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17 April 2024

UAE expats are ‘dangerously unprepared for retirement’

By Staff

UAE residents are dangerously unprepared for their retirement, with 89 per cent unable to describe their current savings ‘more than adequate’ for the future and more than half admitting that they fear financial hardship during their retirement, according to the results of HSBC's annual global Future of Retirement Study.

The Future of Retirement: A New Reality, a survey of 15,000 consumers in 15 markets and more than one thousand people in the UAE, revealed that nearly half (46 per cent) of residents are still being held back from saving due to their inability to deal with the day to day costs of living in the country.

Other reasons cited range from the lack of pension schemes for non-Emiratis to a lack of understanding of savings and investments.

Many also attribute their lack of savings to the fact that retirement is ‘too far away to worry about’ – a perception that explains why the UAE is the joint highest globally in putting off saving for retirement, with people beginning to save at an average age of thirty.

This is in stark contrast with countries such as UK and US, where people begin saving in their mid-twenties. Worryingly, UAE residents also believe that they can put off their savings as late as the age of 37 and still expect to maintain the same standard of living they currently enjoy.

People in the UAE are also being severely impacted by ‘life events’, the term used to describe moments in each person’s life where a significant amount of money needs to be spent or is no longer available as income.

On a global level, the ‘life events’ that have impacted people the most are uncontrollable factors such as the recession and losing their job, whereas in the UAE it is buying a home (43 per cent) and paying for children’s education (34 per cent), both factors that can be controlled through careful planning. Unfortunately, two-thirds of people impacted at some point in their life say they are still suffering from it to this day.

Rick Crossman, Head of Retail Banking & Wealth Management, UAE, HSBC Bank Middle East, said: “It is natural to prioritise immediate needs and wants above longer term financial health, but these ‘savings gaps’ that occur due to a lack of financial preparation, can equate to serious holes in people’s retirement savings in the long run, once interest and investment growth are taken into account.”

When it comes to aspirations regarding retirement, most respondents want to spend more time with friends and family (58 per cent), a result that is similar in findings across the globe.

UAE residents tend to have a much bigger appetite for entrepreneurial activity in later years, as the second biggest aspiration for people in the UAE during retirement is to start a business, with more than half (51 per cent) expressing the desire, compared to just 7 per cent in the UK.

UAE residents also rely heavily on cash savings in their retirement rather than diversified savings, with 57 per cent expecting cash savings to be their most important source of income at that stage in their life.

This trend towards cash also leaves the retirement pot vulnerable, as almost one third of respondents (28 per cent) admit to dipping into their retirement cash savings when needed and 36 per cent admit to taking from their general savings. More people would prefer to sell their valuables (24 per cent) rather than compromise their lifestyle by moving into a smaller house (18 per cent).

The findings are described by experts at HSBC as a ‘time bomb’ which will leave millions of people facing a drastically reduced standard of living in later life, a sentiment that is reaffirmed by the fact that UAE respondents on average expect their retirement to last 15 years, while their savings for retirement will only last them nine years on average.

Gifford Nakajima, Regional Head of Wealth Development, HSBC Bank Middle East, said: “People must realise that just a year or two without saving can have a significant impact on their future income in retirement. Having a financial plan and just saving something, however small to start with, earlier can make a big difference to retirement income in the long run.

“With life expectancy increasing, people need to be aware how long their money will have to last, so that they can take steps to avoid any shortfall. Developing a financial plan with a professional adviser can help ensure that all retirement needs are identified, gaps avoided, and eventualities covered.

“When the financial crisis first hit, people expected the storm would pass, but today's findings reveal much darker clouds on the horizon for those who fail to plan ahead. Even in parts of the world that haven't been through a recession, global economic uncertainty is taking its toll and no one can take a comfortable retirement for granted.”

While the findings do not bode well for the future, there were encouraging results for respondents that have taken the initiative to get professional financial advice. Men who use professional advice typically have about 50 per cent more in retirement savings than those who have not used such advice, while men that undertake either formal or informal planning in general have typically about twice the retirement savings of those who have not planned at all.

Disappointingly though, 93 per cent of respondents do not plan their savings with an advisor, with almost half (44 per cent) claiming to use their own approximations or thoughts to make savings, compared with less than a fifth of people in the UK (18 per cent) who would do the same.



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