With the costs of goods and services - including housing, education, transport, and dining - all rising in the last year, saving for your retirement has never been more important. And yet, in a country with no mandatory pension system in place, residents continue to ignore this advice. For instance, new research conducted by National Bonds in May 2015 showed that only 36 per cent of residents in the UAE are saving for their retirement.
This is likely to become an even bigger issue: A recent publication from the UAE’s National Bureau of Statistics found that as of April 2015, the nation’s Consumer Price Index (CPI), a measure of inflation, had risen by 4.25 per cent over the last year. The CPI is derived from a basket of goods and services such as Housing and Education, both of which have seen price increases of 9.19 per cent and 3.93 per cent respectively, over the same time period. Therefore, it is not surprising that Mercer’s Cost of Living Survey, released last month, saw both Dubai and Abu Dhabi ranked as some of the most expensive cities in the world to live in. They are now also the most expensive cities in the Middle East as a whole for expatriates.
A tax-free environment may be one of the biggest attractions for many expatriates, but any savings generated as a result can soon dwindle thanks to the high costs of living in the UAE- in particular, that of schooling and accommodation. A lack of mid-range properties further leads countless expats into spending more on housing than they otherwise would.
Expats need to strike a balance if they are to make the most of their time in the UAE and simultaneously ensure financial stability in the future. Careful planning and disciplined saving can mitigate the growing cost of a quality education or property purchase to a large degree. However, the profusion of opportunities in the country to spend any disposable income can often lure people down a dangerous road to debt. The current lack of financial prudence could be attributed to the environment expats have left behind, where they have not previously needed to actively think about savings- their future taken care of by their employers automatically deducting pension contributions from their salary before handing over a pay cheque.
Personally accountable
Over the years, there have been attempts to introduce expatriate pension schemes in the UAE, but as yet nothing has materialised, leaving expats personally accountable for their own financial futures. This personal undertaking has proven to be complicated for some: 60 per cent of expats in HSBC’s Expat Explorer Survey (2014) admitted that their finances had become more complex since moving abroad. While it may be a daunting task for anyone taking up residence in a new country, opportunities can be maximized through professional financial advice. The UAE Insurance Authority has a published register of regulated financial advisers on its website who are able to advise on areas such as savings, pensions and investment planning, to help people to secure a more stable financial future and to mitigate the rising cost of living.
We would encourage everyone to seek professional financial advice to ensure they are making the most of the money at their disposal, and planning their financial future in a robust and structured way. A balanced and diversified portfolio of investments – both in terms of asset class and geography – is key to this, and ensures that residents are maximizing the opportunities at their disposal to help them avoid the problems associated with a rising cost of living, and to build a significant nest egg while working in the UAE.
A warmer and sunnier climate may push many into taking the plunge to move abroad, but dark clouds can still catch up with those neglecting to plan ahead.
The writer is Managing Director, Middle East and Rest of World of Friends Provident International
