While the UAE has become a first-choice destination for relocating expatriates, many executives are still benefiting from generous remuneration packages once offered to lure professionals to the country.
The package starts with a high tax-free salary. Housing allowances, school fees for multiple children, and private family health care are often thrown in too. Annual flights back home are included and in some instances, private club and gym memberships are added for good measure.
On paper, this looks like the perfect opportunity to live comfortably and build wealth for the future. The reality is often very different. There's a psychological trap that comes with an all-inclusive package. When life's biggest expenses are covered by someone else, it's easy to feel wealthier than you actually are, and that mindset can lead people to treat saving as optional rather than necessary.
Wealth isn't accidental. It's built deliberately, over time. Most people understand the true cost of their lifestyle because they have to pay for it themselves. The rent cheque is due every year, school fees arrive as a significant expense, and trips home get budgeted for carefully. For an executive on a comprehensive package, though, many of these costs simply become invisible, creating a distorted sense of surplus income.
When most of your monthly salary is available for discretionary spending, it's easy to build a lifestyle around that level of income. Luxury travel, expensive jewellery, and top-of-the-range cars can quickly become the norm, while thinking longer term and saving for the future falls by the wayside.
The question most people shy away from is this: what happens when the package stops?
All good things come to an end, whether through resignation, redundancy, or commercial restructuring. Suddenly, the expenses covered for years become a costly reality, and a previously healthy surplus can disappear entirely.
Retirement presents an even bigger challenge. For years, an executive may have enjoyed a lifestyle subsidised by their employer. At retirement, the salary stops and the benefits vanish at the same time.
Employers in the UAE do offer a gratuity scheme, but this amounts to no more than 30 days' basic salary for each year worked. A gratuity payout after 20 years' service, then, will be no more than 18 months of income. What's more, gratuity schemes are capped at a maximum of two years' basic pay. In practice, this means that without additional savings built up over a working career, an executive could retire with little more than two years' worth of income to cover their expenses, with housing, healthcare, and travel costs no longer covered.
Because gratuity schemes are calculated using a simple formula at the end of service, there's an added trap: the loss of compounding growth. The gratuity itself is never invested, so employees could be missing out on years of investment market growth, leaving a much smaller pot by the time they finish work. Dubai International Financial Centre has mandated that all companies within the centre switch to an investment-linked employee workplace scheme, though it isn't yet compulsory across the rest of the country.
Consider two executives, each earning Dh50,000 a month over a 20-year international career. One relies solely on their employer's gratuity scheme for retirement savings. The other invests 10 per cent of their salary every month, earning no more than a 5 per cent return each year.
The gratuity scheme pays out around Dh926,000 after 20 years of service. The executive who saved regularly ends up with an additional Dh1.9 million from investment returns.
It's often the highest earners who find disciplined saving hardest, largely because they don't feel financially constrained. There's always another bonus coming, or next year's pay rise, or a promotion just around the corner, and the opportunity to start saving and thinking long term gets put off in favour of another expensive watch or a new car.
There is a solution, though: tax yourself on payday.
The UAE offers a fantastic opportunity for expatriates to earn tax-free, but it's worth adopting a “tax yourself” mentality, separating out the money designated for saving the moment your salary lands.
There's no single savings rate that suits everyone. That said, plenty of online calculators and savings tools can help you work out how much to put aside each month, depending on your goals.
Age, existing assets, family commitments, future country of residence, and retirement ambitions all play a part. It's sensible to start small – a few thousand dirhams, or 5 per cent of your income, and build up as your earnings grow. A percentage of any ad hoc bonus can be factored in too.
The generous remuneration package is the opportunity. It's up to the employee to turn that opportunity into meaningful wealth, by saving first and spending only what's left over.
It's worth covering the financial basics regardless: build an accessible emergency reserve, understand your pension position in both your home country and the UAE, and avoid creating fixed lifestyle costs that depend entirely on one employer's package. It's also worth periodically calculating what it would cost to replace every benefit your employer currently provides.
Used prudently, a high remuneration package can help someone build wealth at a pace that would be hard to match back home, where salaries, taxes, and the cost of living often bite much harder. Used carelessly, though, these packages can create a dangerous illusion of wealth for 20 years while leaving very little behind.
The most important distinction for any executive is this: your employer may be funding your lifestyle today, but only you can fund the life that comes afterwards.
Chris Keeling is senior executive officer at Metis, a DIFC-based wealth adviser
