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New savings scheme could halt spend now, worry later culture

Mindsets need to change if retirees are to enjoy their later years

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Many workers in the UAE fail to plan for their retirement

The newly announced savings scheme for non-national government employees in Dubai is an interesting move that could represent a “toe in the water” for other subsidised savings plans. 

The Dubai International Financial Centre (DIFC), a free zone with its own rules, introduced a savings scheme for employees that replaced the end of service gratuity (DEWS – DIFC Employee Workplace Savings), but this new scheme is to be in addition to the standard gratuity. 

DEWS launched in February 2020 so there has been time to review it and it seems that the new savings plan will be run along the same lines. 

Information is limited at this stage, but I understand there will be a number of investment funds, some of which will be Sharia-compliant, as well as cash options.

I doubt there will be an advice facility as the low fees on the arrangement will prohibit that. 

The reality is that few people are saving enough for their future and the shortfalls are considerable.

It is not uncommon to come across UAE residents in their 50s with negligible savings and with no means to support themselves in their later years. 

The end of service gratuity as we know it was introduced 40 years ago, when the UAE was a very different place. It was never a real replacement for a pension and not intended to be. 

Few people have left service, or the UAE, with a very large sum.

This was because they often changed jobs, meaning the amount payable reduced on resigning with fewer than five years of service under the old UAE labour law, or because many employers keep a basic salary artificially lower to reduce their liability.

When you add in a common mindset of “things will be okay somehow”, a culture of spending and playing hard, and a financial services industry that pushed restrictive and often unsuitable savings plans, it is not hard to see how many people leave the UAE with little more in the way of money than they started with. 

Mindsets need to change, and schemes introduced by the government can only be a good thing in that they demonstrate the sense in investing for your future. 

We all need to make provision for ourselves and making it easier is progress.

You might think that as a financial adviser I would be against the introduction of easy to access, employer-supported savings schemes, but quite the opposite. 

Attitudes can be changed and this will be a good first step, especially for the lower paid who have less access to good alternatives. 

The risk levels and options will be limited so people who want more sophisticated investments with a wider range of funds and professional advice will still seek out access to flexible alternatives. 

The initial intention is that this saving scheme is for non-national government employees in Dubai and this is an excellent first step in encouraging people to look out for their own futures. 

Keren Bobker is an international financial advisor and senior partner at Holborn Assets. She is also author of financialuae.com 

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