Culture shift

  • Author : Lynda O’Mahoney
  • Date : December 2012
ABOUT THE AUTHOR: Lynda O’Mahoney is Business Development Manager, Middle East, at Hawksford

Pension schemes and saving for retirement have become hot topics in the Middle East, particularly in the United Arab Emirates (UAE). Recently I have taken part in several round-table events to discuss the issues and challenges faced by employers and employees, and to hear what these employers and the Dubai government have to say on this subject and on the subject of a ‘pension system’ for expatriates.

The consensus is that many people are beginning to change their minds and consider their longer-term financial needs, but there is still much education needed in this regard, both for employers and employees.

The government of Dubai acknowledges the lack of organised systems for retirement income in the Gulf Cooperation Council (GCC) countries and the fact that many of the existing structures offer real benefit only to nationals.

The existing structures for nationals have their problems and require some structural changes to enable greater transparency. Contributions also need to be increased to help meet future liabilities.

For non-nationals, nothing is funded at government level, nor is there any pension legislation in place, so when we refer to pension schemes, what we mean is ‘retirement savings schemes’. There is an end of service benefit (EOSB), which is the amount payable to expatriate employees by an employer on the termination of employment. Employers, although they should be accruing for the payment, are not compelled to put funds aside during employment for their employees. In most cases, this liability is unfunded. From an employee’s perspective, depending on length of service, the EOSB can be the most significant benefit after remuneration.

At present, it is up to the individual to save for their future. However, we are starting to see more employers providing a vehicle for their employees to save for their retirement. We are seeing much greater interest from employers, whether their need is to:

  • attract, retain and reward employees
  • provide their employees with a way to save for their retirement
  • encourage these employees by contributing to their retirement pot on their behalf; or
  • take employees’ benefit liability off the balance sheet.

Employers are already beginning to see the benefits of providing these schemes to their employees.

Corporations have recently become more open to discussing their needs with international providers who have experience in pension fund management and who understand the sensitivities of the region, particularly the need to protect company assets to honour EOSBs. As such, they are happy to discuss and consider more sophisticated solutions.

From the government’s perspective, there is no doubt that the creation of a ‘pension’ system to replace the current benefit model will be challenging. However, it would produce advantages, one of which would be encouraging a savings culture in the UAE.

This shift in culture is much-needed. Failing to save for the future is a problem in the Middle East, particularly in the UAE, where the standard of living is higher than in most other GCC countries. For various reasons, many Western expatriates are not saving sufficiently. For some, the cost of living has increased dramatically since they moved to the region, and expat packages have been tightened in recent years, reducing the amount of disposable income. That said, there is still a fast-car, Friday-brunch and nice-holiday culture. Expatriates need to realise that they too have a responsibility to save for their future, as, by virtue of working abroad, they are opting out of state pension schemes in their own country.


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