the Dubai International Financial Centre (DIFC) became the first jurisdiction in the GCC to change their employment law to require employers to start paying their ongoing EoSB cost into a Qualifying Workplace Savings Plan (QWSP) on a monthly basis. The default QWSP option for DIFC employers is the DIFC Employee Workplace Savings (DEWS) plan which was recently expanded to cover expatriates in the Dubai Government. View here for more information on DEWS.
If all GCC countries were to take a similar approach to the DIFC in changing their local labour law to require employers to pay their ongoing EoSB cost into QWSP’s it would unlock a monthly flow of contributions estimated at over USD5 billion (USD60 billion p.a) with the potential of also bolstering the overall asset size with the existing/historic liability (USD400 billion+). This would require a gradual future transfer of these existing liabilities (with employees’ consent). This approach would have a number of positive benefits for GCC governments, employers and employees as listed below:
Financial Wellbeing across the employment world
A well run QWSP will include regular communications and education sessions for members to help them understand the importance of saving for the future and the right investment choices to make based on their age, risk appetite, future needs, etc.
Low-cost investment solution with transparent charging structure
The investment options offered on Workplace Savings Plans tend to be institutionally priced meaning members get access at a charging structure significantly lower than that available to individual/retail investors. The investment options are selected and monitored by industry professionals and offer Shariah and non-Shariah options. Costs of the plan and investments should be transparent to members and available through the relevant literature or annual statements.
Alongside the monthly employer contribution, employees can make voluntary contributions from a salary deduction. This is an easy, efficient, and cost-effective way for employees to save.
Attraction and retention of key staff
Workplace Savings Plans are a key benefit that employees value when joining an employer and when they are considering leaving. Employers can tailor the monthly contribution percentage for specific individuals or groups to distinguish them from the competition.
Simplifying the EoSB
The EoSB is easier to understand for employees with the ability to monitor monthly contributions that are paid into a plan and where they can choose how they would like their money to be invested from a range of institutionally priced funds. This can all be tracked daily through a website and/or app provided by the appointed administrator. The employee can access the money once they have left employment or can stay invested until a time in the future where they can elect to withdraw.
Local asset allocation
The regulations that governments will introduce can include requirements around directing some of the funded assets into locally based investments, bringing welcome liquidity to the GCC markets.
Creation and growth of a Workplace Savings industry
Companies would be attracted to the region to support the growth of the Workplace Savings industry creating new jobs and opportunities. This in turn would drive down overall plan costs for the employer and employee.
Protection and oversight
EoSB liabilities would be moved off companies’ balance sheets and held in a trust structure which provides oversight and protection for both the employer and employees. In the eventuality of a company becoming bankrupt the EoSB would be ringfenced and paid to the employee. Employees can nominate their beneficiaries online so in the eventuality of their death the money would be paid out as per their wishes.
Easy to administer plans
The effort for an employers’ HR team to run the plan is minimised by the QWSP administrator who offer automated, online access and processes that need to be carried out normally only once a month. For members they can administer their plan through an individual login or app. When a member comes to leave employment, they will liaise directly with the administrator and not the employer saving time and effort for the HR team.
In recent weeks both Oman and the UAE have announced upcoming reform in their End of Service labour law to move to funded, defined contribution models. With the increasing growth of economies across the GCC and the need for employers to attract and retain motivated staff it is clear that the unlocking of the EoSB from companies’ balance sheets will result in a significant benefit to all parties involved. With a lot of interest building across the Workplace Savings industry we would recommend that employers start planning for change.
Equiom are the appointed trustee for the DEWS plan and have been providing trust services for EoSB funding solutions and Workplace Savings Plans in the Middle East for over 20 years. If you would like to discuss this important subject further, please contact Chris Cain.
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees, and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.
Any underlying investment options made available within an EOS arrangement could potentially carry investment and market risk, whereby the value of the underlying investments can go down as well as up. The underlying assets within some investment options may be illiquid and or subject to restrictions on their resale. Participants in any solution should undertake their own due diligence and where necessary seek independent professional advice on the available investment options.
Equiom Fiduciary Services (Middle East) Limited is regulated by the DFSA. Any information contained herein is intended only for Professional Clients or Market Counterparties as defined by the DFSA, and no other Person should act upon it.