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Employers in the UAE should offer retirement benefits as part of remuneration packages to retain human resources, according to a senior official at Zurich International Life.
Employers should facilitate the opportunity for employees to save, and also start actively funding the plans to avoid any payment crises at the end of the employees' service.
More than 80 per cent of the employees, according to a survey conducted for Zurich International Life, feel that gratuity is not enough to meet their post-retirement expenses.
''The maximum gratuity that an employee is entitled to is two times the basic salary. If an employee works for one employer all his or her life, it would take 26 years to achieve that maximum. Gratuity was considered to enable people to go home in case if his or her visa expired. It was never designed for retirement,'' said Peter Cox, Head of International Pensions at Zurich International Life.
Almost two-thirds of UAE employees would more likely stay with their employer or join another company if provided a retirement savings plan, according to the survey.
''At a time when employee retention is very high on the HR agenda, facilitating the opportunity for employees to save for their future, incorporating the end of service gratuity is a win-win situation. It helps the employers to retain employees and helps the employees to save for their future. Everyone knows that gratuity is not enough, so differentiate yourself to attract and retain employees,'' Cox said.
Zurich International Life, part of the Zurich Insurance Group, Switzerland's largest insurer, provides life and general insurance solutions in over 170 countries.
The company also has three offices in the region, with about 40-45 corporate clients and manages about $500 million (Dh1.83 billion) in assets. Their biggest competitor is Royal Bank of Canada, Oman Insurance and National Bank of Abu Dhabi.
A Tower Watson survey in 2010 showed the combined end of service gratuity liability in the GCC stood at $16-17 billion, and may increase to $70 billion by 2020 as salaries and years of service with company rise.
In 2008, the average length of service was four years and seven months in the UAE, according to the Ministry of Labour, and that has risen to 6 years and 10 months today.
The average monthly salary then was Dh10,120 as against the average salary of Dh14,380 today. The average gratuity payments have gone up by 66 per cent over that period. The reason for that large increase is because the average service level has gone up over 5 years mark. At the 5 year point, the accrual rate for gratuity rate is enhanced.
Elephant in the room
But according to Cox, more than 80 per cent of the employers don't fund gratuity much ahead of time, and may land in trouble financially in case of downturn in the economy.
''On the employer side of it they are not funded. 84 per cent of the companies pay for their gratuity at they become due so in other words they set assets aside to pay for gratuity. Gratuity is becoming quite a sort of burden; it's like an elephant in the room. Gratuity is calculated depending on the length of service depending on basic salary. Because expats tend to stay longer in the UAE and salaries are increasing at higher end of expectations, so gratuities are getting bigger and bigger,'' said Cox.
''They are becoming much more of a financial burden to employers but yet they are not setting money aside to fund them. Financially that is a big risk, even it is a bigger risk in terms of reputation. Back in the downturn in 2008 in the UAE, some employees left the UAE without their gratuity payments because the employers were not able to financially pay them. They had gone bust,'' said Cox.
This would leave many employers exposed financially, and endanger their reputation in the job market.
''What employees here think is we don't know how to calculate gratuity, we think employers are funding it. It's not enough anyway, help me! What here they are saying is an employer can help me save for the future and it will also help the employer in terms of employee retention. This subject is high up in the Human Resource department. It is getting employers rise to the challenge and help employees save for their future through a proper corporate retirement savings plan,'' said Cox.
Employees in the region should opt for a separate retirement plan in addition to the gratuity that is entitled to at the end of service to meet their post retirement expenses, Cox said.
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Source: Siddesh Suresh Mayenkar, Staff Reporter, gulfnews.com