Reena Vivek, of Zurich Workplace Solutions, Middle East, explains what Dubai International Finance Centre's new employee savings scheme means for the UAE's advisory sector.
When relocating to the UAE, the majority of expats expect to accumulate a significant nest egg towards their retirement or financial goals from the tax-free income they receive. In reality, very few of them manage to save enough to achieve these goals and have very little to take back when repatriating home. The culture of "living it up" as an expat, eats into any potential savings.
In fact, a 2019 survey from Insight Discovery reveals that close to half of the expat population are unprepared for their future. A staggering 22% of expatriate residents save nothing each month and a further 27% save less than 5% of their monthly salary.
A 2019 survey from Insight Discovery reveals that close to half of the expat population are unprepared for their future. A staggering 22% of expatriate residents save nothing each month and a further 27% save less than 5% of their monthly salary."
The absence of a wealth accumulation mentality means that Financial Advisers have their work cut out for them. Educating customers and building awareness around the importance of preparing for the future can be hard work.
And when the process for saving regularly is cumbersome and paper based, it gives people an excuse to avoid it. Therefore, the new DIFC Employee Workplace Savings (DEWS) Plan which provides an online platform for individuals to easily save from their salary, is good news for advisers in the region.
Pioneered by the DIFC, the leading international financial hub in the Middle East, Africa and South Asia (MEASA) region, DEWS is a first-of-its-kind initiative in the United Arab Emirates and is expected to set a new standard for management of end of service liability in the region. The introduction of DEWS will restructure the current defined employee benefit scheme into a funded and professionally managed, defined contribution savings plan with a voluntary savings component.
A recent report released by Zurich Middle East and Insight Discovery revealed that in 2019, 75% of companies did not "ring fence" their EoSB liabilities, putting undue pressure on their business and creating greater uncertainty around pay-outs for employees.
By enrolling into DEWS, over 2300 employers in DIFC will gain access to a structured, professionally managed plan which minimises these business risks. Additionally, they will be able to attract the best local and international talent and have greater clarity around EoSB liabilities.
The benefits to the 24,000 employees working at the DIFC is equally compelling. They will receive greater security and visibility over their EoSB entitlements, have the option to make contributions towards their savings goals, and be able to select an investment profile that aligns with their attitude to risk.
So what does this mean for financial advice in the region? By providing a strong foundation for saving towards a financial goal, DEWS encourages employees in the DIFC to adopt a more disciplined approach to setting their money aside. This a significant step towards a more robust savings culture in the UAE. As wealth accumulates in their account, financial aspirations become more tangible for employees. Seeing these funds grow through investment further builds their confidence.
Advisers have a key role to play as customers begin to explore their financial options. Offering bespoke solutions and holistic advice beyond retirement savings including life insurance, saving for education and tax planning becomes key. As employees progress through their career and benefit from corresponding salary increases, holistic financial advice only increases in importance.
As a default, the DEWS Plan directs all contributions into the Low-Moderate Risk Fund. Employees are encouraged to seek independent financial advice to better understand their risk profile and determine the most effective strategy for reaching their future goals. By helping individuals prioritise their aspirations, understand their savings horizons and their appetite for risk and return, advisers can add significant value.
This culminates as the employee leaves the organisation and has the option to withdraw their savings as a lump sum or leave it invested. Guidance on how to make the right decision according to an individual's needs and leverage the platform is yet another area where advisers can help.
The need for company advisory services in the DIFC is also likely to increase. Organisations will quickly realise the benefits that a structured workplace savings plan like DEWS provides for talent acquisition and retention. To recruit and keep the very best employees, business decision makers will start to look at enhancing their benefits and in turn adopt Group Risk and Group Disability Schemes.
Reena Vivek is senior executive officer at Zurich Workplace Solutions, Middle East
Rising incomes in Asia will probably be the most important investment story of the 2020s. Asia is home to 60% of the world's population, with both China and India each accounting for about 18% of the global total.