How Saudi Arabia's GOSI Reform Changes Your IAS 19 Liability

Saudi Arabia's social insurance landscape has undergone its most significant restructuring in decades. The new Social Insurance Law, which came into force in July 2024 and activated its first contribution rate increase in July 2025, has quietly created a material accounting challenge for Finance Directors and CFOs across the Kingdom — one that sits squarely in the IAS 19 actuarial valuation.

This post explains what has changed, why it matters for your financial statements, and the practical steps your finance team should take before the next year-end close.

What Changed — and When

The reform operates on a dual-track system depending on when an employee first entered the Saudi workforce.

New entrants (from 3 July 2024): Employees starting work for the first time with no prior GOSI or Civil Pension contributions are covered by the new system. Key changes include a statutory retirement age rising to 65 Gregorian years (up from approximately 58.5), a pension accrual rate lowered to 2.25% of average contributory wages (down from 2.5%), and contribution rates that began at 9% each for employer and employee and increase by 0.5% annually until they reach 11% each by 2028. As of July 2025, both rates already stand at 9.5%.

Existing contributors (before 3 July 2024): These employees remain under the previous system. Retirement ages, contribution rates, and pension formulas are unchanged for this cohort.

This two-tier structure means that companies with a mixed workforce — long-tenured Saudi nationals alongside new hires — now need to model two sets of demographic assumptions for their IAS 19 valuations.

Why This Matters for Your IAS 19 Valuation

IAS 19 requires companies to account for End-of-Service Benefits (EOSB) and other long-term employee obligations using actuarial methods. The key assumptions — discount rate, salary escalation, and crucially, employee turnover and retirement age — directly drive the size of your Defined Benefit Obligation (DBO) on the balance sheet and the service cost flowing through your P&L.

The GOSI reform has three specific impacts on your IAS 19 actuarial assumptions:

1. Retirement Age Assumptions Must Be Revisited

For employees entering the workforce from July 2024, the normal retirement age has shifted to 65. This is a meaningful increase from the old 58.5 Gregorian years. A longer expected working life increases the present value of future EOSB obligations, because more salary increases are projected before the expected termination date, and the benefit accrues over a longer service period. Companies that continue applying a blanket 58–60 year retirement assumption across all employees are almost certainly understating their liability for the new-entrant cohort.

2. Turnover and Attrition Rates Face Greater Scrutiny

The reform changes employee incentives. Under the new system, there is a stronger financial incentive to complete longer contribution periods to reach the new retirement age and achieve the maximum pension. This may reduce voluntary early departures among Saudi nationals — particularly those with 15–20 years of service — reducing your assumed attrition rates. Lower attrition means higher projected EOSB liabilities. Actuaries should review historical data and assess whether existing attrition tables remain representative.

3. GOSI Contributions Cannot Offset EOSB Obligations

A common misconception worth flagging: GOSI contributions are a social insurance mechanism, not an asset that offsets the EOSB liability on your balance sheet. Under IAS 19, unless a plan has qualifying plan assets, the full DBO must be recognised as a net liability. GOSI contributions do not constitute qualifying plan assets under the standard. Companies that have informally netting GOSI contributions against EOSB provisions should seek immediate actuarial advice.

The Discount Rate Picture in 2025–2026

Alongside the structural reform, the financial assumption backdrop has also shifted. SAMA followed the US Federal Reserve in cutting its policy rate by 75 basis points during 2025, consistent with maintaining the SAR-USD peg. This has materially steepened the Saudi government Sukuk yield curve: short-end rates fell by approximately 87 basis points while longer-duration rates remained broadly flat or slightly higher.

For IAS 19 purposes, the discount rate must be determined by reference to market yields on SAR-denominated government Sukuk — not USD Treasuries, which are not an appropriate proxy notwithstanding the currency peg. The practical implication depends on the duration profile of your EOSB liabilities. Companies with predominantly long-tenured workforces will see little change in their discount rate. Those with younger, shorter-duration workforces could see a modest reduction in their applicable rate, which would increase the DBO.

This is another reason to ensure your actuarial provider constructs a bespoke, duration-matched discount rate for your specific workforce rather than using an industry-average figure.

What Finance Teams Should Do Now

Here is a practical checklist for Finance Directors preparing for the next IAS 19 valuation cycle:

1. Segment your workforce data by GOSI cohort. Identify which employees fall under the new system (first contribution on or after 3 July 2024) and which remain under the old system. Provide this segmentation to your actuary as part of your data submission.

2. Review your actuarial assumptions explicitly. Ask your actuarial provider to confirm that retirement age assumptions have been updated to reflect the 65-year normal retirement age for new-entrant employees, and that attrition rates have been reviewed in light of the reformed incentive structure.

3. Do not net GOSI against EOSB. Ensure that your balance sheet presentation shows the gross EOSB DBO. Any GOSI-related provisions should be accounted for separately and should not reduce the IAS 19 liability unless you have a properly constituted plan asset structure with supporting legal opinion.

4. Request a sensitivity analysis. IAS 19 disclosures in Saudi Arabia require a quantified sensitivity analysis showing how the DBO would change if the discount rate and salary growth assumptions moved by +/- 1%. Ensure your report includes a separate sensitivity for the retirement age assumption — this is increasingly requested by Big Four audit teams following the GOSI reform.

5. Plan for annual valuations. IAS 19 requires valuations at each reporting period end. Companies preparing quarterly or semi-annual IFRS accounts — including Tadawul-listed entities and their subsidiaries — should agree a rolling valuation schedule with their actuarial provider.

The Bigger Picture: Saudi Arabia's Workforce Is Changing

The GOSI reform does not exist in isolation. It sits alongside Vision 2030's Saudisation targets, a growing young workforce entering the labour market under the new scheme, and increasingly sophisticated auditor expectations around IFRS disclosures.

For multinational companies operating in the Kingdom, this complexity extends to their group reporting. Group Finance teams consolidating Saudi entities into IFRS financial statements produced in London, Amsterdam, or Zurich often encounter inconsistencies between local provisions and the IAS 19 figures prepared by their Saudi actuary.

Resolving these at group year-end is expensive and time-consuming. Getting the Saudi IAS 19 valuation right at source — with assumptions that properly reflect the post-reform landscape — is the most efficient solution.

How Royal Falconian Actuaries Can Help

We are an independent actuarial consultancy with deep experience in IAS 19 valuations for Saudi Arabia, the UAE, and the broader GCC. Our UK-regulated actuaries are fluent in the intersection of Saudi Labour Law, GOSI regulations, and IFRS accounting standards.

We prepare EOSB valuations that are accepted by Big Four audit firms, use properly constructed SAR yield curves for discount rate derivation, and provide the detailed sensitivity analysis and disclosure notes that Saudi and international auditors require.

If your existing valuation does not reflect the post-reform actuarial assumptions — or if you are commissioning an IAS 19 valuation for the first time — we would welcome a conversation.

Contact us to request a quote →