For the six Egyptian pension funds on offer, the future is rather less appealing. Across the region, pension systems are under growing financial stress and urgently need reform, says a report issued in late August by the World Bank. Problems include limited coverage in some countries, fragmented administration, flaws to system design and, fundamentally, commitments that many funds will be unable to keep.

For once, the problem is not one of demographics - at least, not for the time being. 'Pension crises are often associated with an ageing population, which is misleading,' says Christian Poortman, regional vice-president for the World Bank. 'In the MENA [Middle East & North Africa] region, where 60 per cent of the population is made up of young people, pension systems are already facing financial problems. So the problem is structural, not demographic. The time for change is now. Postponing pension reforms will require dramatic adjustments in the future and it implies transferring the cost of reform to future generations.'

Pensions systems vary widely across the Middle East. But what they all have in common are earnings-related structures, financed on a pay-as-you-go basis, which date back to the late 1960s and early 1970s. 'No changes to the structure of the systems have been introduced since then,' says the report. 'These systems cover, on average, 30 per cent of the labour force. Despite these relatively modest coverage levels and the fact that only 5-10 per cent of the elderly receive a pension, spending as a share of gross domestic product (GDP) is already in the 1-3 per cent range, which is high given the share of the elderly population.'

Structural problems highlighted by the report include a disconnection between pension benefits and the contribution rate, fragmented administration and badly designed rules that damage incentives and arbitrarily redistribute income, as well as poor management of pension funds and - in many countries - a lack of any formal pension schemes for large tracts of the labour market.

Drastic reductions

'If nothing is done now, pension expenditures will continue to grow,' says the report. 'At some point in the future, generations will face either drastic reductions in benefits and higher taxes, or reductions in other non-pension expenditure such as education or health.'

One prime area not covered by the World Bank report is the GCC, where many states face similar, if less pressing, problems. 'Certainly the problem is becoming more obvious here in the Gulf,' says Simon Stirzaker, corporate pensions adviser for HSBC in Dubai. 'Most government pension schemes are so generous as to be ridiculous. This is going to place a huge burden on future generations and they need to do something now and not leave it too late.'

While government schemes come under growing pressure, other parts of the workforce are simply not covered at all. A few measures have been introduced to regulate the market. In the UAE, there is a statutory requirement on companies to give an end-of-service gratuity based on an employee's final salary, but this often amounts to just a small lump sum. However, as competition for skilled labour grows, employers are increasingly turning to pensions to lure and retain staff, particularly skil