The future in the GCC: Exploring a pan-GCC ‘clearing house’ concept

The future in the GCC: Exploring a pan-GCC ‘clearing house’ concept

As the GCC nations undergo significant economic and social change, one possible future model could be a pan-GCC ‘Clearing House’ for the region. Such a model was recently proposed by the International Labor Organization (‘ILO’) in their paper ‘Reforming end-of-service indemnity for migrant workers in Member States of the Cooperation Council for the Arab States of the Gulf (GCC)’. This would be a unified system to streamline pensions investment, clearing, and liquidity across the GCC, drawing inspiration from the concept of Pan-European Personal Pensions (PEPP) scheme in the European Union. The PEPP model facilitates pension contributions across EU member states, achieving economies of scale, diversifying investment portfolios, and enhancing consumer choices.

Importantly, some portability already exists within the GCC for DB pensions among nationals. GCC nationals working in a member state other than their own can have their pension contributions transferred to their home country’s DB pension system. This means that their years of service in one country can count towards pension eligibility in another. This existing feature could serve as a foundation for a more expansive system, potentially incorporating DC schemes and including both nationals and non-nationals.

One of the most transformative elements of an ILO Clearing House lies in its potential for helping savers build long-term investment strategies. Unlike existing pension systems that often focus on short-term objectives, this unified approach could allow pension funds to concentrate on the ultimate objective of retirement. This is of particular significance in the GCC, where a large proportion of the workforce consists of migrant workers. Instead of fragmented investment strategies that centre on payouts at various company leaving dates, a unified system would allow for long-term plans focused on retirement dates. This paradigm shift holds the promise of delivering better financial outcomes for all scheme members.

However, the implementation of such a unified system poses challenges that would require meticulous planning and collaboration among GCC states. Two of the most pressing issues are the identification of individuals across different GCC jurisdictions and the complications related to currency conversion risks. Advanced technology solutions could play a vital role in addressing these challenges.