GCC governments are reviewing existing models of both public and international pension funds to ensure they are sustainable, said EY’s GCC Wealth and Asset Management 2015 released recently. There could be significant changes in the way GCC pension provisions are looked at in the coming years because it may be difficult for the current system to cope with the needs of GCC residents.
Public pension funds across the GCC amount to US$397 billion, representing nearly $15,000 per national, much lower than in countries such as the UK.
Mr George Triplow, MENA Wealth & Asset Management Leader, EY, said: “To address the concerns over the sustainability of the industry, Gulf countries will have to relook at the retirement ages, benefit levels and contribution requirements. This could require further recapitalisation of the funds and reforms to benefits and retirement age.”
He added: “Two big issues are currently driving significant rethinking in the sector. The first is the sustainability of public pension funds for nationals, given the relatively small size of the funds, demographics and the gap between contribution and benefit levels. Secondly, there is a growing recognition by many employers that end of service benefit (EOSB) payments received by expatriates are neither adequate nor suitable as an alternative to a pension.”
“More systematic reform is also possible in the most fiscally strapped countries to incorporate additional pension insurance elements. Recent changes in Gulf healthcare, with a steady shift towards private insurance, may set a precedent for such reforms,” he said.
He added: “We expect a shift in the retirement ages of GCC nationals and changes to be made to the EOSB schemes to make them more relevant to the actual retirement needs of expats.”
The report said the GCC pension funds industry can benefit from changes such as new levels of regulation and governance, expanded EOSB schemes and Shariah-compliant retirement products.
EY said Kuwait has the best capitalised fund in the region, relative to the size of its economy and citizen population. This follows an initiative to recapitalise the pension fund from the Budget since 2008, filling an actuarial deficit that had been estimated at nearly $40 billion.
Qatar’s pension assets are also sizeable relative to the population, following a capital injection from the Ministry of Finance in 2012 while Saudi Arabia has the largest pool of pension assets, the report said.