x Abu Dhabi, UAETuesday 25 July 2017

Pensions time bomb ticking as UAE residents delay saving for retirement

Just 29 per cent of people in the UAE say they are preparing adequately for their retirement, according to an HSBC survey.

The HSBC research suggests that more people feel less prepared about their retirement across the Emirates. Silvia Razgova / The National
The HSBC research suggests that more people feel less prepared about their retirement across the Emirates. Silvia Razgova / The National

UAE residents delay saving for retirement longer than people in other countries, according to an HSBC survey that warns of a ticking pensions time bomb.

The survey found that about half of the country's residents feel that they are being held back from saving by the high cost of living. About the same proportion fear financial hardship in old age.

In 2009 some 51 per cent of people felt they were preparing adequately for their retirement. That figure has fallen to just 29 per cent this year, despite the country's economic rebound.

"That's very worrying," said Rick Crossman, the head of retail banking and wealth management in the UAE for HSBC.

"There's a very high percentage of people who need to reflect on what they are currently doing and take some sort of action to better prepare themselves."

Banks are jostling for position to grab a bigger slice of retirement savings as a local pensions industry begins to develop, with the ambition of stemming the flow of billions of dollars into overseas accounts.

National Bank of Abu Dhabi this month launched its managed pension funds pitched at local employers looking for alternatives to salary increases to retain staff.

The country is also attracting the attention of international institutions such as Standard Life, which opened an office in Dubai last year. Dubai has consulted with the World Bank about developing a number of pension models in the emirate.

Other Arabian Gulf states, including Qatar and Saudi Arabia, are prioritising the pensions industry - both as a means of developing their financial markets and preparing for the growing financial burden of looking after their fast-growing populations in their old age.

The HSBC research suggests that more people feel less prepared about their retirement across the Emirates - even as the country emerges from the 2008-09 financial crisis.

The UAE was the joint highest globally in putting off saving for retirement, with people beginning to save at 30 - in contrast to the United Kingdom and the United States, where people typically start saving in their mid-20s.

The HSBC survey covered 15,000 people in 15 markets - including about 1,000 people from the UAE - approximately in proportion to the demographic base of the country.

It found that on average, people felt they would need a household income of Dh126,000 (US$34,303) per year to be comfortable in retirement. That equals a monthly income of Dh10,500.

One of the most revealing findings of the survey is that almost half of residents, despite their tax-free salaries, feel the day-to-day cost of living is preventing them from planning for retirement.

While official inflation was running at just 0.7 per cent last year in the UAE, many expatriates are being hit in the wallet by double-digit increases in school fees and rents that are eating into incomes.

Towers Watson, the global financial services company, this month estimated that a third of UAE workers now expect to retire later than previously thought, while just 16 per cent believe they will retire earlier than expected.

Pension provision is becoming more of a worry for expats who are staying longer in the country and buying homes, according to Billy Turriff, a business leader at Towers Watson. He said it is dawning on many expats who have worked in the country for a long time that they might have missed out on formal pension provision.

"The problem is that end-of-service benefits for most organisations is capped at two times salary here - so that's really just like working for another two years. It is not a retirement plan," he said.