Options for pension plans in the Middle East

Towers Watson's director Michael Brough talks about the increasing number of international pension plans targeted towards Middle Eastern employees and what that means for employees here.

Michael Brough, the director at Towers Watson, emphasises the growing importance of pension plans for employers who have staff in the Middle East and Arabian Gulf region. Satish Kumar / The National

Michael Brough is the director at Towers Watson, a global professional services company, which released its sixth annual report on international pension plans (IPPs) at the end of last year. The report surveyed 438 IPPs sponsored by 406 companies. The Chicago-based consultant talks about the growing importance of such funds for employers who have staff in the Middle East and Arabian Gulf region.

Who has access to a savings plan like this here in the Middle East?

Around 49 per cent of the plans surveyed were for expatriates. These vehicles can be used for many different purposes. A lot of multinational companies have one they will use for global expats and Gulf nationals in the Middle East, but the same vehicle can be used for expats in Singapore, countries in Africa as well as global nomads who go from country to country. That said, quite a number of the plans are designed for the Middle East only.

Can the local population also access these plans?

They are meant for local national, local expats and global nomads. It is common to have a plan that covers all the countries in the Gulf, and Jordan and Egypt. Employees are able to move about within the company and stay in the same pension plan. And it is mainly for all employee groups. There is a small proportion of plans for executives only – around 10 per cent – and employers make a higher contribution to this.

The report mentioned that six of the 15 new plans in 2013 were set up for local Middle-Eastern based workforces. Why is there an increased focus on this region?

Things got quieter last year. In 2012, there were 14 plans designed for the Middle East. Perhaps reflecting where we are in the cycle of the global downturn, there is quite a lot of activity now. There is more interest in introducing these vehicles often for the purposes of retention and attraction of employees.

What are the most popular attraction or retention methods?

Cash is the main priority, so maximising the base pay, and allowances and bonuses. When it comes to benefits, medical is always popular; making sure everybody in the family is covered and all areas of health care are featuring there, such as dental, vision, etc. Risk benefits tend not to be valued as you only receive them when somebody dies or is disabled. Then you have pension and savings, and even though this is a young demographic and people stay for short periods, the interest is driven by a couple of factors. The local market is quite weakly regulated and if individuals want to set up a saving plan, it is expensive. There are high commissions, and therefore less money is invested for members’ benefits. With the IPPs, these are established with institutional structures, they are low cost, and the value of the fund is much enhanced as the charges are much lower.

What do you forecast for this year?

The results for the Middle East will be higher. From the dialogue we are having with clients, there is a lot more activity here. There was a clear issue in attraction and retention of employees along with improvements in medical plans, holiday and savings plans so that employees value their job more.

You have a second survey on end of service benefits. How did the Middle East fare in this study?

The Middle East report on end of service benefits surveyed 174 organisations, and 29 per cent of them have an international saving plans (ISP). Of those, 140 are based here in the Gulf. And 30 per cent of the multinationals in that survey have a savings plan, either an IPP or an ISP, which are the same vehicle but with different objectives. An IPP tends to be a long-term savings plan with a retirement objective, but you can access the savings early. An ISP has a savings objective but can be used for retirement planning. And both allow the payments to be made at any age. If someone joins a company at 30 and leaves at 35, they don’t have to wait until 65 to get the benefits, they can get it straight away.

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