The cost of living is rising, VAT will be introduced shortly, merit increases are expected to remain flat. Is it surprising that employees worry about their finances? Probably not, but you may be shocked that it’s taking 81 minutes away from them every working day! Can your organisation afford such a loss in productivity?

We met with Martin McGuigan, Partner at AON Hewitt in Dubai, to find out how companies can pro-actively support their employees’ financial wellbeing and prepare them for retirement.

The underestimated problem

In this region, we have it all. Our workforce is multi-national, multi-cultural and multi-general. Finding a common ground isn’t always easy. Yet, what we can easily identify is that most employees don’t save enough for retirement. While this is not a new phenomenon around the world, it’s consequences are far more impactful here.

We are facing a significant number of employees who are financially illiterate, who are unable to create and/or stick to a budget and who, although not all, are prone to keeping up with the Joneses and are thus accumulating debt. All too often, employees are looking at their end of service gratuity as a way to fix these issues in one go. Unfortunately, end of service gratuity is limited and cannot be used as a fulfilling way to plan for retirement.

To put another damper on it, the traditional 3 pillars of retirement planning don’t apply to the majority of employees in this region.

  1. The first pillar of social security applies to local nationals only. While there are agreements among GCC member states for retirement contributions in place, most employees here aren’t GCC nationals. Their home countries may also restrict the availability of withdrawals from their social security system, if the individual re-joined after a specific age or has made no or only limited contributions. Expats seem unaware of their home country regulations and employers don’t view it as their responsibility to educate their employees about social security systems outside their geographic jurisdiction.
  2. The second pillar comprises employer sponsored plans. 401(k) programmes in the US or other defined benefits schemes are not prevalent in this region. Many companies offer only the legally required end-of-service (EOS) gratuity, although an increasing trend to enhance it has been witnessed since 2011 according to Willis Towers Watson. Employees all too often over-estimate the amount of EOS gratuity. Paid out as a cash lump sum on the last working day, individuals rather pay off personal debt than invest into their own retirement fund.
  3. The third pillar thus depends on the employee being pro-active and preparing with personal savings and investment plans. With employees unaware of the amount required for their retirement in their home country or another country, the thought and more importantly the actions for their own retirement savings are postponed. Starting at a younger age and benefiting from compound interest can reduce the required amounts, especially when compared to someone only starting at the age of 40.

How to support employees

McGuigan emphasised the need for organisations to make planning for retirement easy for their employees. Employees often fear that their investments are locked away and only available upon payment of high penalties. Instead, they are looking for accessibility, flexibility and transferability in an employer-sponsored retirement scheme.

Companies are urged to educate their employees on a daily basis. While the employer has traditionally been seen as a paternal protector who will handle it for the employee, times are changing and employees need to start taking care of their own future. As such, organisations can support their employees during this transition, suggested by McGuigan as follows:

  1. Include retirement planning in everyday conversations. Organisations need to de-mystify retirement planning and make it easy for employees to ask about it. Employees need to become aware of the topic, then learn more about it and finally take specific actions towards it. The company can assess the maturity of their employees by speaking to them and only afterwards designing specific initiatives.
  2. Auto-enrolment into a company-sponsored retirement plan. Since the employee will benefit from such plans in the future, they will need to take conscious steps to opt out of these plans. Employees experience peace of mind by contributing to these plans and can focus on their work and life again.
  3. Utilise modern technology every day. While not everyone has access to a computer, most employees have a smart phone. Apps either from their scheme provider or built inhouse can be used to teach introductory courses like Finance 101 and investments for beginners, develop investment strategies and show the development of the employee’s investment portfolio.

The benefits for the employer

Organisations that provide education and support around retirement planning to their employees are recognising the overall improvement in their employees’ financial wellbeing. In return, employees are experiencing less financial stress and they spend less time worrying.

This translates into more time for productivity, higher engagement and increased results. Studies have also been shown that financial wellbeing programmes are effective retention tools. All these are good news for a company!

Do you want to benefit from increased engagement by educating your employees about retirement? Are you looking for the latest insights and guidance to introduce effective benefits initiatives? Call us on +971-52-2516322 and find out how we can help you manifest a culture that supports its employees’ financial wellbeing while achieving increased productivity and sales.