New Ernst & Young (EY) report urges GCC governments to revisit existing pension fund models and try and ensure their sustainability. EY is a global leader in insurance, tax, transaction and advisory services in the capital markets.
According to the report, public pension funds in the GCC are worth collectively some $397 billion, representing $15,000 per capita for the national populations and that they are in fact much smaller when compared with all employer-provided pension schemes elsewhere in the world.
There is talk that the “Public pension funds in the GCC are only just coming of age, just over a fifth is invested in local equities as put by George Triplow, MENA Wealth & Asset Management Leader, and that “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 payments received by expatriates are neither adequate nor suitable as an alternative to a pension.”
For that, as advised by the report, GCC governments must review existing models of all public and international pension funds, and whilst ensuring they are sustainable, they need to look closely at retirement ages, benefit levels and contribution requirements.
In the meantime, Kuwait has the best capitalised fund relative to the size of its economy and its national population following a recapitalisation of the pension fund from the 2008 budget.
Qatar’s pension assets are also sizeable relatively to its minuscule national population, following a government capital injection in 2012.
Saudi Arabia which has the region’s largest pension fund, with assets neatly split between the public and the private sectors workers and that about 85 % of its pension assets are mostly invested in US Treasuries but are managed by the Saudi Arabian Monetary Authority.
In this conjecture, to achieve sustainability of the funds through their further recapitalisation whilst making more systematic reform possible in fiscally strapped countries would be in these coming few years everyone’s programme.
“Recent changes in Gulf healthcare, with a steady shift towards private insurance, may set a precedent for such reforms,” EY’s manager added.
The report also highlights three key areas which can benefit the GCC pension funds industry; these are :
- New levels of regulation and governance,
- Expanded End of Service Benefit schemes and
- Sharia-compliant retirement products.
Triplow concluded that : “There will be significant changes in the way GCC pension provision is looked at in the coming years because the current system may find it difficult to cope with the needs of GCC residents.”