Residents in the UAE, Saudi failing to adequately save for retirement, warn experts

Many residents in the UAE, Saudi Arabia and wider Gulf are failing to save enough money for their retirement, according to local experts.

It means many residents who are living beyond their means, spending more than they earn, and relying on credit to finance their lifestyle may struggle to maintain their standard of living once they retire – especially if they plan on retiring in the region.

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Rickson Dsouza, a consultant at The Continental Group, told Al Arabiya English: “Retirement planning, in the context of the Middle East, particularly the UAE and KSA, must be viewed through the lens of sociocultural evolution.”

“Decades ago, the workforce, which predominantly consisted of expatriates from the Asian subcontinent and the West, planned for retirement in their home countries. Over time, governmental reforms and geopolitical shifts in favor of the Middle East have changed people’s perspectives, with many planning to retire in the Gulf and provisioning for the same financially. So, that has provided a fillip to the regional retirement market.”

“Yet, a majority of the population continues to be outside the purview of retirement planning. A noticeable roadblock is that many have channeled the earnings to their home countries for years. So, despite a change of heart about retirement location, many are averse to backpedaling the investments to the Middle East due to probable devaluation and tax implications. Instead, they have ramped up their efforts to accrue wealth that can accommodate their retirement in the Middle East.”

No financial ‘safety net’

Dsouza said, in the developed world, a sizable portion of the earnings —about 30–35 percent — is taxed, enabling governing bodies to provide a “financial safety net in retirement through children’s education, healthcare, pension, etc.”

“Contrarily, nations in the Middle East do not levy such exorbitant taxes. So, the onus is on people to secure their retirement interests by deploying at least 30 percent of their earnings to income-generating asset classes. With life expectancies increasing, on average, such investments are paramount.”

Over the past three-plus years, surveys from Mercer, HSBC and Guardian Wealth Management, among others, have repeatedly found that a significant proportion – as high as 50 percent – of expatriate employees in the UAE and wider Gulf have no plan to ensure an adequate standard of living after retirement.

In 2022, a survey by insurance company Friends Provident International found 45 per cent of residents had yet to start saving for their retirement.

“There appears to be a strong disconnect between the aspirations of many individuals in this survey in the UAE to retire early and the reality of how much they will need to save for retirement,” David Kneeshaw, group chief executive at FPI, said at the time.

In March 2022, the Dubai government unveiled a new savings retirement scheme for foreign employees working in the emirate's public sector. The foreign employees will be enrolled in the savings scheme by default and the employer will contribute the total end-of-service gratuity to the plan from the date of joining, without including the financial dues for previous years of service.

The Dubai retirement fund scheme will be supervised by a board of trustees with assistance from Dubai International Finance Centre. The scheme will offer foreign employees a choice of capital protection investment plans, including Sharia-compliant options.

Retirement planning ‘not a priority’

Despite such initiatives, Dsouza believes many residents are not aware of the importance of retirement planning and are not making it a priority – instead prioritizing their immediate needs and wants over their long-term financial security. This can be detrimental in the long run, he warned.

Dsouza suggest that residents in Dubai need to start taking their retirement planning seriously and make it a priority. They need to start contributing to their retirement plans as early as possible, and increase their contributions as their income increases. Additionally, they should create a budget and stick to it, avoid unnecessary expenses, and pay off any debts as soon as possible.

“For starters, people should save,” he said. “However, mere savings will not suffice. It is advisable to diversify one’s portfolio, focusing on not timing the market but deploying capital into different asset classes.”

“As the old saying goes, ‘it’s not timing the market that counts but time in the market’.”

Dsouza said a “discretionary portion” can be channeled toward riskier assets, such as NFTs, hoping to beat the odds.

But a rule of thumb is to adopt a long-term approach and make goal-based investments, keeping limited access to ready cash. Too much flexibility can lead to liquidating before the retirement goal is secured, thus undermining the intended purpose.

“The first step is to save, and the second is to start at the earliest. As one gets older, without a retirement plan in place, investing runs into complexities; the lack of time to accrue a certain wealth encourages people to consider riskier propositions, at times leading to setbacks.”

“Conversely, if retirement planning starts at a younger age when risk appetite is generally higher, investors can gradually pivot to fixed-income instruments and reach their goals.”

Read more:

Retiring early still an unreachable prospect for many in UAE, poll finds

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Over half of UAE residents think they don’t earn enough to save