A worrying 83 percent of respondents to a new survey have said that they do not set aside specific assets to cover end-of-service benefits (EOSB) to their employees in the Middle East.
The research, conducted by Zurich, also showed that typical EOSBs had risen by 140 percent over the last six years, driven higher by the typical length of service increasing and salary growth over that period.
"The EOSB dilemma is an inconvenient truth. Although 83 percent of companies don't fund their EOSB liabilities, 85 percent think it would be a good idea if they did,” said Peter Cox, the head of international pension plans at Zurich in the Middle East.
“This is a surprising response, bearing in mind it should be within their control to do so. Companies in the Middle East struggle to see the prudence of de-risking an ever growing financial issue".
It is estimated that aggregate liabilities for EOSBs across the Gulf could total $75 billion by 2020.
The Zurich survey, which was organised by consultancy Insight Discovery who questioned 106 mainly UAE-based finance executives, showed that 64 percent of respondents quantified their EOSB liabilities every month, while 27 percent said they do it annually.
Seventy-two percent of respondents said they did not believe local governments would introduce mandatory funding requirements to cover EOSB payments in less than two years, although 85 percent claimed that legislation would be a good idea.
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The UAE’s labour law stipulates that employees who complete one or more years in continuous service are entitled to 21 days of basic wages for each of the first five years of service, and 30 days wages for each additional year.