Fleeting glamour: retirement crisis looms over UAE residents

Published February 23rd, 2015 - 12:37 GMT
UAE expatriates said companies only need to increase the gratuity provisions so that they will have more savings to look forward to when they retire
UAE expatriates said companies only need to increase the gratuity provisions so that they will have more savings to look forward to when they retire

About eight out of 10 people (83 per cent) in the UAE are now feeling anxious that their gratuity pay won't be sufficient to meet their retirement needs, according to a new study by Zurich International Life.

Unlike most developed countries, the UAE has no mandatory pension system in place, so the majority of employees who choose to go back to their home country and retire will likely have to rely solely on their gratuity to get by as they grow older.

Gratuity serves as a separation pay for employees at the end of their contract. The amount received depends on the staff’s last basic salary and the length of service. Allowances and other compensation outside the basic salary are usually not included in the gratuity calculation

UAE expatriates said companies only need to increase the gratuity provisions so that they will have more savings to look forward to when they retire.

Ruth, an expatriate from the Philippines who is in her 40s, has been working for the same company for seven years now. She calculated that if she quits her job soon, she will receive about Dh30,000 (8000 USD) in gratuity.

"If I retire with that amount of money, that's not going to last me several years. That amount is a joke," she said.

"The problem is that companies calculate the end-of-service compensation based on the employee's basic salary, which in most cases, is equivalent to only 50 per cent of the gross pay. In the end, the employee receives peanuts," she said.

Experts, however, said that employees should try to supplement their gratuity with additional savings. Companies should also step in and implement a savings plan to ensure their staff will have enough money to dip into when they retire.

Peter Cox, head of international pensions at Zurich International Life, said on Sunday that the majority of employees in the country are not saving enough for retirement because there is a lack of awareness on the importance of saving and there is no system in place that encourages people to prepare for their later life.

“Individuals are living for today and not making preparations for their later life. Potentially, people will be spending a greater amount of time in retirement as they will live longer than previous generations,” Cox told Gulf News.

Zurich’s survey, which included responses from 1,000 UAE residents, highlights the lack of a retirement savings culture in the country and supported its earlier study that found only a third (33 per cent) of UAE residents have a formal retirement plan.

“In most other developed economies, retirement savings is facilitated through the workplace by employers. They provide the opportunity for their employees to save in a cost-effective environment, either through stipulating a mandatory monthly savings amount or by matching employee voluntary contributions up to a specified limit,” Cox said.

“This would be on top of any employer contribution in a company-sponsored arrangement. In the UAE, such plans are very rare. Many employers think that fulfilling their end-of-service gratuity obligation will be enough to achieve important goals of attracting, motivating and retaining key staff, but it is not.”

Without a proper retirement savings plan, Cox said, many people will be forced to either save more or work longer to ensure they are able to support themselves when they stop working. He said the employers should address the challenge not just by increasing staff salaries.

Cox challenged employers in the UAE to create a retirement savings culture to avoid the population, and in particular expatriates, heading towards a "retirement funding time bomb."

“Why not implement a retirement savings plan that rewards employees with longer service more so than those with short service? Savings may not be tax incentivized, but they can make it service-incentivised. Use it as a tool to recruit and retain talent, differentiating themselves from their peer group and create a win/win situation with staff,” Cox pointed out.

"It is very concerning that the majority of UAE residents do not have a retirement savings plan; nor use their gratuity towards their retirement. There needs to be a significant shift in attitude to encourage a savings culture. Employers can help to facilitate this cultural shift by providing a cost-effective way for their employees to save for their retirement rather than just focusing on paying their gratuity liability."

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