World Economy

(P)GCC Pension Funds Represent Quarter of GDP

(P)GCC Pension Funds Represent Quarter of GDP(P)GCC Pension Funds Represent Quarter of GDP

Public pension funds in the (Persian) Gulf Cooperation Council are collectively worth $397 billion, representing nearly a quarter of gross domestic product and $15,000 per national, a new report by consultancy EY says.

However, (P)GCC pension funds are much smaller when compared with employer-provided pension funds in other parts of the world, the report stated, Gulf Business reported.

In Britain, for example, these assets are larger than GDP and funds per individual are nearly four times the (P)GCC average.

Wealth and Asset Management leader for the Middle East and North Africa at EY George Triplow said: “Public pension funds in the (P)GCC are only just coming of age, just over a fifth is invested in local equities.

“Two big issues are currently driving significant rethinking in the sector. The first is the sustainability of public pension funds for nationals, given the relatively small size of the funds, demographics and the gap between contribution and benefit levels.

“Secondly, there is a growing recognition by many employers that end of service benefit payments received by expatriates are neither adequate nor suitable as an alternative to a pension.”

Governments in the Persian Gulf Arab region must relook at existing models of both public and international pension funds to ensure they are sustainable, the report said.

Kuwait has the best capitalized fund relative to the size of its economy and citizen population. This follows an initiative to recapitalize the pension fund from the budget since 2008.

In international terms, its assets relative to population are similar to those of the UK’s pension funds, EY stated.

Qatar’s pension assets are also sizeable relative to the population, following a capital injection from the ministry of finance in 2012.

Meanwhile Saudi Arabia has the largest pension fund regionally, with assets split between the Public Pensions Agency (for public sector workers) and the General Organization for Social Insurance (for private sector workers).

However, about 85% of the Saudi pension assets are invested abroad, mainly in US Treasuries managed by the Saudi Arabian Monetary Authority.

“To address the concerns over the sustainability of the industry, Persian Gulf Arab countries will have to relook at the retirement ages, benefit levels and contribution requirements,” said Triplow.