Should UAE companies consider pension schemes? (page 1 of 2)

Despite there being no State pension for Emiratis, there is no culture of saving for retirement in the UAE.

But this does not only affect the Emirati population of the country.

The future is just as bleak for many of expatriates; by being out of their home countries tax system for a number of years, they will not qualify for a full State pension themselves.

Many expatriates also neglect their own retirement savings whilst overseas compounding the matter even further.

A report published by HSBC last week has said that residents of the UAE, amongst other countries, face a 'perfect storm' of demographic, individual and financial elements that are poised to derail their retirement plans - unless they are prepared to act properly now.

Lack of pensions planning

The fifth annual Future of Retirement study 'It's Time to Prepare' shows that there is a continuing lack of pensions planning, even though people are aware that they are likely to live longer. What's more, this is being exacerbated by poor levels of financial understanding, education and access to advice.

Of the UAE's population, the study reports that 87% of people do not have any idea about what their retirement income will look like. Of those surveyed, only 13% of people feel well prepared for retirement.

Other findings in the study suggest that just 38% of people feel they understand their short-term finances very well and only 19% of people understand their long-term finances very well. This is compared with a global average of 27%.

The report also reveals a parallel 'advice gap' linking a lack of preparedness to insufficient financial education and guidance. Of those surveyed, 62% have never accessed any form of general financial education (higher than the global average of 42%) and 51% have never sought any professional financial advice. Again, this is higher than the global average of 46%.

Taking these statistics into consideration, should the UAE's corporate entities follow the West's lead and provide employees with a company pension facility?

This would certainly mitigate many of the concerns in the survey. The employer researching and vetting a pension scheme once, takes away the need for every employee to gain independent financial advice on pension policies.

Of the huge proportion of the workforce who are not saving for their retirement, a vast majority want to and most would happily save a percentage of their salary if this was deducted at source. Many employees simply have not got round to sorting out their finances; often because they do not know who to turn to, or because they are dedicating so much time to their work!

Corporate benefits

It is not only the employees that will benefit. After a one-off expenditure of time, there are potentially huge benefits to the company too.

Both employers and employees are becoming more aware of what kind of employee benefits are available to companies in the Middle East and elsewhere in the world. The long-term implications for those who opt for 'the cheapest' medical insurance package or elect to leave their gratuity contributions festering in a bank account will be huge.

As we come out of the current economic downturn, the demand for the best employees will increase again.