Pension systems in need of shakeup across GCC region, finds report

Pensions across the Middle East are in urgent need of reform in order to address wider economic challenges, according a new report by the World Bank Group (WBG) and Arab Monetary Fund (AMF).

Arab Pensions Systems: Trends, challenges and options for reform gives an overview of the current pension issues facing the region – such as a lack of data and fragmented systems – as well as suggestions for change that would also help to address “fiscal, macroeconomic, sustainability, equity and welfare challenges”.

Diversifying pension systems is crucial, said the report: “No one pillar – public or private, contributory or noncontributory, pay as you go or funded – can take the full strain.” A mix between each pillar therefore needs to be matched to make sure it best suits a particular country’s labour market, the report said.

Recommendations included the development of adequate data in order to understand current pension systems; a review of current national identification and IT systems used to support the delivery of public and private pensions; and a focus on improving the sustainability, equity and affordability of pensions. “With lower oil prices, the costs of funding pensions will become increasingly unaffordable or crowd out other priority areas of spending,” said the report.

Pensions schemes in the Middle East often offer a more generous payout than other high-income Organisation for Economic Co-operation and Development (OECD) countries, reported Thomson Reuters Zawya.com, which noted that GCC schemes are often quite “young” and are “still running cash flow surpluses, meaning that contribution revenues exceed benefit expenditures” – a position that cannot be maintained long term.

The ultimate aim of any reform is to improve the coverage of “good quality pensions” – those that create a balance between sustainability and affordability on one hand and adequacy on the other, said the join report. Pensions also need to be delivered in an efficient, cost effective way and be secure, with robust regulation, it said.

The analysis and proposals contained in the report were born out of discussions at a conference of the same name, which took place in Abu Dhabi, in January – co-hosted by the WBG and AMF.

Despite the diverse group of countries in attendance, a number of common themes were apparent: young populations, as well as an ageing workforce; low female labour force participation rates; fragmented systems, often with generous benefit packages; flexible and easy provisions for early retirement; generous survivorship programmes; and underdeveloped private pensions.

The report also recommended joint discussions on how countries can reform their systems – “global experience shows that countries can be strongly influenced by bold steps taken by a close neighbor” – but, ultimately, it said, initiatives would need to be undertaken on an individual country basis.