Seven in 10 UAE residents reliant on gratuity payment to fund retirement

Pedro Gonçalves
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Seven in 10 UAE residents reliant on gratuity payment to fund retirement

Seven in 10 workers in the UAE depend on their end-of-service gratuity payment to fund their retirement, a survey found.

The study from Old Mutual International and Quilter Cheviot shows that while in 2018 around 59% of respondents were relying on gratuity payments to fund their retirement, this has risen to 69% and represents a 10% jump in one year.

Despite this increased reliance, on average, workers are expecting to receive just AED 17,000 ($5,445) compared to an expected AED 21,600 ($5,880) a year ago. Around eight in 10 UAE workers believe they will receive this type of payment when leaving their company.

With expatriates typically staying in the UAE for much longer during their working careers, proper funding of a pension type arrangement is essential to assist employees with securing their financial future"

The surveys polled 130 residents who had a minimum of $50,000 (Dh183,640) invested in the stock market through a professional fund manager.

"The global retirement landscape is dramatically shifting from one where someone's retirement provision is the responsibility of businesses and the government to that of the individual," Paul Evans, head of region, Middle East & Africa, Old Mutual International, said.

"The fact that the average gratuity payment is now a relatively small figure is illustration of this change and it's worrying that 69% of those surveyed are either fully or partly relying on this payment for retirement. Financial advice is therefore essential as people are typically reliant on their gratuity to invest into a business or the stock market as part of a phased retirement plan. Getting good advice can help someone get the most from their money, which is particularly important when speaking about relatively modest sums," he added.

The most popular use for the payment is to invest the money into a business (48%) followed by investing into the stock market (40%). In the 2018 survey, just 18% of people stated they would simply spend part of their gratuity and save the remainder, although for 2019 this has now risen to 31% and is the third most popular choice.

Mark Leale, head of Quilter Cheviot's Dubai office, added: "With expatriates typically staying in the UAE for much longer during their working careers, proper funding of a pension type arrangement is essential to assist employees with securing their financial future. It is encouraging that the DIFC are taking positive steps to protect employees' future benefits, providing a facility for them to make additional voluntary contributions and all within a well-governed environment." 

"Careful consideration needs to be given to suitable investments, particularly as employees move from a defined benefit environment to one in which their benefits are no longer guaranteed. Here, the investment experience and knowledge of employees will come into play and a degree of financial education will be essential to ensure that these individuals make appropriate choices."

The UAE government is considering an overhaul of the current system to accommodate longer stays and more closely align local laws with global retirement savings plans.

 

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