Expats that arrive in the UAE have left their company and/or home country, where most of them were automatically contributing in to a pension scheme. Their contribution was deducted from their salary before they received it. In the UAE this is not the case. We are having a tax free environment, which includes no pension scheme provided by the UAE and in many cases also not from the company where expats work.
Over 100 countries in the world have some kind of social pension, but the design and coverage varies significantly. 9 out of the top 10 best pension schemes are in western countries except Chile. The UAE has an end of service benefit, but if expats think that this is a replacement for their pension, they must think again. In the best case scenario expats get 1 month salary for each year that they have worked in the UAE. For example an expat has worked 35 years in the UAE and will get 35 months of his basic salary (excluded all allowances and benefits). Which is around 30 months of what he earns, as allowances like housing and transportation are deducted. The expat pension is 2.5 years of his year salary which might last for about 3-5 years.
Almost all companies in the UAE don’t provide a pension scheme. Some companies do it, but almost in all cases this is because their employee has an expat contract. Having an expat contract also might mean that the expat is earning less, since local packages are generally more attractive. When you have a local contract it is almost certain that you need to take your own responsibility to decide what you do with your salary and disposable income as the company is not providing a pension for you.
In my opinion this is where it goes wrong with many expats in the UAE. In many cases they are coming from a country where they don’t have to take responsibility and they start delaying thinking about the future. They don’t realize that every year they wait to build up a pension or savings, they increase the problem. Expats that start early with a pension or saving scheme, also accumulate faster and more wealth than an expat that starts later. See below example:
Age: 30 years, saving period: 35 years, Growth: 5%, Monthly saving: $500
Total amount put in his saving plan: $210,000
Total value at age 65: $570,413
Age: 45 years, Saving period: 20 years, Growth: 5%, Monthly saving: $1000
Total amount put in his saving plan: $240,000
Total value at age 65: $412,746
Although expat 2 has put more money in his pension scheme, expat 1 still has $157,667 more built up with less savings. The reason why expat 1 has a higher pension is because he started earlier and his money could grow more. Therefore it’s important that expats don’t delay unnecessary their decision to start building up a pension or saving scheme. The example above shows that the longer you wait, the higher the gap will become to reach the target that is needed for the future.
It is true that over 100 countries have some kind of social pension, but do expats qualify for it? In many cases they don’t, living abroad doesn’t allow them to pay taxes in their home country. Why would a country pay you a pension if you don’t financially contribute to the country? It’s logical and fair. Some countries still provide some kind of pension for expats that come back, but the level of it is the minimum and people are not expected to live off it.
Taking action and deciding your future is the same cause that drives expats to come to the UAE. For the same reason it’s important that expats start building up wealth and accumulate it in time. This can be done in the UAE and there are many different options for pension and saving schemes with well-established international companies that have offshore accounts (in tax free locations), and expat friendly.
There is no reason for an expat to believe that this is not possible to achieve. Taking responsibility is not always easy. All big decisions in life come with a certain pain. For example, finishing your degree, quitting bad habits, deciding to leave your home country and missing the nice things in it. The same thing counts for putting money aside to start a pension or saving scheme, but like all big decisions you don’t regret them when they work out well and you start seeing the result and benefits from it.
Posted on Tue, November 10, 2015
by Simon Snelder filed under