Federal pension idea deserves more attention

The news that Dubai is talking to the World Bank about the idea of pensions for expatriates is tremendously promising. There would be objections and problems, but the idea has such advantages that it deserves serious attention.

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The news that Dubai is in consultation with the World Bank about the idea of pensions for expatriates, reported on Page One of The National yesterday, surely startled quite a few of our readers - and not in a bad way.

To be sure, the notion is still purely theoretical, and there would be years of obstacles and objections to overcome, and much study needed. But this idea deserves serious consideration, and at the federal level.

The potential benefits are significant for individuals, but there is also a less-apparent benefit for the UAE's economy: such a pool of capital, properly managed, could energise and diversify the UAE's economy. Today, much of the cash expatriates earn is sent abroad. Keeping more onshore would be a certain boon to the national books.

A pension fund - made up of contributions from employees, employers and even Government - would have to be invested prudently, with robust safeguards. Managers would have to be free to invest outside the country, but some share of the cash could be reserved for domestic investment - in bonds, in property or in local stock markets.

Naturally most people will assess this idea in terms of its effect on their own finances. And that effect could be substantial. Emiratis enjoy guaranteed pension plans, but expatriates are generally on their own. The end-of-service gratuity is capped at two years' pay by federal law, and only a few employers offer pension plans to foreign workers.

This leaves long-time residents with little to take home after even a 30-year career, unless they have provided for themselves. Human nature being what it is, few people focus on retirement saving until ripe middle age. A reliable UAE pension would be a considerable encouragement to skilled young professionals considering a move to this country, and could also prompt expatriates to stay longer.

A moment's thought reveals why such a plan would have to be federal: the competitive advantage for any one emirate would be so great that others would have to follow, and there's no advantage in a patchwork of pension regimes. Also, to the extent that there is a cost to government, not all emirates could afford to make the same contributions.

Any pension fund covering expatriates would need to be hedged with safeguards and managed transparently. The whole system would take a lot of rigorous planning, and even then might be shelved. One study in Abu Dhabi three years ago did not produce results. It is time to revisit.