How does your company plan for their end of service benefit liabilities?

end of service gratuity

How does your company plan for their end of service benefit liabilities?

The simple answer is that they probably don’t, and this could potentially be a real problem for them and for you when you leave.

According to data from global advisory and brokerage firm Willis Towers Watson, a fifth of the UAE’s companies face end-of-service liabilities of $15 million or more and 88 per cent of companies polled across the GCC have no plan in place to fund gratuities due. Instead they settle the amount from funds as and when required.

Companies are using pension money as working capital and that’s a problem because if something happens to the company, the employee’s benefits are at risk. Moreover, what happens to the company if a larger than expected percentage of employees leave at once? Would they be able to pay out the amount they are required to?

The DIFC are now implementing changes to the system for companies based there. The changes will require companies to make preparations for this liability and will bring the system more in line with defined contribution pension schemes. It is safe to say that at some point in the near future, the rules will change for all companies in the UAE.

But until then, why would a company not have preparations for these liabilities anyway? Possibly it has been due to a lack of available solutions for companies to use. However, since the DIFC changes, a number of companies have started to offer corporate solutions to this problem.

The major benefit of these solutions is that if the funds are moved off the balance sheet, saved into a trust or given to a third party, then they are secure.

Reducing a company’s liabilities not only safe guards the company’s assets, but also makes the companies look much more attractive to investors, shareholders and potential buyers.

By creating an end-of-service gratuity scheme and implementing a long-term funding and investment strategy, employers can manage their gratuity liabilities in a cash-efficient manner. End of service schemes can utilise higher return assets to reduce the levels of funding required over the duration.

If you would like to speak to one of our advisers about the different corporate options and plans available, get in touch with us today.

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Alan Herbert

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