Expats can't rely on gratuities for an easy retirement

Richard Taylor of Acuma Wealth Management explains why it is important to plan for your golden years as early as possible.

Wise investments can get higher returns. Rich-Joseph Facun / The National

Should you count on your gratuity for your retirement or is it best to invest in a traditional pension scheme? In general, a pension scheme is the most practical option for securing your retirement. However, in the UAE, many rely on the end-of-service gratuity. Although the UAE Government is considering putting in place a pension scheme for employees, it is imperative that you have a private plan so you can retire on your terms. Richard Taylor, a chartered financial planner at Acuma Wealth Management, explains why it is important to plan for your golden years as early as possible.

1 Contribute a small amount each month in a traditional pension scheme

People are far more likely to behave in a much more responsible manner towards this money. It will be seen as money for their long-term future. It should be invested as such and hopefully not accessed - for instance, to spend - with such relish!

2 Remember that gratuities are not guaranteed

Companies can shut down and workers can be made redundant. If you have a pension scheme, you will be more protected and are almost certain to leave with something, no matter how poorly managed your company is. During the recent crisis, it became apparent that many, if not the majority, of firms in the UAE had failed to plan for the huge cost of gratuities in the event of mass redundancies. Furthermore, if a firm was/is to go insolvent, employee gratuity isn't protected; it is lost.

3 Choose a pension scheme that protects employees

First and foremost, a pension protects employees if their company becomes insolvent. By ring-fencing employee pension benefits on an ongoing basis, employee benefits should be protected.

4 Consider how you will spend or invest your lump sum

Once you've signed up for a pension scheme, you can start planning how to spend your gratuity. It is simply too easy to squander a lump-sum payment that one gets when they leave a company. It is not actually seen as a pension (or as part of one's long-term savings) and, as such, many people don't treat it as one.

5 Invest wisely

If invested carefully, there is also the potential of receiving a much higher lump sum from a pension scheme on return than the sum total of contributions alone. However, the flip side to this is (obviously) that if invested poorly, the person could get back less than they (and/or their employer) contributed.

6 Ensure your pension scheme is portable

Can you access it like your other offshore savings plans? Think about where you will live when you retire and what the pension regulations are about receiving payments.

7 Stay abreast of new rules and regulations

Did you know that the UAE limits gratuity payouts to the equivalent of two years' salary? That doesn't sound like very much when you consider how much you spend in one year on living expenses alone.

8 Assess the charges and investment options in any pension scheme

Does it involve charges? What access do you have to the funds? Also, find out what percentage of your salary you will have to contribute and whether your employer will agree to contribute to the scheme. A poorly charged and administered contract could easily negate the benefits outlined above.

9 Don't procrastinate

Working in the UAE, we are all faced with one of the biggest opportunities we will ever have to build long-term wealth. Take matters into your own hands and start saving and investing (saving isn't enough, you need to be investing your savings) for your long-term future today.