End of service benefit schemes gain in popularity

Tuesday 15 September 2020|Corporate, General News
HomeNews & ViewsEnd of service benefit schemes gain in popularity

COVID-19 and the subsequent turbulence in the global economy have brought the benefits of end of service gratuity schemes into sharp focus.

There have been some significant fallouts, particularly with small and medium sized businesses, with redundancy rates and even company failure. The implications of this have become more apparent recently with large scale redundancies causing significant cash flow issues for many businesses.

In this environment employers should not underestimate the power of taking positive action, such as setting up an employee benefit trust (EBT) for its staff. It shows commitment by the employer, that they are willing to reward their loyal employees through unprecedented times. This can be used as a tool to retain staff and a way for gaining some goodwill from employees during difficult times.

Under current Gulf States’ laws, all company employees who have provided more than one years’ continuous service to an employer are entitled to a lump sum payable at the end of their service.

In a bid to attract new business and talent to the Middle East employers are making the correct provisions for their expatriate staff. The potential benefits are:

  • Having a trust-based solution (where funds are legally separated from the employer’s operational assets and balance sheet) can be used to attract top calibre people. An EBT can also be a way of reassuring potential recruits by demonstrating how seriously a company takes its responsibilities to employees, thus enhancing their loyalty and trust.
  • Improving the predictability of cash flow allows the employer to select the best way the EBT funds can be invested and managed.
  • Attracting and retaining the best professional talent into the region by offering employees the ability to earn returns on their benefits from a regulated and reputable trustee and administrator.
  • Employers will always have clarity about their end of service benefits liability to employees.

To summarise, employers are looking to offer pension benefits as a means of retention or, increasingly, because it is market practice to do so.

Our team in ADGM works directly with clients and intermediaries to provide a tailored solution, establishing a special-purpose trust designed around the employers’ specific requirements. To find out more click here or contact Charles or Dan Toft.

 

This article constitutes neither professional advice nor a binding offer by us to provide professional services. Any engagement in respect of our professional services is subject to our standard terms and conditions of business and the provision of all necessary due diligence.

It is published on behalf of PraxisIFM Trust Limited, which is regulated by the ADGM Financial Services Regulatory Authority and only carries on financial services with or for Professional Clients as defined in the ADGM Financial Services Regulatory Authority Rules.

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