GCC EOSB to hit $75b by '20 [Khaleej Times (United Arab Emirates)]

Combined liabilities faced by GCC companies towards settling end-of-service benefits, or EOSB, are set to surge four times in eight years to $75 billion from $16 billion, a new research said.

Research firm Insight Discovery said companies operating in the Gulf must look to restructure gratuity schemes as liabilities rise amid an increase in the regional population and the length of time expatriates stay in the region.

The report pointed out that in spite of legal provisions, the present EOSB system faces numerous challenges including the effective safeguarding of employee interests. The report also discusses the evolution of the present system, its possible replacement and subsequent implications for the financial services industry.

"Most expatriate employees in the GCC receive a one-off lump sum payment in the form of 'end of service benefit' or gratuity as opposed to the occupational pension schemes of many other countries. Leading financial, consulting and legal experts have raised concerns about this present system, its issues and challenges for both employers and employees," Insight Discovery chief executive Nigel Sillitoe said.

Understanding the issues that surround the EOSB system and its future evolution is of vast importance to all employers in the region.

"It is indeed a very topical subject as it affects the majority of expatriates and the implications of changing this system are considerable," he said.

There is an increasing momentum for desired change as some companies adopt innovative schemes to attract and retain key talent along with maintaining healthy balance sheets, Sillitoe pointed out. "While some GCC governments are looking into the problems of the present system, we think that the most likely and innovative solutions will be developed by the private sector. If any regulatory framework is drawn, it will present itself with tremendous opportunities for fund managers, pension solution providers, life insurance companies and independent financial advisors."

Insight Discovery organised a consultative roundtable in partnership with Falcon Private Bank and Royal Bank of Canada this key issue affecting employers and employees in the GCC region. Other roundtable participants included Clyde & Co, Emirates Group, Mercer Consulting and SEI.

"It has been estimated that the combined EOSB liability of employers in the UAE alone exceeds $4 billion. This combined EOSB liability is growing exponentially and critically needs to be managed accordingly," Royal Bank of Canada senior manager for development and strategy Simon Stirzaker said. There are numerous issues with the present EOSB system, which needs to be proactively addressed by regulatory bodies and employers.

"Companies will be ahead of the curve and stand to benefit in the long term if they infuse innovative structures within the framework of the current legislation as overhauling the entire system may take some time," he said.

Damian Hitchen, director of Falcon Private Bank, said an important aspect of GCC countries' continued growth is the need for expatriate labour.

"However, each country competes to employ and retain a labour force which is increasingly demanding greater employee rights and benefits offered by competing jurisdictions for their talent. There is already a growing debate amongst stakeholders and this issue will become increasingly critical as GCC markets become more sophisticated and integrate closely with the global economy."

Hitchen cited cases of GCC companies adopting creative ways within the current system for the greater benefit of both employers and employees.

"For example, the Emirates Group's provident scheme allows employees to save their money alongside the sums that are being contributed by the company on a very cost-effective basis, providing a vehicle for its staff to save toward retirement which are common place in developed markets. With the average overseas stay for expatriates increasing we see the demand for such schemes from employees increasing going forward."

issacjohn@khaleejtimes.com