A staggering 75% of companies in the United Arab Emirates are not ring-fencing assets to pay the lump sum owed to employees once they leave their job, a report by Zurich has found.
Rather than putting money aside, these firms are taking the (often) large sums directly from their operating cashflow, which puts financial strain on the business.
But among the 25% that do set aside assets for the end of service benefit payments, the pot of money rarely covers the entire liability.
It’s also proving to be a somewhat lazy asset, as over half is held in cash; meaning that investments do not keep pace with inflation.
Not improved
And it is a situation that is only going to get worse, as the latest Zurich Middle East report highlights the increasing costs associated with attracting and retaining talent.
High earning employees need a greater end of service payment, resulting in even bigger hits to future cashflow if companies are not forced to set money aside.
But the silver lining in the 2019 report was that 81% of respondents believe that a mandatory requirement would be a positive change.
Taking action
The Zurich report follows the Dubai International Financial Centre (DIFC) Employee Workplace Savings plan (Dews), introducing an end of service gratuity scheme from 1 January 2020.
In October 2019, the financial hub rolled out a consultation on the matter and, if it is to go ahead, it will require all employers within the centre to pay contributions into an employee workplace savings plan or an alternative qualifying scheme.
Zurich Middle East has been selected as the administrator of the Dews plan and is currently setting up a subsidiary called Zurich Workplace Solutions (Middle East) to support DIFC employers and employees.
Reena Vivek, proposed senior executive officer at Zurich Workplace Solutions, said: “Feedback from financial executives in the region reveals a real need for funded and professionally-managed, defined contribution plans that incorporate a voluntary savings component for employees.”
