The GCC’s pension reform is becoming increasingly pressing for some Gulf states, given the weak outlook for oil prices and the legacy of unsustainably generous schemes, low retirement ages, and under-performing asset returns.
The high growth rate of the national population, longer life spans and rises in final salaries during the long oil-boom mean that the assets held by many of the pension funds are insufficient to cover large actuarial deficits, audit firm EY noted yesterday. These concerns are becoming increasingly urgent. The relatively weak outlook for oil prices in the medium term and long-term technological changes will mean further diversification of the economy away from oil and, therefore, a decline in the fiscal revenue underwriting Gulf pensions, EY’s “GCC Wealth and Asset Management Report” said.
The International Monetary Fund’s (IMF’s) Regional Economic Outlook in April 2016 urged countries in the Middle East to consider pension reforms to free up fiscal resources to fund growth and job-creating investments. The kind of reforms that could be considered include increasing contributions and reducing benefits, for example by paying a smaller share of final salary, using a career-average salary or capping eligible salary.
Benefits could also be delayed by increasing the number of service years required, raising the retirement age and limiting the common practice of early retirement.
According to EY, Qatar’s public pension fund is well-capitalised on per capita basis compared to some of its regional peers.
Based on data provided by third-party sources, EY noted three countries, including Qatar are relatively well- capitalised on a per capita basis, while other countries were facing the strongest pressures.
The funds, which are most exposed to local equity markets, have declined the most in absolute and per capita terms in comparison to those that are more diversified by asset class and geography.
The EY report noted that the Gulf pension funds are increasingly trying to become more transparent to their members. In November 2015, one GCC Pension Authority responded to the international Financial Stability Board (FSB) about its reporting by saying that the public pension agency would disclose some information about returns and asset allocation.
