Zurich: Gulf employers ignoring EOS benefit at their peril

As expatriates are staying longer in the Gulf than they used to, there is a greater need than ever before for employers there to plan for the so-called end-of-service benefit, or EOSB, a new Zurich report says.

Under UAE law, employers are obliged to provide their employees with end-of-service benefit, which is based on the level of their salary and the time they were employed – yet, the Zurich survey reveals, some 83% of companies are failing to fund their EOSB liabilities.

This leaves employees vulnerable, in the case their company were to fail, and also leaves companies with large, unfunded liabilities that can affect their balance sheets, and could drain them of needed funds at inopportune times, such as during a downturn.

“Unlike Western countries, the problem faced in the [Gulf Cooperation Council countries] is not one of under-funding, it’s non-funding,” Peter Cox, head of International Pension Plans for Zurich International Life in the Middle East, says in the introduction to the report, which was distributed out of Dubai this morning.

In an interview, Cox, pictured, said that the research was aimed at finding out why companies in the Gulf were so apparently reluctant to address the EOSB issue, and how best to educate them, and their employees, about its importance.

Zurich Global Life, Middle East & Africa commissioned the report, Exploring the End-of-Service Benefit Dilemma, which was carried out by the Dubai-based Insight Discovery consultancy towards the end of last year, and surveyed the the attitudes of chief financial officers operating in the Gulf. This was supplemented by a round table discussion, also conducted by Insight Discovery, and a supporting case study, provided by EY, the global accountancy firm.

140% rise

Among the Zurich report’s key findings is that the average EOSB payment in the Gulf has  risen by an estimated 140% over the last six years, a fact that the report’s authors attributed to an increase in the typical length of service by Gulf employees during the same period – from a little less than five years to nearly seven years – at the same time that salaries in the region have grown.

More than 85% of UAE residents are estimated to be expatriates, with the percentage in Dubai said to be even higher, suggesting the scale of under-funding of EOSBs there.

The survey also found that more than four-fifths of chief financial officers in the Middle East think it would be helpful if the government introduced a requirement that end-of-service benefit liabilities be properly funded, in addition to requiring them to be paid.

In a previous report on the subject, Willis Towers Watson, an international consulting group, estimated that the aggregate EOSB  liabilities across the GCC could rise to US$75bn by 2020. (No estimate as to what the current EOSB liabilities in the GCC are at the moment was given.)

Other findings:

*  The majority of employers in the Gulf currently do not set aside specific assets to cover their EOSB liabilities, and rather settle on a pay-as-you-go basis.

* While 83% of companies don’t fund their EOSB liabilities, 85% think it would be a good idea if they did.

According to Zurich’s Cox, the company was raising the issue of un-funded EOSB liabilities because it is a major provider of corporate savings plans for Gulf employers, and it was keenly aware of the way such end-of-service benefits are normally funded by companies operating in western countries. A good corporate savings plan, he explained, can be a major way of attracting and keeping good employees, whereas the reverse may also be true.

Although little discussed currently either by employers or employees, EOSBs are a key element in a good corporate savings plan, Cox said.

To see a copy of the survey, click here.

ABOUT THE AUTHOR
Helen Burggraf
Helen Burggraf is the editor of International Investment. A US-trained journalist, she has worked in Rome, New York City and London, covering everything from the fashion and retailing industries to the global drinking water and water-treatment sector, private equity, and most recently, the international cross-border financial services/advice industry.

Read more from Helen Burggraf

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