After years of contributing to a retirement fund can you relax, with your scheme keeping you in the lifestyle you deserve?
Prepare for the old age of uncertainty
In the US, it's 401(k). In Australia, it's known as superannuation - or super. Hongkongers call it MPF, short for Mandatory Provident Fund, while Canadians contribute to the Registered Retirement Savings Plan. In the UK, it is a pension, India has the Employees' Provident Fund Organisation and Singapore the Central Provident Fund. And in Sweden, it is known simply as Social Security. It doesn't matter where you are from or what you call it, most people have at least one pension fund these days: either through a government-mandated programme, such as the ones mentioned above, a private retirement plan or a combination of the two, as is the case with many expatriates in the UAE.
Increasingly, governments have made pension contributions mandatory for both employers and employees as they seek to lessen the impact of paying out pensions from state coffers. But in the wake of the financial crisis, pension funds around the world have lost trillions of dollars, creating multi-generations of people who may not have enough to enjoy a comfortable retirement, forcing them to work longer.
Many countries, including the UK, France and Australia, have either extended their legal age of retirement past 65 or are in the process of doing so, not only to give citizens more time to claw back their losses, but because the governments can't afford for them to retire early - or on time. According to the 30-member Organisation for Economic Co-operation and Development (OECD), the financial crisis hit private pension funds hard in 2008, causing them to lose 23 per cent of their value, or a staggering US$5.4 trillion (Dh19.83 trillion).
In its Pensions at a Glance 2009 report, the OECD warns that older workers from its member countries are most at risk of not having the time to recover the value of their pension funds. "The individuals most affected by the financial and economic crisis are older workers, who have little time before retirement to wait for their pension savings to recover and encounter greater problems finding a new job if they become unemployed," the OECD says.
David Sharpe, a project manager for Leighton Contracting Abu Dhabi, believes he has time on his side to recover his superannuation losses of 2008. About eight years ago, the 44-year-old Australian, who is married with one child, took advantage of a campaign by his government to create a superannuation "wrap" fund. This entailed searching an Australian government website for "forgotten" funds that had been set up by previous employers.
"There was a push where you could search for funds that you had and I found that I had funds from when I was a student [and working]," says Mr Sharpe, who moved to Abu Dhabi from Qatar in 2007. "When I was aware of that, I spoke to an adviser." Mr Sharpe found three superannuation funds he didn't know about, totalling about A$60,000 (Dh206,595). With the help of his adviser, he consolidated them into one fund and they are now being managed by BT, a Sydney-based firm that specialises in retirement, insurance and wealth creation.
"At the moment, we are letting it roll over," he says. "It lost about 25 per cent [of its value] during the financial crisis, but has now regained about 10 per cent. It is still behind, but it is recovering." Because he works for an Australian company in the UAE, Mr Sharpe is also provided with a superannuation plan as part of his salary package. While he didn't specify his contributions, Mr Sharpe says an employee can, for instance, pay 5 per cent of his salary towards the fund, while Leighton will match it with a 10 per cent contribution.
"Once you leave this division of the company, you are entitled to take it out. It is different from retirement funds at home." Robert Palmer, a senior wealth manager at Mondial in Dubai, says retirement funds around the world are beginning to bounce back after the economic crisis, despite the continuing volatility of stock market indices. "It is very volatile just now," says Mr Palmer. "[One minute], it looks like we have moved from bear to bull then it moves back to bear again. But it is moving in the right direction.
"Since the financial crisis, I have noticed that when I am asked to allocate for my clients we are having to take more of a risk for people retiring in four to five years. Normally at this stage, I'd move them into an 'old-man' asset class, such as low-risk bonds. "But we don't have the luxury of doing that now. They have to take a risk to get back what they lost [during the crisis]." For Stuart Rayer, a 35-year-old secondary school teacher in Dubai, retirement is a long way off.
"My wife was concerned [about the impact of the financial crisis]," Mr Rayer says. "But it is long term; we are talking 25 years down the line [for my retirement]. So even though my pension doesn't look very healthy now, once it picks up it will be fine. "I know a few people at retirement age now who can't retire. This is a worry and it could happen again in 30 or 40 years." Since starting work after graduating from university in the UK, Mr Rayer says he has been contributing to National Insurance, which will provide him with a small state pension when he retires. The pension, which requires contributions over a period of 30 years, also provides coverage from the National Health Scheme (NHS).
Although he is a non-resident of the UK, Mr Rayer continues to make voluntary contributions of about £500 (Dh2,850) a year to the insurance scheme, the minimum payment required to ensure he receives a pension. "You can pay the basic level, which will give you the basic payment [when you retire] and it includes NHS." But with two children, Mr Rayer and his wife, who moved to the UAE six years ago from Cardiff, in Wales, knew this wouldn't be enough to support them in their old age.
"We had started a family and this prompted us to save," he says. "Six months after we arrived [in the UAE], we started an offshore private pension fund with the help of a financial adviser. "We started out with £600a month; this was based on what age we wanted to retire and how much we wanted to live on. But about 18 months ago, we increased that to £900 a month." The Rayers plan to retire in the UK, where they already own one property in London. Ideally, Mr Rayer would like to retire at 55, and to be "doing his own thing at 60". Realistically, he says he will probably be 65 by the time he is financially ready to take advantage of his golden years.
"We are looking to buy another property in the UK with the long-term goal of getting a nice, big house when we finally move back. It is part of our retirement plan." Bérengère Turc, a wealth manager at the Abu Dhabi-based ONE International, a financial advisory firm, says people are becoming more aware of their retirement since the economic crisis forced governments to make reforms to state pension schemes.
"It is different in all countries, but governments are changing pension regulations, such as France, which is [currently] postponing the age of retirement," Ms Turc says. "There is a clear trend that people are becoming more aware of their situation. As far as taking control, they are being more responsible in light of the changes governments are making. "Most of the time, people are not aware of how their pension funds work. They don't realise how it is managed because they are not caring for it personally. So when those people start awakening to those problems, they are regaining control."
Malcolm Bain, 75 and a long-term expatriate, is irate over his UK state pension. After years of working in places such as the UAE, Bahrain, Oman, Asia and Europe, the former country manager for Reuters moved to Thailand 20 years ago. Although he retired early, he had paid into his state pension for 39 years. It now stands at about £100 a week, the married man's rate - the same amount it was 10 years ago, when he first drew it at 65.
Meanwhile, a full basic pension after 44 years of contribution for residents of the UK has risen from about £106 a week a decade ago to £156 today. Mr Bain is one of more than half a million British expatriates whose pensions have been frozen since their retirement. Their plight seems hopeless: a recent test case to raise expat pensions in line with inflation was rejected by the European Court of Human Rights.
"It seems so unfair when we have paid the same as others and when one sees what people who have never paid a penny in the UK are given for nothing these days," says Mr Bain. However, he believes he is one of the lucky ones. He has a private monthly pension of £1,000 from Reuters to top up his UK state pension. And although both pensions have been hit by the falling pound, Thailand is cheap and allows him and his family a reasonable standard of living.
These days, Mr Palmer of Mondial says financial advisers and wealth managers must be more creative to help their clients to reach their pension fund targets. But if there is one piece of advice he would give clients whose funds have been hit by the financial crisis, it is of the more old-fashioned kind: bricks and mortar. "If my client has enough money to buy property in London, I tell him to buy," Mr Palmer says. "The increase in property value could be as much as 60 per cent over the next four to five years ... and it has more potential than any fund around the world."
Mr Sharpe agrees. "Property is the cornerstone of our retirement," he says. "We have some property that we've invested in in Australia and it has held up well over the period. "If I was 60 years old, I would be feeling differently to what I feel now... [but] I am only in my mid-40s, so have good years left to earn." @Email:firstname.lastname@example.org