27-07-2025
Complex but critical: The GCC's shift to defined contribution plans
As the employment landscape across the Gulf Cooperation Council (GCC) grows and matures, it's imperative that the retirement systems which supports workers across the region grow too.
It's increasingly clear that the traditional end-of-service gratuity (EOSG) model that has long underpinned retirement benefits in GCC countries must adapt as the region seeks to position itself as a magnet for global talent and investment. That means embracing Defined Contribution (DC) plans that align with international best practices and the expectations of a globally mobile workforce.
The push for reform is gaining momentum. A 2024 survey by Smart found that 60 per cent of expatriates in the UAE, Saudi Arabia, and Qatar feel current EOSG payments fall short of meeting their retirement needs as it can be challenging for financial planning due to a lack of transparency. This sentiment underscores the importance of reforms to maintain the region's attractiveness to international talent – many of whom will have come from regions where DC models are widely available, if not the norm.
Encouragingly, reforms are underway. In the UAE, the Dubai International Financial Centre's DEWS plan has already replaced EOSG with a regulated, employer-funded DC scheme. Not only this, but in late 2023, the UAE's Cabinet introduced a voluntary pension savings programme, allowing employers in the private sector and free zones to contribute a monthly percentage of salaries to licensed investment funds. These contributions are protected from employer insolvency and designed to outpace inflation.
In the UAE at least, these early signs show us that clear transition is underway – and is likely to soon become much more widespread. Indeed, the situation is similar in other Gulf countries. Bahrain now requires monthly employer contributions to be managed by its Social Insurance Organisation. Oman's Social Protection Law signals a future move to a savings-based system. Saudi Arabia still largely operates under the traditional model, but leading companies are developing their own corporate savings schemes to stay ahead of the curve. Qatar, too, is likely to prioritise funded alternatives as it expands its retirement coverage beyond local nationals.
A tipping point is likely to come when a sufficient number of products are in market. As more financial institutions increase their capabilities in the region, it's likely that would fundamentally shift how retirement is funded across the GCC and governments may mandate participation. We've seen this upscaling of firms' activity and resources in the Gulf region – including for our own operations.
However, this transformation won't be without challenges. Regulatory harmonisation across GCC countries is complex, with each jurisdiction operating under different labour laws. Yet we know that consistency – across products, regulatory standards, etc. – is key to ensuring savers are empowered to arrive at the best outcomes. To realise this, we'll need to see legal reforms and cross-sector collaboration, factors which can ultimately lay the groundwork for consistent, transparent DC frameworks.
For employers, a DC system brings new responsibilities — notably, regular contributions and administration oversight. But the long-term benefits, including improved talent retention and workforce satisfaction, outweigh the costs. And governments can support the transition by offering flexible contribution structures and incentives.
Ultimately, the transition to DC systems is not just a financial reform; it's a social one. It's about ensuring that the region's workers — who have helped build the Gulf's economic success — can look to the future with confidence. The Gulf region needs to move towards a retirement system that's modern, relevant, and worthy of its global ambitions, supported by an expanding, sophisticated financial services industry across regional hubs.
The writer is head of investment strategy and research, MEA, State Street Investment Management.
