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UAE
Dubai,
25 January 2010
Employee benefits, including private medical cover, retirement savings plans and death and disability insurance, are clearly becoming increasingly important elements of rewards packages as employers compete to define a longer term proposition for employees in the Gulf. Mercer has undertaken its third regional survey of employee benefits provision and the trend for increasing benefits levels continues.
Medical care is a key macro issue in the Gulf with over 86 percent or more survey participants providing sponsored healthcare. There is a well documented drive for Governments across the Gulf to review healthcare delivery to expanding populations and from a fiscal perspective to manage dependence on public healthcare systems.
Saudi Arabia and the UAE have introduced legislation to mandate the provision of employer sponsored private medical insurance programs to non nationals and their dependants in order to ease the burden on the state and this mandate is expected to gain momentum across the Gulf.
Mercer’s survey, which was carried out across the GCC region in July and August of 2009, shows that medical plans have become not only more common but that benefits included within plans are richer, with far more companies including benefits such as dental and maternity cover, both of which are up around 20 percent on 2007 levels. However, the increase in benefits provisions within plans coupled with increased claims is fuelling high medical plan premium inflation across the region – in the range of 10 percent to 15 percent per annum for many employers.
Callum Burns-Green, head of Mercer’s benefits consulting team in the Middle East commented that employers will need to consider proactive measures to address premium inflation if costs are to be controlled. “The type of medical cost management that has become common in other markets such as the US, where employers take an active role in wellness initiatives to educate employees on the risks of certain lifestyle choices and facilitate access to gyms and other health initiatives should be considered from the longer term perspective of reducing medical insurance claims and resulting premiums. Employers and their advisers will also need to get underneath claims data to be able to structure discussions with providers around whether certain levels of premium increases are justified for their employee groups.”
Flexible benefits is something that a number of employers are expressing interest in and this is another area that can potentially reduce employer costs. “ We would expect to start to see employers offer a core, compliant level of medical insurance with the facility for employees to top this up with higher levels of cover at their own cost. This type of employee choice can be applied across a range of benefits and is recognised in other markets as a tool for employers to control spend on rewards” said Mr Burns-Green.
Also highlighted in Mercers GCC benefits survey was that two-thirds of companies offer protection benefits for employees that cover death, accidental death and long-term disability for all illnesses and injuries, regardless whether it was work-related or not. These provisions are above the legally mandated levels of cover and reflect an increasing need for companies to demonstrate that a core level of risk benefits that protect families against accidents and injuries.
Death and disability benefit levels vary by country, and sometimes by region or sector. They are typically defined as a certain number of monthly salaries, or as a fixed monetary amount. Approximately 80 to 90 percent of plans provide a multiple of salary benefit, usually as a lump sum benefit and usually based on basic salary alone.
Short term disability continues to be a relatively neglected benefit with few companies providing more than the mandatory minimums required by Labor Laws. However, with more companies entering the region, Mercer would expect to see a shift in the design of short-term disability benefits to offer more comprehensive protection and better dovetail with long term disability provisions.
End of service benefits, otherwise known as termination indemnities or end of service gratuities, are usually payable to all employees immediately after termination, but only after the employee has achieved one year of service. For most countries around the Gulf, the benefit amounts to two or week’s salary per year of service after an initial period of service, typically 3-5 years. Service in excess of 5 years usually earns the employee additional days salary per year of service.
Of the respondents for Qatar, nearly 40 percent of all companies provide their employees with enhanced end of service benefits, followed by the UAE with 19 to 23 percent of participants depending on the employee group.
However, Mazen Abukhater, a Senior Associate and actuary in Mercer’s benefits team commented that “the end of service benefit is not often a well communicated, well understood or well valued benefit by employees, especially expatriates, so enhancing it may not always be the most effective way for employers to direct dollars on employee rewards”.
In terms of Mercers survey, 25 percent of companies across the GCC now say they offer some form of retirement benefit and, while the benefit was originally created for expatriate employees, it is generally available to all employees. In 2007, the prevalence of supplemental retirement plans was less than 10 percent. “Retirement Savings Plans offer employees access to group investment funds at a far reduced cost than is typically possible for individual investors. We have seen a number of companies successfully establish such plans and give employees the option of drawing down their end of service benefit on a regular basis and investing it in the fund. This has the benefit for the employer of keeping end of service liabilities at a manageable level whilst employees can benefit from investing the money as a foundation for additional savings and wealth creation.”
In terms of the prevalence of other benefits, the most popular are annual airfares, settling in allowance, mobile phones and company cars. “It is not uncommon for employee benefits to represent around 15% of total employer expenditure on rewards” commented Mr Burns-Green. “It is important that employers review this to ensure that they are spending this money in ways that are valued by employees and also that employees are receiving clear communications that explain the value of their total rewards package, including company expenditure on their benefits”.
About Mercer
Mercer is the leading global provider of consulting, outsourcing and investment services. From its GCC headquarters in Dubai, Mercer teams work with clients across the region to solve their most complex benefit and human capital issues. Mercer is the world's largest HR consulting firm, with annual revenues of US$3.5B. It is the global market share leader in retirement, health & benefits and investment consulting. It is an advisor to nine out of ten Fortune 100 companies. It has been judged the most trusted HR consulting brand in the world. Mercer is a truly global firm serving clients in more than 40 countries and 180 cities worldwide. Mercer has been rated the most prestigious HR consulting firm to work for. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges. For more information, visit www.me.mercer.com
Contact |
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Mazen Abukhater
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+971 4 344 6263
