Around 49 percent of expatriates in the United Arab Emirates are only able to save 5 percent or less of their monthly income, and only 16 percent of expatriates have set retirement planning as a financial priority, a recent survey showed.

As geopolitical uncertainty persists, coupled with softness in oil prices, companies have cut costs by employing fewer – and less expensive - expatriates, of which a large portion is unable to save much, according to survey results published in an annual report on the financial advisory landscape in the Gulf Cooperation Council. The survey was carried out by Insight Discovery in partnership with YouGov.

“Savings rates are much higher in other parts of the world, especially in developed countries. For instance, in countries like Switzerland, household saving rate is forecast to reach 17.8 percent in 2019,” Nigel Sillitoe, chief executive officer (CEO) of Insight Discovery, told Zawya in an emailed response to questions.

As for the financial priorities of expats, 28 percent of them said that their main priority was starting a savings plan for non-specific goals. Other priorities include retirement planning (16 percent), estate planning (12 percent), and school fees (11 percent). Only 5-9 percent of expats identified life insurance, critical illness cover, mortgage payments, medical insurance, or investment of a lump sum as a priority.

While the financial advisory sector in the Gulf region is becoming concentrated in the UAE, according to the report, changes are needed by the industry to improve the quality of financial planning for expats.

“UAE residents would like more transparency on fees and commissions (sought by 39 percent of UAE residents), a tougher stance by local regulators in relation to scams and unregulated firms (37 percent), and industry-recognised qualifications for advisers (15 percent),” Sillitoe said.

Respondents also identified a number of products and asset classes they saw as unsuitable for lump-sum investments.

“These include GCC-region securities: many of the expats see the region as a place in which to earn (and save) money, but not one in which they wish to invest,” the report said.

“Hedge funds, too, appear to have limited popularity. The same is true of Sharia-compliant bonds (sukuks) and equities. Perhaps because of challenges in GCC real estate markets, the expats and the advisers appear to have little appetite for property,” it added.

Gratuity not a pension substitute

With almost no (or minimal) savings among a large portion of UAE residents, retirement saving remains a major issue for many expatriates who face the consequences of inadequate financial planning later in life.

“Government legislation about the introduction of corporate savings schemes is important as gratuity (End of Service Benefit) isn’t a pension alternative,” Sillitoe told Zawya.

Expats in the UAE are only entitled to end-of-service benefits capped at a maximum amount that is equivalent to two years’ worth of pay, with no pension entitlements.

“The UAE has an opportunity to become a leading jurisdiction in retirement provision by introducing mandatory pension provision for all workers,” Frank Carr, chief marketing officer of Financial Risk Solutions, said in the report.

Last month, a UAE official told a conference in Dubai that there is an urgent need to establish investment funds to manage retirement and end-of-service benefits for people working in the country.

“These funds will help employees plan properly by taking advantage of end of service benefits, enabling them to make use of their financial resources, and create jobs for new generations,” Abdulrahman Abdul Mannan Al Awar, the head of the department responsible for human capital development said. (Read more here).

(Reporting by Nada Al Rifai; Editing by Michael Fahy)


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© ZAWYA 2019