Six in 10 UAE residents depend on their end of service gratuity payment to fund their retirement, a survey has found, highlighting the major role the benefit plays.
According to the study from financial services companies Old Mutual International and Quilter Cheviot, 59 per cent of those polled either partly or fully rely on the payment for their future plans. The survey polled 130 residents with over $50,000 invested in August last year.
Paul Evans, head of Middle East and Africa region at Old Mutual International, said this “could be a cause for concern, as the research shows that on average they are relatively small payments”.
Nearly nine in 10 of those polled (84 per cent) say they will receive a gratuity when they leave their company, with 62 per cent stating the amount will exceed Dh20,000.
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At the Mena Pensions Conference in Bahrain in October last year, analysts discussed how the end of service gratuity – a defined benefit pension scheme – requires a rethink as it does not factor in the lifespan of an employee, only the years they have worked at a company.
Simon Herborn, senior consulting actuary at Milliman – Middle East and Africa told The National at the time that "the labour law gratuity is unlikely to be an adequate foundation" for a UAE resident's retirement.
Employees leaving an organisation in the UAE are entitled to an end of service gratuity after completing at least one year of service with the tenure calculated on the number of days worked. Those employed by a company between one and five years are paid 21 days of pay based on their final basic salary. After five years, they are entitled to 30 days of pay.
However, for many, this will not be enough to fund their retirement. Eight in 10 plan to continue working in retirement, either for social (45 per cent) or financial reasons (35 per cent) reasons, the study found. Eighty-one per cent said they expect to be self-employed.
Mark Leale, head of Quilter Cheviot’s Dubai representative office, said while self-employment can be a positive experience, it also "presents some challenges and anyone interested in taking on self-employed work to fund their retirement must have a financial plan in place".
This plan should take into account "the possibility that they physically could no longer be able to earn as they get older".
How to fund the retirement gap between the gratuity payment and the amount expatriates actually need has been a subject of debate in recent years. In the past, residents turned to financial advisory companies to top up their pension pots. However, many were mis-sold poor performing long-term savings and investment plans riddled with high fees and hidden charges.
A raft of new regulations proposed in 2017 by the UAE Insurance Authority and the Central Bank of the UAE to clamp down on mis-selling are yet to be imposed.
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The GCC’s gratuity system may evolve from a defined benefit scheme to a defined contribution scheme that places the onus on the individual to save for their future
Salmaan Jaffery, chief business development officer at Dubai International Financial Centre, told The National in October that such as plan will be in place for expats "in the near future".
When it comes to where residents want to retire, 62 per cent favour their home country, according to the study. While 18 per cent of respondents said they would retire in the Emirates, the poll was carried out a month before the UAE unveiled five-year retiree visas for expatriates over the age of 55.
Also, many residents expect to delay retirement. While a 2017 survey from Old Mutual and Quilter Cheviot found 43 per cent expected to retire between the age of 50 to 55, this dropped to 35 per cent in the 2018 poll.
Nearly half said they expect retirement to last between 11 and 20 years. However, with some living more than 40 years after the traditional retirement age of 60, independent personal finance communities such as SimplyFI.org and DeadSimpleSaving.com advocate a low-cost investment approach.
Steve Cronin, the founder of DeadSimpleSaving.com, said: "More and more people are becoming aware that low-cost, passive index-tracking ETFs are the best investment funds for residents."
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
BUNDESLIGA FIXTURES
Friday Hertha Berlin v Union Berlin (11.30pm)
Saturday Freiburg v Borussia Monchengladbach, Eintracht Frankfurt v Borussia Dortmund, Cologne v Wolfsburg, Arminia Bielefeld v Mainz (6.30pm) Bayern Munich v RB Leipzig (9.30pm)
Sunday Werder Bremen v Stuttgart (6.30pm), Schalke v Bayer Leverkusen (9pm)
Monday Hoffenheim v Augsburg (11.30pm)
RESULTS
5pm: Wathba Stallions Cup Maiden (PA) Dh 70,000 (Dirt) 1,600m
Winner: Samau Xmnsor, Abdul Aziz Al Balushi (jockey), Ibrahim Al Hadhrami (trainer)
5.30pm: Maiden (PA) Dh 70,000 (D) 1,600m
Winner: Ottoman, Szczepan Mazur, Abdallah Al Hammadi
6pm: Maiden (PA) Dh 70,000 (D) 1,800m
Winner: Sharkh, Patrick Cosgrave, Helal Al Alawi
6.30pm: Handicap (PA) Dh 85,000 (D) 1,800m
Winner: Yaraa, Fernando Jara, Majed Al Jahouri
7pm: Handicap (PA) Dh 70,000 (D) 2,000m
Winner: Maaly Al Reef, Bernardo Pinheiro, Abdallah Al Hammadi
7.30pm: Maiden (PA) Dh 70,000 (D) 1,000m
Winner: Jinjal, Fabrice Veron, Ahmed Al Shemaili
8pm: Handicap (PA) Dh 70,000 (D) 1,000m
Winner: Al Sail, Tadhg O’Shea, Ernst Oertel
Other ways to buy used products in the UAE
UAE insurance firm Al Wathba National Insurance Company (AWNIC) last year launched an e-commerce website with a facility enabling users to buy car wrecks.
Bidders and potential buyers register on the online salvage car auction portal to view vehicles, review condition reports, or arrange physical surveys, and then start bidding for motors they plan to restore or harvest for parts.
Physical salvage car auctions are a common method for insurers around the world to move on heavily damaged vehicles, but AWNIC is one of the few UAE insurers to offer such services online.
For cars and less sizeable items such as bicycles and furniture, Dubizzle is arguably the best-known marketplace for pre-loved.
Founded in 2005, in recent years it has been joined by a plethora of Facebook community pages for shifting used goods, including Abu Dhabi Marketplace, Flea Market UAE and Arabian Ranches Souq Market while sites such as The Luxury Closet and Riot deal largely in second-hand fashion.
At the high-end of the pre-used spectrum, resellers such as Timepiece360.ae, WatchBox Middle East and Watches Market Dubai deal in authenticated second-hand luxury timepieces from brands such as Rolex, Hublot and Tag Heuer, with a warranty.
How England have scored their set-piece goals in Russia
Three Penalties
v Panama, Group Stage (Harry Kane)
v Panama, Group Stage (Kane)
v Colombia, Last 16 (Kane)
Four Corners
v Tunisia, Group Stage (Kane, via John Stones header, from Ashley Young corner)
v Tunisia, Group Stage (Kane, via Harry Maguire header, from Kieran Trippier corner)
v Panama, Group Stage (Stones, header, from Trippier corner)
v Sweden, Quarter-Final (Maguire, header, from Young corner)
One Free-Kick
v Panama, Group Stage (Stones, via Jordan Henderson, Kane header, and Raheem Sterling, from Tripper free-kick)
