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About the Survey
In our 10th annual Middle East End of Service Benefits (ESBs) Survey we received responses from over 320 organisations across the region, an increase of 10% over 2018. The objective of the survey is to determine how companies:
- Fund their statutory and enhanced ESB liabilities
- Structure their enhanced ESBs (ie, who are they offered to and under what conditions)
- Use other savings vehicles such as long-term savings or retirement plans to provide benefits over and above statutory ESB requirements
Key finding:
We received responses from various organisations with operations in one or more of the six Gulf Cooperation Council (GCC) countries and elsewhere across the wider Middle East region. Most participating organisations have business operations in the United Arab Emirates (UAE), and the most prevalent industries represented are banking and finance, and technology, although over 18 industries are represented in total. The majority of the respondents are multinationals or global companies, with operations in multiple regions around the world.
Most companies in the region confirm that they provide ESBs, which is no surprise given they are mandatory in many countries; however, 42% indicated that they provide an enhancement to the minimum benefits for employees in the countries in which they operate. This is a slight increase compared with 2018. Local best practice continues to be the most common reason for enhancing the benefits, with retention of key talent and industry best practice the second and third reasons cited for enhancements, respectively.
The majority of organisations continue to offer ESB enhancements to all employees. A significant minority only offer an enhancement to specific categories of employees, the most prevalent groups being top management and local non-nationals. Interestingly, fewer companies appear to be distinguishing between local employees and international assignees when offering enhanced benefits, a practice that we notice has been steadily declining since 2016. This may further suggest that the provision of these benefits is becoming more commonplace locally.
As in prior years, those organisations providing enhanced ESBs through the defined benefit (DB) formulae itself most commonly do so using an employee’s length of service as the principal factor in determining the enhancement. We have seen a further increase in the number of companies that offer enhancements as standard and as a result of intra-company transfers.
Offering a separate defined contribution (DC) pension or long-term savings plan remains the most popular way of enhancing ESBs, with 54% of companies that do enhanced benefits using this method. Enhanced DB accrual rate continues to be the second most popular method for enhancement.
Nearly two-thirds of organisations (63%) continue to account for ESBs in local books using local accounting rules, with 20% using international accounting standards (IAS). A minority use US GAAP, and surprisingly, 4% do not account for the liability at all. There is a requirement in Saudi Arabia for listed companies to report under International Financial Reporting Standards (IFRS) from 1 January 2017, and all other companies to report under IFRS from 1 January 2018. When considering respondents with operations in Saudi Arabia since 2017, the proportion of companies reporting under IFRS has increased from 19% in 2017 to 35% in 2018 and 2019, which shows that the majority of companies may still not be compliant with the requirements.
Most organisations accrue for their ESBs within the business and pay directly from company accounts, with any surplus assets arising going back into the business in 52% of cases (e.g., where minimum employee service requirements or entitlements are not met), although 39% of organisations now use any surplus to provide extra benefits for their employees. This has changed since 2018 when 57% of companies returned any surplus to the business and only 35% provided additional benefits to employees. Insurance company products and bank deposits/cash continue to be the most popular financing methods for ESBs.
In addition, the Dubai International Financial Center (DIFC), the special economic zone in Dubai, recently enacted a new Employment Law, which modifies a number of employee rights and responsibilities. There is an additional intention to transform the mandatory ESB from the existing unfunded DB design, to a funded DC centrally managed arrangement, known as the DIFC Employee Workplace Savings (DEWS) plan. In this survey, we monitor how companies intend to respond to this forthcoming DIFC change, and surprisingly many companies are either not aware of the changes or have not considered their strategy to be compliant, despite the changes being implemented from 1 February 2020. The options are either to enter the default DEWS arrangement by making mandatory employer contributions or to obtain exemption by registering a qualifying existing or new pension or savings plan.
Download
| Title | File Type | File Size |
|---|---|---|
| End of Service Benefits Survey Report 2019 | 1.9 MB |
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