Retirement readiness in UAE at par with global average of 13%

A combination of demographic, individual and financial elements is poised to derail people's retirement plans unless they start preparing for the same at the earliest, a global survey by HSBC Insurance has said.

The fifth annual Future of Retirement study titled "It's Time to Prepare", puts South Korea as the least prepared country and India as the best.

Even though the study has revealed that the preparedness gap in the UAE is at par with the global average in most areas, i.e. 87 per cent, the good news is that due to the UAE's youthful population profile – the average person is currently around 20 years old – it gives the UAE more time to plan, or what is often called a "demographic dividend".

The study shows that people's short-term survival strategies in the midst of recession are creating a serious long-term pensions' downturn deficit and that there is a continuing lack of pensions planning, even though people are aware that they are likely to live longer. This is being exacerbated by poor levels of financial understanding, education and access to advice and people are more concerned with protecting their possessions in the short-term than ensuring they can look forward to a financially secure retirement

According to the study, the consequence of these combined factors is that many people will struggle to make ends meet when they reach retirement, unless they urgently review their priorities and planning.

Stephen Green, Group Chairman of HSBC, said: "A perfect storm is confronting pensions planning, created by an ageing population, falling pension funds values, a drop in state and employer contributions and an economic downturn which is forcing people to make tough financial choices." The study has identified a "preparedness gap" in people's pensions planning across the world with nearly nine out of 10 people not feeling fully prepared for their retirement.

The Future of Retirement survey questioned 15,000 people in 15 countries, including the UAE, making it one of the largest studies of its kind in the world.

Giving the break up on the preparedness levels of the people globally, Ishrat Kiyani, Regional Head of Wealth Management, HSBC Bank, Middle East, told Emirates Business: "South Koreans are the least prepared for retirement. The percentage of people who do not feel very well prepared for retirement is 58 per cent in India, 75 per cent in the United Kingdom, 83 per cent in Canada, 84 per cent in Saudi Arabia, 85 per cent in France, 86 per cent in the United States, 87 per cent from the UAE, 89 per cent in Turkey, 89 per cent in Hong Kong, 91 per cent in Singapore, 91 per cent in China, 92 per cent in Mexico, 94 per cent in Brazil, 97 per cent in Japan and 98 per cent in South Korea."

About the UAE, the study said that 87 per cent of people do not have any idea about what their retirement income will look like (this is in line with the global average of 87 per cent). About 13 per cent of people feel well prepared for retirement (this in line with the global average of 13 per cent), only 38 per cent of people feel they understand their short-term finances very well, while 19 per cent of the people surveyed understand their long-term finances very well (lower than the global average of 27 per cent).

Explaining why the UAE was lower than the rest of the world in its understanding of long-term finances, Kiyani said: "It is important to recognise that being prepared means very different things to different people across various regions.

"We have identified a large number of individuals across the world and the UAE who do not feel prepared for later life. These people may face financial hardship in later life if their standard of living drops below levels of their acceptibility.

"The report findings reveal the importance of the role of the individual and the need for personal responsibility in preparing for retirement. Yet the findings also show that families do not feel prepared and are only partially effective in taking charge of their retirement plans. This leaves a major preparedness gap, which is producing shortfalls in household provision. Often the most vulnerable groups are women and/or people in low income households who live in South America and Asia."

In terms of preparing for retirement the UAE sample revealed that 29 per cent of the respondents are in favour of increasing the retirement age (higher than the global average of 23 per cent).

Confirming the findings of the report, KV Shamsudheen, Director, Barjeel Geojit Securities, said: "I have been giving financial advise to people in the UAE for the past 39 years and despite the fact that people here are well-paid, they don't plan for the future. This is particularly true of the expatriates. Most of them spend all they earn here without any thought to their future and their old age. The result of this is that many of them go back to their home countries thinking that they will be able to lead a good life as they have worked in the Gulf for so many years but find that they can't afford to do it as they did not plan for the future, their old age and did not make any investments.

"I have surveyed as many as 10,000 expatriates and out of that only five per cent were able to lead a good life after retirement.

"Also when the expatriates send money back home their families don't save and the money is just spent on an improved lifestyle. Out of the 10,000 expatriates I surveyed, only two per cent said that their families back home were saving from their remittances," said Shamsudheen.

Stephen Green said: "The preparedness gap reveals that families need greater support and guidance to effectively handle their finances, not simply in schools and colleges but through 'trusted advisers' providing professional financial guidance.

"If people prepare adequately for the long term, an extended later life can present a golden opportunity for many – but now is the time for people to seriously consider boosting their pension contributions to improve their prospects of a comfortable retirement. The cost of procrastination is likely to be high," said Green.

The study also reveals that the UAE– like most of the countries in the world – is facing the challenge of an ageing population. By 2050 the number of dependent adults in the UAE will approach the number of dependent children. However, the good news is that the UAE's youthful population profile gives the country a "demographic dividend". The UAE has time to initiate plans to attract Emiratis to save for their retirement.

The report also reveals a parallel "advice gap" linking a lack of preparedness to insufficient financial education and guidance. According to it, 62 per cent have never accessed any form of general financial education (higher than the global average of 42 per cent) while 51 per cent have never sought any professional financial advice (higher than the global average of 46 per cent).

Khalid Alkadi, Deputy Regional Head of Insurance at HSBC Bank Middle East, said: "Now people have to understand, more than ever, that effective planning is the key to financial security. The results show that this is an area clearly neglected in the UAE.

"Getting good financial planning from trained and trusted professionals will go a long way in helping people make intelligent money decisions and cope with retirement and old age requirements," said Alkadi.

The study revealed that people are paying little attention to long-term considerations such as their likely retirement needs, focusing instead on purely practical short-term concerns which they understand better.

General insurance solutions – motor, travel, home and even pet insurance – are seen as a greater priority than addressing longer-term needs around insuring health or income, even when job security is in question.

The Future of Retirement survey shows that, as a result of the economic downturn 92 per cent of people have changed some element of their finances, while only 19 per cent will now retire as planned, 17 per cent are reducing retirement savings or stopping saving for retirement altogether, 18 per cent have used savings to pay off debt and nine per cent expect to delay their retirement.

Delving into the impact of the economic downturn in the Middle East, the study said that over the past 18 months the economic downturn has had a significant impact on people's finances as well as their attitudes, however, this impact has been less keenly felt in the Middle East.

The IMF expects the UAE to maintain healthy growth levels – around six per cent in 2009, followed by 5.6 per cent in 2010. Many of the respondents in the UAE agreed with this view and, overall, they were among the most optimistic in the global survey.

When viewing survival strategies adopted to cope with the global economic downturn, it is clear that large numbers in the UAE do not intend to make any changes to their finances. However, those who are adopting coping strategies are attempting to create a "buffer" of savings by reducing expenditure on both large and small purchases, whilst also paying debt.

Relatively few people are cutting back on retirement savings, reflecting the fact that fewer people are saving for retirement to begin with. Ten per cent said they would like to seek financial advice to help them make sense of the choices they have.

The UAE results revealed that more than 40 per cent of the people surveyed do not intend to make any changes to their finances (higher than global average of 21 per cent), six per cent of people have stopped paying into a pension plan (compared to 10 per cent globally), while 43 per cent of people believe that the economic downturn will last at least for one or two years. This is higher than the global average of 40 per cent.

Mark Twigg, Director at financial services consultancy Cicero Consulting, which undertook the survey for HSBC Insurance, said: "The report 'It's Time to Prepare' reveals the lack of understanding people have around their long-term retirement needs. They are not well educated or aware when trying to understand these needs and to act on them, than with their short-term requirements.

"As the economic 'perfect storm' looms, it is important that people are encouraged to understand long-term risks and to manage them effectively.

"While people are taking more responsibility for themselves, there is also a definite role for financial institutions to continue, and to build on, their work to educate and inform," said Twigg.

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