GNcareers, from Gulf News

UAE companies urged to set up retirement savings plans

UAE companies urged to set up retirement savings plansImage Credit: Supplied

Employees in the UAE's private sector may not be entitled to a state pension, but they can still retire and take home a lump sum worth approximately 14 to 25 times their salary, if companies set up their own retirement scheme, a human resources consultancy said on Monday.

Mazen Abukhater, principal at Mercer Middle East, said this is possible if an employer sets up a savings scheme to which both the staff and the company owner make regular contributions. Abukhater indicated that the financial gains can be rewarding for employees who have worked for the same company for about 15 to 25 years, or more.

Employee savings schemes have been implemented by many companies around the world. They allow employees to set aside a portion of their monthly income, with the employer often matching the staff contribution. The pooled amount is typically invested and, after several years, can yield significant returns.

''Consider for example a 35-year-old employee who joins his company's savings plan and pays four per cent of his salary, receiving another four per cent from his employer as contribution. With the power of compounding return at say five per cent, the value of the benefit after 15 years would be equivalent to 14 times their monthly salary,'' Abukhater said.

''But if the same employee stays for another ten years, then their account balance would be equivalent to 23 times their monthly salary. These numbers are in addition to the end-of-service benefit they would receive. Assuming one monthly salary per year of service, the numbers would be doubled. That is a significant financial bonus,'' he added.

Unlike many countries, the UAE does not have a pension system in place for expatriates, so those who choose to retire after even two decades of service don't get any form of financial reward or separation pay other than the so-called gratuity.

The standard end-of-service pay is often viewed by many as insufficient, with the final amount largely dependent on the employee's basic salary and length of service. Allowances and other compensation outside the basic salary are often excluded from the gratuity calculation.

Mercer said that employers should supplement the gratuity with a retirement plan, if they want to ''remain competitive in the market place.''

Andrew Prince, financial planner at deVere Acuma, agreed that setting up a savings scheme is a ''win-win'' for the company and the employee. Companies can help employees grow their end-of-service compensation and at the same time benefit from higher employee engagement and productivity.

''It is surprising how little amount saved each month and invested has the potential to grow to a sizable amount with time,'' noted Prince.

Prince said that the problem with the standard end-of-service benefit is that ''there is little opportunity for growth'' and there are potential issues to deal with should the company cease to trade with no assets.

''Forward thinking companies offer group savings scheme which both help reduce the administrative costs and if properly explained, enhances employee engagement. For those of us from countries where company pension schemes are the norm, this is an added benefit to the employment package and when taken directly from salary, means we are automatically saving,'' Prince told Gulf News.

Abukhater pointed out that while more and more expatriates are seeking to work and live in the UAE for longer periods, companies are not doing anything to enhance existing end-of-service employee benefits.

''This trend for extended stays is not being matched with a concomitant enhancement of end-of-service benefits from employers,'' said Abukhater.

''Retirement plans are set to become more and more important for people considering their career options in this part of the world and will have to become a priority for companies when they are structuring benefits packages if they wish to remain competitive,'' he added

He noted that companies can benefit from the ''formulation of retirement plans'' for their employees, citing that such programs can motivate their staff.

''Plans can be designed to increase employee engagement by showing them on a regular basis how their longer service and loyalty is being rewarded. This distinguishes a retirement savings plan from an end of service benefit, where the latter is often only realised when the employee has left or is starting to think about leaving.''

''A retirement savings plan can provide a regular statement showing how much has been accumulated and what the company has contributed to the overall value. From an engagement perspective, a retirement savings plan is much more effective than a statutory end of service sum,'' added Abukhater.

While retirement savings schemes aren't popular in the UAE yet, Abukhater said that a growing number of organisations are realising the need to create a similar program.

''More companies are interested in offering their employees some form of savings vehicle to help in retaining and attracting key talent,'' he told Gulf News.

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Source: Cleofe Maceda, Senior Web Reporter,