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Abu Dhabi, UAEFriday 19 October 2018

Is the UAE's new five-year visa a game changer for expat retirement?

The new plan could change how non-Emiratis invest and manage their money 

Illustration by Alvaro Sanmarti
Illustration by Alvaro Sanmarti

Financial advice for expatriates in the UAE has traditionally focused on investing offshore, to ensure pension pots are accessible in whatever country they choose to relocate to.

A new plan announced by the Cabinet on Sunday, however, will allow non-Emiratis aged 55 and over to secure a five-year retirement visa - a move that could change how residents choose to live out their golden years.

Tariq Bin Hendi, executive vice president and head of wealth products and advisory for retail banking and wealth management at Emirates NBD, says the UAE is a great place to live, "at each stage of life, from school to retirement".

Julian Vydelingum, a Chartered Financial Planner at fee-based financial advisory AES International says the development is “fantastic" for those "who have established businesses and own property in the UAE, as they now do not have to look to exit their businesses or sell property holdings at retirement”.

Details of the long-term visa for retirees were set out following a meeting of the Cabinet chaired by Sheikh Mohammed bin Rashid, Vice President and Prime Minister and Ruler of Dubai.

Under the proposal, non-Emiratis over 55 can secure the visa if they have an investment property worth at least Dh2 million, or financial savings of Dh1m, or an active monthly income of Dh20,000 or more. The visa is valid for five years with the “possibility” of renewal for those retirees who wish to stay longer and still meet the eligibility criteria.

Paul Kelly, operations director of real estate consultancy Allsopp & Allsopp, says the visa offers a sense of security for those nearing retirement age and may encourage them to put down more stable roots.

"The UAE property market will benefit greatly as a result, with more expats investing in family homes," he says. “Most expats have a money-making mindset when they move to the UAE with a short-term plan and goal before moving back to their home country. The Cabinet’s decision to enforce the long-term visa law now allows expats to look at the UAE with more longevity.”

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Keren Bobker, a senior partner at financial advisory Holborn Assets, says the knowledge that residents can stay after the standard retirement ages may well encourage people to invest in the UAE for the long term.

“With the growth in property ownership it was really a matter of time before this became an option," she says. "Those with substantial assets may find it attractive to remain in a low taxed environment especially if there are political issues in a home country."

The new visa may also encourage more residents to hold balances in UAE banks rather than shipping their earnings offshore, says Rasheda Khatun Khan, a wealth and wellness planner. “It certainly becomes attractive to build a deposit here and also invest in property, but I always recommend a balance," she says. "Have cash offshore, too, to ensure diversification.”

Mr Bin Hendi says while many customers are aware that the "banks and regulators in the UAE are governed, managed, and held to the highest international standards", others are "sometimes unaware of how sophisticated the local banks are, relative to their international peers".

"The UAE has a sophisticated financial market and its banks already have very comprehensive offerings," he says. "However there is a positive impact: as the demand for dirham income-generating products increases, market liquidity could become better."

While it is not clear if the Dh1m in savings option has to be held in the UAE, Steve Cronin, the founder of DeadSimpleSaving.com, advises against keeping all your assets and sources of income in the UAE while you save to meet these thresholds.

“In general, expats are better off holding surplus cash offshore, either as cash, invested in property or globally-diversified stock or bond ETFs through an offshore broker,” he says. “There is no strong need though to invest significantly in the local stock market or keep all your cash in local banks. While saving and in retirement, you should save in US dollars so that you don't face exchange rate issues.”

Emirates NBD's Mr Bin Hendi says there needs to be a distinction between the underlying investment strategy to reach a goal for retirement and the legal structure to make it transportable to any given country.

"The investment strategy is basically identical wherever you want to retire, but staying in the UAE would simplify the structure between the client and his or her assets, which in time could reduce the overall cost," he says. "During retirement, it would be wise to dedicate part of your investments to generate income in the local currency to match your current expenses."

Mr Vydelingum says: "The tried and tested ABC rule is still prudent: 'If you come from country A, reside in country B, you should bank in country C' as most retirees will still have multi-currency liabilities outside of the UAE and income from foreign pension sources, despite now being able to stay in the UAE during retirement."

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However, some analysts say the five-year visa may not meet the needs of those who wish to stay beyond five years.

“If a renewal is declined that would put people in a very difficult situation,” says Ms Bobker. “Other issues to consider are the high cost of medical insurance.”

Ms Khatun Khan says: “Potentially retirement could be for 20 years-plus. If the law changed, should expats have a back-up plan? I think, yes."

Under UAE law, all residents must also hold a valid health insurance policy. Should an individual choose to call the emirates 'home' following retirement, no national benefits are provided by the government, making it crucial for residents to have a sustainable source of income to cover their living expenses after quitting work.

Ms Bobker says expats must not rely on their end of service gratuity to support them in their final years. While staying longer in a job ensures a higher pay out, she says it is “nowhere near enough on its own to support someone living here in retirement”.

“While it does build up over time we have to bear in mind that the calculation only uses a basic salary and Labour Law states that the maximum payment can be limited to the equivalent of two years income,” she says.

The new visa follows other major changes this year that look to encourage residents to stay longer. These include a new six-month visa for job seekers that want to remain in the country as well as a 10-year visa for investors and key workers such as doctors or engineers.

Rupert Connor, partner at Abacus Financial Consultants, says the principles for financial planning will remain the same for those choosing to retire in the UAE.

"Expats will still have to put away 5-20 per cent of their monthly income in order to provide a comfortable income in retirement. This announcement should appeal to those who are reaching retirement age but don’t wish to be burdened with the setting up of a free zone company, and all the associated costs, in order to legally stay in the UAE.

"In addition, it will appeal to people living outside the UAE who wish to split their retirement between their home country and the UAE, particularly in months which have the best weather."

Gordon Robertson, director of financial advisory group InvestMe Financial Services in Dubai, says, ultimately, choosing where to retire comes down to quality of life.

“When people retire in a foreign country, they will weigh up various options such as the security, living costs, quality of living and taxation,” he says. “The UAE is cheap for home help and expats pay no tax, but they pay a lot for entertainment and healthcare. Many people may just be in love with the UAE. In the end, work out the pros and cons and pick where you are best suited.”

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How to reach the visa thresholds

Steve Cronin, the founder of DeadSimpleSaving.com, which helps residents invest their own money, offers his advice on reaching the criteria required for a five-year retiree visa for:

A Dh2 million property

In the UAE and in many countries, the minimum deposit needed for a house is 25 per cent. So you could reach the Dh2 million property threshold with a deposit of Dh500,000 and borrow the rest. The Central Bank of the UAE does not permit mortgage lending to expatriates over 65, so the earlier you start, the lower your monthly installments will be. This will help with cash flow but you may end up paying more over time, depending on interest rates.

Dh1m in savings

The fastest way to build up savings of Dh1m is to track your net worth and maximise your monthly savings rate by reducing your expenses and boosting your income. Invest in the global stock market via exchange-traded funds, such as the Vanguard All-World ETF (VWRD). This is ideal if you have at least 10 years before you retire and have time to ride out the ups and downs of the stock market. If you have less time, invest a greater percentage in bonds or property (e.g. 20-40 per cent) so that a global market plunge just before you retire will not cause your savings to fall below the Dh1m threshold. You could also take a more conservative position in the year before the visa application and each five-year renewal, especially if your portfolio is close to the Dh1m mark.

Monthly income of Dh20,000

Without a regular salary, you will need to generate Dh20,000 from either rental income from letting out property; dividend and capital growth income from an investment portfolio; profit from side hustles or dividends from owning a business. With a typical UAE rental yield of 5 to 10 per cent, you would need a property worth Dh2.4 to Dh4.8m to generate the threshold income from rent. From a stock portfolio, you could safely withdraw 3 to 4 per cent per year as income, requiring a portfolio of Dh6 to 8m. You can always mix your income from multiple sources and this will make it more resilient – some from property, some from stock dividends and some from a side business.