Abu Dhabi: Despite generally high salaries among western expatriates, the tax-free status of the UAE for most nationalities and the global pension crisis, they are still not saving adequately for retirement.
“An estimation would be that only about 10 per cent of western expats are investing adequately for their future,” said James Green, a senior area manager of Devere Acuma, a financial advisory company.
According to Green, this is because people are still paying off debt in their home countries and are unable to save, and people putting more focus on their lifestyle today rather than thinking about tomorrow.
“It is extremely important for individuals to plan and save for themselves,” said Green.
He said, “There are no compulsory pension schemes available in the UAE like there are in UK, US and other western countries. On top of that the US and UK pensions, in particular, are under more strain than ever due to underfunding as a result of increase in life expectancy.”
Green said he would advise expatriates to have a serious look at what they have saved or invested, if any, evaluate any risks and calculate what they require when they retire.
He said a good baseline for saving for retirement would be the UK government’s recommendation of 25 per cent of the monthly salary.
“It is good practice to put aside between three to six months’ salary for emergencies. Then start putting away a quarter of your salary every month for the future,” said Green.
Green said that although the money can be placed in a bank account, there will no growth. The other options would be to put the money in a well-structured pension plan or invest in property. However, he warns if investing in a pension fund to research the company who will be investing for you before making any commitments.
“People have to be very careful with who to trust with their money, so check if the company who is investing on your behalf is regulated. A simple check would be to find out if the company is regulated by someone like the insurance authorities or Dubai International Financial Centre (DIFC),” he said.
Green also recommended that expatriates invest in regulated jurisdictions such as those available in the Isle of Man, Jersey or Guernsey, as they provide government-backed investor protection. He said this is important to ensure their investment is protected in case of a crisis, such as the 2008 Iceland financial crisis that saw many people lose their savings.
“People who had put their money in Icelandic saving accounts, which had high interest rates, lost their investments because Iceland has no government investor protection.”
Green also said most people are surprised when they realise just how much they have to save for their future.
“An average couple in the UK can live on about Dh150,000 (£30,000) a year, in today’s money. This is not a luxurious lifestyle, this is to have a below average retirement,” said Green.
He explained that this would require saving of around Dh3 million in today’s money. However, he pointed out that this money would not be worth much in 20 years due to inflation (increased cost of living).
“If you calculate inflation to be about 5 per cent every year, then the savings would have to be around Dh6 million,” said Green.
He said his advice would be to start planning for the future early and to make smart decisions when saving or spending.
Advice on saving for future:
Save 3 to 6 months’ salary for emergencies
Put away 25 per cent of your salary every month
If investing in pension plan, check the company that is acting on your behalf is regulated by a reputable authority
Best to invest in regulated jurisdictions and those that offer government-backed investor protection