Towers Watson research: Gulf organisations are increasingly funding end of service benefits’ liabilities

Organisations in the Middle East are increasingly funding their end of service benefits’ (ESB) liabilities, according to a new survey by Towers Watson.

The Towers Watson Middle East End of Service Benefits 2011 survey shows that the number of organisations now funding their ESBs has risen from only eight in 2009-2010 to 24 in 2010-2011.

The survey also found that 40% of Gulf organisations are providing enhancements to mandatory ESBs for their employees.

Overall, the results show that the provision of ESBs in the Middle East is largely unchanged compared to the Towers Watson survey in 2010, with almost all respondents confirming that they provide ESBs.

Although a majority of Gulf organisations provide mandatory and/or enhanced ESBs, some 35% provide a retirement or savings plan for their employees, according to the survey.

Another finding is that one-third of these retirement or savings schemes are open to all employees, while another third are only open to employees in specific job categories (for example, top management) and are usually established in addition to mandatory ESBs rather than in lieu of them.

Some 71% of organisations providing enhanced ESBs use the employee’s length of service in calculating the enhancement. Other factors include equalisation of benefits between countries, retaining key talent and early retirement.

The majority of organisations (65%) account for ESBs using local accounting rules and 20% use international accounting standards. Nearly one-tenth (9%) of organisations surveyed do not account for the liability at all.†

Michael Brough, senior consultant at Towers Watson, said: “This is a significant increase in one year and heartening to see, particularly given the projected sharp rise in ESB liabilities in future.

“Organisations should be looking to at least partly fund these benefits as far as possible and such funding should preferably be under an external trust in order to achieve greater security for employees’ ESBs.

“Given the global slowdown and the recent focus of many companies to move away from spending money on employee benefits, the fact that the provision of ESBs in the Middle East is largely unchanged is encouraging news.

“It is also interesting to note that there has not been any wide-scale closure of existing savings or retirement schemes in the region as some might have feared.

“Retirement plans are not prevalent in the Middle East but increasing competition for talent, as well as moves by the government to improve labour laws to increase retention, are encouraging organisations to review whether a retirement scheme is appropriate for them.

“It is important for organisations to ensure they review all options and to pay attention to key areas such as charges, investment and governance before implementing such schemes.”

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