Almost half of UAE expatriates have no financial plan to fund their retirement

A similar number expect the end-of-service gratuity to meet their long-term savings needs, Mercer says

As the main breadwinner in her household, Farnoosh Torabi wanted to ensure her retirement was secure. Getty Images

Almost half of UAE expatriate employees have no plan to ensure an adequate standard of living after retirement except to work for as long as possible, a new survey from global consulting company Mercer found.

Of the 500 employees polled in the 2020 UAE Security and Savings survey released on Tuesday, 45 per cent said their only plan is to work as long as they can and 37 per cent said they anticipate working past retirement age. Respondents could choose multiple options.

Two key issues include a reliance on the UAE's end-of-service gratuity and the lack of access to pension or savings plans, the report found. Only a quarter of employees said they have access to such schemes through their current employers and 43 per cent expect their end-of-service benefits to meet their long-term financial needs.

"People think the end-of-service will cover their needs in the long term and that's completely wrong," Tarek Zouiten, head of retirement at Mercer Middle East, told The National. "End-of-service is equivalent to two years of salary after 25 years of service, while you really need more than 10 times your salary [for retirement]. So that's the big gap that people are not aware of."

The UAE’s current gratuity system pays employees a lump sum based on the length of employment. Employees with at least 12 months of service are entitled to 21 calendar days of their base salary for each year of service in the first five years and 30 days’ base salary for each year worked beyond five years.

There has been talk of reforming the gratuity system and aligning it more closely with global pension plans as expatriates are staying longer in the country.

This month, the Dubai International Financial Centre became the first major entity in the UAE to replace the gratuity, rolling out its DIFC Employee Workplace Savings (Dews) plan on February 1. Mercer, which manages $304.5 billion (Dh1.12 trillion) in global assets as of November, is the investment adviser for the trust-administered fund, which employers are required to contribute to on a monthly basis for their employees.

The new Mercer study, conducted in the last quarter of 2019, also surveyed 50 senior decision makers, such as chief executives, chief financial officers and heads and directors of departments.

While 30 per cent of employers said they “care a great deal” about employees’ financial security, only 9 per cent of employees perceived that same level of care. In fact, 34 per cent said their employer “cares very little” and 29 per cent said their employer “somewhat cares”.

Nearly all (99 per cent) of the employees surveyed said improved savings and investment benefits would have a positive impact on their relationship with their employer. Four in five said they would be less likely to leave their current company if they were offered such benefits.

Mr Zouiten said employees are looking to their employers to provide them with long-term solutions, such as a savings plan to compensate for the lack of pension. Seventy per cent of those surveyed said they have been in the UAE for at least seven years and are planning to stay for another seven years.

“We are talking about people spending half their career in the UAE,” he said. “So when they go back home after 10 to 15 years, there is a gap in their retirement income because they did not contribute to their social security systems back home.”

The employees polled expect to retire at an average age of 57.2. Mr Zouiten said the amount needed for retirement is about 10 to 15 times an employee’s current salary, based on what insurance providers would pay out as a monthly pension post-retirement.

“People understand the need for savings, but they do not act. They do not have the tendency of planning because their employers don’t offer them easy solutions,” Mr Zouiten said. “Even if you’re not staying in the region up to retirement … saving is a long journey, so you have to start now to be able to afford a good standard of living in the future.”