Most UAE companies do not reserve funds for end-of-service gratuities – report

Majority of the employers in the UAE – 75 per cent – do not reserve funds to pay for end-of-service benefits (EoSB), and instead use operating cash flows, a study by Swiss insurer Zurich Middle East and Insight Discovery revealed.

Up to 78 per cent of the companies that don’t set aside assets for end-of-service benefits, do not reveal such information to their employees.

The 2019 report found out a lack of progression among local firms regarding their EoSB liabilities. More than half of the investments are cash-based, falling short of rises in inflation, illustrating an anomaly between short-term assets and long-term investments.

While local companies are trailing global firms in workplace savings, governments and regulatory authorities are calling for reforms. Up to 81 per cent of companies are receptive to change that a mandatory funding requirement would prove positive, the study noted.

Additionally, the report foresees EoSBs to grow to a holistic employee benefits structure, post the Dubai International Financial Centre (DIFC) Employee Workplace Savings (DEWS) plan, launched earlier this year.

The DEWS plan is a funded workplace savings plan for expatriate workers, offering employees a low-cost investment platform for mandatory employer end-of-service contributions. Employees can also make voluntary contributions to save up with the DEWS plan, according to the DIFC website.

“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,” said Reena Vivek, proposed senior executive officer, Zurich Workplace Solutions.