GCC employers grapple with unfunded end-of-service benefits amidst reforms

In the GCC countries, there is an ongoing shift in the use of end-of-service benefits. While governments push for robust, funded arrangements to safeguard employee entitlements, the majority of employers continue to operate with unfunded liabilities, posing financial risks to both companies and their workforces.

A new report from WTW examines the landscape for end-of-service benefits across the Gulf Cooperation Council (GCC) bloc. End-of-service benefits are basically a payment an employee receives from their employer when they leave a job, usually at the end of their employment. They can be viewed as “a thank-you bonus”, as they typically are based on how long an employee worked at a company.

WTW’s study, which surveyed 80 employers in the GCC, highlights a growing disconnect in end-of-service benefits: only one in six employers consider current their schemes highly effective in providing adequate retirement outcomes. This perception comes as end-of-service benefit liabilities continue their upward trajectory, with the vast majority of organisations (85%) still relying on unfunded arrangements.

The researchers said that these liabilities, paid directly from company assets, are inflating rapidly due to expanding headcounts (56%), longer employee tenure (39%), and rising reference wages (34%). Alarmingly, the share of organisations with liabilities exceeding $50 million has more than tripled in the last decade, from 6% to 20%.

“The landscape for end-of-service benefits in the GCC is at a critical inflection point,” states Michael Brough, Senior Director at WTW. “As governments push for greater financial security and transparency, employers can no longer view end-of-service benefits purely as a compliance exercise. Unfunded liabilities present a significant and growing risk, not just to employees’ financial futures, but to companies’ cash flow and overall resilience.”

A scene of change

Governments across the GCC are championing change. The UAE has been at the forefront with initiatives such as the introduction of the Dubai International Financial Centre (DIFC) Employee Workplace Savings (DEWS) Plan and the federal Voluntary Alternative Scheme (VAS).

Bahrain introduced mandatory employer contributions to the Social Insurance Organization (SIO) in March 2024, and Oman is set to launch a contributory savings system by 2027; Saudi Arabia and Qatar are currently exploring reforms. These reforms are likely to look to channel some contributions into domestic funds or solutions, stimulating local capital markets and broadening economic growth.

Despite this regulatory momentum, the transition to funded models remains slow. While most employers in the UAE are aware of VAS (Voluntary Alternative End-of-Service Benefits Savings Scheme), adoption rates are very low, with the voluntary nature (66%) and lack of clarity on processes (57%) cited as primary barriers.

Consequently, fewer than one in five organisations with unfunded ESBs are planning or even considering a move to a funded model in the next three years.

The value of enhanced benefits

Yet, WTW’s study found that companies recognise the strategic value of enhanced benefits. Over one-third (36%) of GCC organisations surveyed have enhanced their end-of-service benefits, principally to attract and retain key talent (61%) and align with best practices (54%).

“These enhancements typically add 10-14% to statutory obligations, meaning that end-of-service benefits are evolving from a mere compliance requirement to a crucial talent lever,” said Brough.

Employee-centric benefits

Looking ahead, employers are signalling a shift towards more employee-centric benefits. Plans include offering voluntary employee contributions (18%), matching employer contributions (13%), a range of investment options including Shariah-compliant choices (14%).

Digital access and robust communication channels, alongside financial wellness support and education around financial planning are also priorities for enhancing employee experience.

“The move towards funded, employee-centric end-of-service benefit solutions is an opportunity for forward-thinking employers to enhance financial wellbeing, build trust, and truly differentiate themselves in a competitive market,” noted Brough.

“By embracing transparent, flexible, and well-managed schemes, and by actively collaborating with regulators and providers, we can collectively build a more resilient and attractive benefits environment across the GCC, setting new standards for the region.”