Forward Planning: Corporate UAE and employee pensions

I was asked last week by someone concerned about where to put his money what is the best investing vehicle available today. This person was of course aware that the stock market is not doing great lately, IT shares are down and due in part to the recent giant US corporate scandals interest rates are the lowest we have ever seen.

Being an expatriate like the majority of this country's residents he earns a tax free income, has no existing pension or retirement programme and doesn't own his own home (renting like in most cases). His idea about investing is to purchase shares, bonds or any other investing vehicle to increase and multiply his monies, not knowing that there are many ways of making money including budgeting and smart spending.

Putting our own personal financial affairs in order is a priority and a must before going out to try making money especially if unguided. Setting our priorities dictates a proper personal financial plan with clear objectives and goals based on actual financial needs.

Starting by the most important, financial objectives and goals would be: the family's financial security, buying a house, educating the children and finally retiring some day with dignity thanks to a decent pension.

Future goals

Here is the good news: financial planners do exist and can design a proper financial plan for you. With their help you will learn about your present financial behaviour, your future financial goals and how to achieve them. For the financial security of your family and your income protection an affordable and flexible insurance plan can be applied.

In Dubai and Sharjah homes are now available for sale or lease with option to buy for all expatriates, so there's no need to waste money in rent any longer. Pay yourself instead of paying other people's mortgages. Don't forget that beside your pension owning your home will be your biggest investment in life.

All what was said before is an introduction to your financial security and the healthy future you may enjoy one day if you do the right thing. Most expatriates living in this country are personally responsible for their future financial wellbeing, nobody else. We all know that we are living a very lavish life style like the fountain of money will never get dry.

But at age 55 our earning power will level and we won't be able to earn as much as when we were young. Taxes may be introduced in the near future which may limit the amount of cash that can be invested or saved for retirement.

On the other hand, human longevity has increased and is now a common factor : we shall live longer than past generations therefore our pension fund must be sufficient to sustain us all that time.

It would be rather difficult to explain to that older person you will be some day the reasons why you failed to take care of yourself!

Quality professionals

Government Social Security exists in many countries but most of them are facing serious problems with the possibility of not being able to meet 100 per cent of their future obligations.

The private sector is now taking a major role in many countries to provide for employee's pension and retirement plans. Your employer which I call Corporate UAE has a responsibility and a great opportunity to establish a corporate pension plan for its employees. An employee with a secured financial future is a happier, a more loyal and productive employee who feels that the company cares about him/her.

Most corporate pension funds are on long term basis, partly secured and guaranteed and have a favorable and higher future rate of return (earning). The employer arranging the pension fund has more leverage, because of the size of the fund, than an individual employee trying to invest his/her own money.

Employers also can match the employee's contribution to encourage savings and create incentives. Quality professionals will always appreciate to join a corporate which cares for its employees, providing them with benefits including pension plan.

Corporate UAE must show its social sense of responsibility by taking care of its employees which are its most important asset. I believe that the labour law should be amended to oblige employers and make them responsible for their employees' future financial security.

The writer is a UAE-based insurance consultant and director of Gulf Insurance Consulting.