Some companies are slowly warming up to the idea of establishing an employee savings plan as an alternative to a pension scheme, but it’s not widely popular with private sector employers right now.
The idea of helping their employees save toward long and short-term goals, including eventual retirement, is still new for the majority of business owners in the UAE, and it might take a while before it catches on.
In 2011, National Bonds launched its own Employee Savings Plan (ESP) as a vehicle for companies to help workers improve their personal lives. Since its launch, the programme has enrolled only 15 companies.
“The concept of supporting their employees in enhancing personal savings is still new for companies in the UAE. Organisations fear that they will divert resources from their operations and fail to achieve their business goals and are therefore hesitant,” Mohammad Qasim Al Ali, CEO of National Bonds, told Gulf News.
“Additionally, human resources management did not cover the well-being of employees until recently. Today, these departments are working hard to offer their employees holistic support including that of safeguarding their financial future,” he added.
Al Ali said that the ESP is similar to a normal retirement plan in that it enables workers to save regularly and earn returns over time. Under the scheme, a preset amount is automatically deducted from an employee’s payroll every month. In some cases, employers also make a contribution.
The pool of funds are then managed and invested by National Bonds in money market instruments, fixed income, sukuk, real estate and private equity, so that employees will get a return on their savings every year.
“ESP members receive the same profit rate as all bondholders. Last year, we announced a healthy annualised return of 2.62 per cent on our savings scheme,” Al Ali explained. Members don’t just earn returns, they have the chance to win prizes.
ESPs are not only beneficial for savers, but for companies as well, because it serves as a strong motivation for talent retention. A growing body of research suggests that employees in the UAE, particularly expatriates working in the private sector, are worried about their future because there is no mandatory retirement programme in place.
The 2012 Global Workforce Study by Towers Watson showed that retirement security has become a priority for many employees in the UAE, but only 37 per cent are confident that they will have enough money to last 15 years into retirement.
Across the region, however, the future of management-backed savings schemes looks positive. Towers Watson’s End of Service Benefits in the Middle East 2012 survey showed that a significant proportion of companies have expanded their retirement or savings plan to cover all employees. “In the last five years, we have seen growth in supplementary plan provision in the region generally,” said Ahmad Waarie, managing consultant for Towers Watson Middle East.