The important role of pension funds and social security in protecting the elderly and vulnerable in modern society cannot be understated.
The development of social security systems over the years has allowed employees to be provided for according to their job and their salary scale, as well as their whereabouts.
While in the past, pensions may have been limited to those workers living in their home countries, the development of the global banking and telecommunications system has allowed the social security and pensions framework to evolve even further.
But the fact remains that those seeking social security or pension programmes in the West have far more options than in the Arab world. Domestic workers in Western countries are able to get enrolled in programmes regardless of their nationality or the nature of their work.
There are also institutions that allow expatriates social security coverage, provided they are committed to paying their monthly subscriptions in accordance with the rules and regulations followed in their home countries.
Meanwhile, in the GCC, pension and social security schemes cover only citizens, and provide the option for citizens of one Gulf country to work in another without disrupting their pension plans.
Social security
But this is not only a question of policy, and of the right for expatriate workers to participate in a pension system in Gulf.
At a time when expatriate workers comprise the majority of the manpower in the GCC, Gulf countries are missing the opportunity to benefit from billions of dollars that could be collected through the pension and social security schemes if foreign workers were brought under the scheme in the Gulf region.
This has surely not escaped the attention of the Dubai Department of Economic Development.
The department has commissioned a study on the establishment of a pension institution whose capabilities can exceed those of the existing pension fund.
This is simply because of the number of expatriate workers that could join the new pension institution. After all, there are around 23 million expatriate workers in the GCC.
But it is crucial that the nature of the proposed pension agency is totally different from that of pension and social security funds which suffer from an actuarial deficit. These funds are expected to suffer a deficit in part because of their conservative investment policies which confine them to invest their revenues as deposits in local banks.
Interest rates on these deposits are subject to interest rates on the dollar and local currencies, which are already experiencing severe fluctuations.
This may affect the returns of pension and social security funds significantly. Hence, it will be difficult for these funds to continue to fulfil their obligations without government support.
The proposed institutions, when established in the GCC, should be in line with international standards in their capacity as investment bodies with a special role, in addition to their function as social security funds.
They must not depend on support, but have to develop self-financing capabilities.
To achieve this, the proposed funds must set a diverse investment programme that is quite different from the limited one currently embraced by other pension and social security funds.
These programmes will play a dual role. The development of the fund resources to meet the if requirements for fulfilling their obligations to the insured, and to provide the market with new investments.
Boost for markets
This will in turn help develop many sectors, especially local capital markets and stock exchanges.
Apart from investment programmes, having a highly professional executive management with vast experience in the management of pension and social security institutions is quite necessary.
These funds will be under the control of many global institutions, thus clear standards of management and investment must be put in place.
If such institutions come into existence in the GCC countries and are managed properly, there will be significant positive returns for economic growth.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.