Expats in UAE get ready to leave ‘golden goodbye’ behind

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The “golden goodbye” has long been a staple of UAE office life. Expat staff are handed a lump sum by their employer when they leave, based on a percentage of their salary and length of service. 

But the practice is starting to change. More companies are looking to set up workplace pension and saving plans instead. 

These arrangements, common in Western countries where they are often required by law, offer a number of advantages, experts told AGBI.

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When the employee makes contributions from their salary and the employer matches this or provides a percentage, the pot will grow over time and businesses are spared the cashflow headache of forking out a large lump sum.

As the money is put to work over a longer period, employees feel secure and valued, which can improve staff retention. 

Nicholas Maclean, managing director of CBRE Middle East, who has been in the UAE for almost 20 years, described the “golden goodbye” as a wasted opportunity “if money is sitting in a zero-interest scenario. As a matter of principle, we think an employee has the right to do something with their money.”  

Increased take-up of such schemes also presents a sizeable opportunity for wealth managers, pension funds and other investment businesses in the UAE, Maclean and other business leaders told AGBI. 

$100bn of savings, pensions and bonuses

A report published by Redseer Consulting last month put the potential value of the market at more than $100 billion, across a “diverse range of financial vehicles”. 

Interest in employee savings is growing as the length of time expats stay in the UAE increases. A decade ago, the average was two to three years; now it’s 9-10 years, according to Redseer. More people are looking to put down roots and save, added Abhishek Rajput, senior consultant and author of the Redseer report.  

“One of the biggest challenges they face is long-term financial planning,” Rajput said.

“Employer-run schemes have been limited to Emirati nationals and the government sector. Most expats have little financial security when they leave a job or retire.” 

If they save in a bank, sharia compliance means the interest rate on deposits is low compared to other parts of the world. “Expats are looking for new financial engines to help them invest for the future.” 

The saving plans can help companies retain staff. At 30 percent, the GCC has a higher employee attrition rate than the global average of 20 percent, Redseer said.

But its survey of 500 white-collar employees aged between 21 and 55, conducted in July, found that almost a third of expats said they would stay longer with a business if they were offered a benefits programme.

Following the DIFC's lead to tempt talent

As the Gulf-wide competition to attract talented expats hots up, the UAE government is promoting an alternative to end-of-service gratuities in the private sector.

Earlier this month, it unveiled three options for saving plans: risk-free investment that protects capital; risk-based investment (low, medium and high) and sharia-compliant investment. 

The initiative is a non-mandatory expansion of Dubai International Financial Centre’s DEWS (DIFC Employee Workplace Savings) programme for its registered companies.

The Gulf’s first compulsory workplace savings scheme was set up in 2020 and is administered by Zurich Middle East and Equiom. As of June, the DIFC had 4,949 registered companies.

CBRE’s Maclean, a DEWS participant, said pension plans become more relevant as expats get older. “The UAE is encouraging people to stay longer and, income-dependent, retire here. Pension pots are important to older folk.”

Rupert Connor, partner at Abacus Financial Consultants, said wider take-up would bring new pension funds and other providers to the UAE's investment sector.

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These might face competition from the small but established pool of wealth advisers that oversee expats’ private or offshore savings. But Connor pointed out that the employer-run proposition is different. “Employers contribute – you don’t get that in private schemes.” 

Plus, not all employees want the hassle of choosing an adviser or managing investments, he added. “Some have a high enough income to do additional things. But if you can only do one, you’d be mad not to do [the workplace one].”

Regulation will be needed to set out parties’ liabilities. But Ashok Sardana, founder and managing director of life and medical insurance broker Continental Group, said employers had a moral duty to provide savings pots. 

“My attitude is, I am here, my organisation is here, because of the people who work for me. It's not the other way around. The market is maturing and this is a huge opportunity.”