Saudi Arabia should raise retirement age, study shows 

Unsplash/Mark Potterton

• Saudi pension system ranked 28 of 47
• Young population can ease reforms
• UAE leads in Gulf region

Saudi Arabia should raise the retirement age to create a sustainable pension system and institute other much-needed improvements, according to a study released this week. 

The Global Pension Index by Mercer, a New York professional services company, ranked Saudi Arabia – the leading Arab economy and world’s biggest oil exporter – at 28 out of 47 retirement systems surveyed. 

Israel was at number four with one of the best systems in the world, while in the Gulf region the UAE, which has a head start on Saudi Arabia in developing health, pensions and insurance, was ranked number 23. 

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The Saudi system offers a basic earnings-related pension upon retirement or a lump-sum, but Mercer said it was hamstrung by one of the world’s lower retirement thresholds of 60 years old for both men and women. Many Saudis opt for early retirement. 

More work also needs to be done to bring older employees into pension schemes and improve coverage for the lower paid, Mercer said.

Changes to the system are seen as sensitive since they risk altering the social contract between the government and Saudi citizens. The government raised value added tax in 2020 from 5 percent to 15 percent, in a move broadly seen by economists as successful. 

The General Organization for Social Insurance (GOSI) manages a pension system for Saudi nationals while expatriates and the private sector are covered by employer schemes. 

UAE law does not specify a retirement age for expatriates, who form the majority of the population, although 65 is becoming standard in private companies.

Saudi Arabia’s economic diversification, which included a mortgage and insurance industry to help drive non-oil private sector growth, has so far not touched pensions despite reports of reform plans to raise the retirement age and worker contributions. 

James Reeve of Jadwa Investment in Riyadh said Saudi Arabia still has time to reform the system because of its young population. Under-30s comprise around 63 percent or 18.8 million Saudis among a total population of 32 million. 

“Saudi is an overwhelmingly young country and the dependency ratio is low. So demographically it can be sustained, but it urgently needs to diversify its sources of funding,” said Reeve. “There is no private pension sector to speak of.” 

Mercer cited its three main criteria for evaluating pension systems as financial sustainability, increased benefits and policy transparency. 

Turkey was ranked as one of the least efficient systems, at 44. The report criticised low coverage, lack of employer contributions and easy access to funds before retirement. 

“The provision of financial security in retirement is critical for both individuals and societies as most countries are now grappling with the social, economic and financial effects of ageing populations,” the report said.