End-of-service benefits (ESBs) are lump-sum payments given to expatriate employees in the Gulf Cooperation Council (GCC) on leaving employment with any employer. These are entitlements mandated by labour laws in the region and are provided in lieu of retirement benefits.
ESBs continue to be unfunded as they are paid out of company accounts instead of being ringfenced and often fall short as adequate substitutes for retirement savings. Recent regulatory changes in the region point to a shift from the traditional pay-as-you-go end-of-service benefits to funded arrangements that protect these entitlements for employees.
The WTW End-of-Service Benefits in the Gulf Cooperation Council 2023 Survey looks at:
Nearly all the organizations in the survey provide end-of-service benefits in the GCC. However, only three in ten organizations feel these benefits are highly effective in providing adequate retirement outcomes. (Figure 1).
Over half of respondents say providing enhanced ESBs is industry best practice (55%) and a fifth that it is local best practice (18%). The retention of key talent (36%) and competitive pressure (27%) are also top reasons for enhancing ESBs (Figure 2).
Two in three organizations that enhance their ESBs do so for all their employees (Figure 3), but some organizations provide enhanced ESBs to specific employee categories.
7 in 10 organizations indicate that they do not fund ESB but settle employees’ benefits as they become due from company assets (Figure 4). Where organizations fund their ESB liabilities, they typically tend to keep the funds either under a separate trust or by using a contract vehicle.
Recent regulatory changes in the GCC indicate a shift towards funded solutions for end-of-service benefits. Almost two in five organizations expect end-of-service benefits to shift to a contributory system of private plans over the next five years, while one in three expect it to be a system of contributory government plans. (Figure 5).