UBS Report: UAE Nationals Can Sustain Basic Lifestyle Post Retirement With Minimum Private Savings In Addition To The Pension Fund

The UAE is one of the top countries where private savings are not required to supplement an individual’s pension after retirement according to the 2021 UBS International Pension Gap Index.

The report analyzed pension systems in 24 countries worldwide, including the UAE. The index outlines to what extent an income solely from the mandatory part of each national pension system is sufficient to maintain an accustomed standard of living in retirement and secure a comfortable financial situation in old age.

The report mentions three main pillars which individually or combined form a pension system:

• State pension: a redistributive system financed through taxes or employee/employer contributions.
• Occupational pension: benefits are defined by the amount of contributions and the pension payout is in the form of an annuity or lumpsum payment.
• Private pension: a voluntary, mainly personal and privately managed plan. It can be structured through various products, like savings accounts with restrictions, insurance, or simply private investments.

The results of the analysis can be broadly categorized into three groups. The first group comprises of countries where starting the retirement planning process at the age of 50 is potentially early enough to maintain the accustomed lifestyle. In the second group, it is possible to sustain the standard of living if pension savings start earlier. Lastly, the third group, where retirement will always require additional external support to be pleasant.

The UAE falls into the first group and requires its nationals to save0% of their current net income from the age of 50 to live a comfortable life after retirement. Since the pension payout is 60% of the average of the last five years’ wages, with an additional 2% points added for every year above the 15-year minimum, if a UAE national starts working at the age of 20, he or she would have fulfilled the requirement of 15 years of working criteria, deeming him or her fit to continue financing the accustomed lifestyle in old age. Basically, the UAE offers most nationals a pension income almost equivalent to working income, depending on contributi ontime.

In addition,countries like Singapore, Netherlands, Australia, Denmark, Sweden, Switzerland, and Saudi Arabia too ask for low and manageable private savings rate.

“The United Arab Emirates boasts one of the best positioned pension schemes globally. But even this system is not exempt from demographic shifts, putting pressure on it in the coming decades. While there’s time and opportunity for pension reform in the country, our role, as a trusted advisor to our clients, is to provide them with the insights and tools to take the necessary decisions throughout various life stages to meet their present and future financial needs.”. Dr Niels Zilkens, managing director, head wealth management for Arabian Gulf & NRI, at UBS added.

Scope for future reforms

The UAE’s population is one of the youngest globally. While more than30 people are in working age for everyone person in retirement currently, over the next three decades,the ratio will fall to four workers per retiree. Taking Europe as an example, the UAE can follow suit and implement reforms and more compensation measures to incentivize its pension system to balance its aging and retirement ratio.