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Mon 23 Feb 2015 01:36 PM

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Retirement funding timebomb looms in UAE, says Zurich

Survey reveals that large majority of UAE employees believe end of service gratuity is inadequate to fund retirement

Retirement funding timebomb looms in UAE, says Zurich

The vast majority of employees in the UAE believe that end of service gratuity is an inadequate method of saving for their retirement years, according to a new survey.

Only 17 percent of employees believe the gratuity provides enough funds to cover the cost of retirement, according to research released on Sunday by Zurich International Life.

The survey of 1,000 UAE residents also found that only one in five respondents (22 percent) will use their gratuity towards the cost of funding their retirement.

Instead, almost a quarter of employees (24 percent) said they plan to use their gratuity as a deposit to buy a property, while 22 percent will use it to pay off debt, the survey said.

Another 8 percent will pay school fees, rent or another bill, while 7 percent will spend their gratuity on a holiday or large luxury item, it added.

The survey showed that Western expats were the most likely to use their gratuity towards retirement costs (32 percent), whereas Arab expats were the least likely (11 percent).

The research also found that Asian expats were the most likely to use their gratuity as a deposit for a property (27 percent).

Zurich said the research points to a lack of a retirement savings culture in the UAE, which is supported by a recent Zurich study that found only 33 percent of UAE residents have a formal retirement plan.

In Europe and North America, the retirement savings culture is facilitated by employers who provide retirement savings schemes for their employees. But most employers in the UAE do not provide their employees with an opportunity to save for their retirement; instead they consider the gratuity to be a satisfactory alternative.

Peter Cox, head of international pensions at Zurich International Life, said the UAE population, and in particular expats, were heading towards a "retirement funding time bomb".

"It is very concerning that the majority of UAE residents do not have a retirement savings plan; nor use their gratuity towards their retirement," he said.

"There needs to be a significant shift in attitude to encourage a savings culture to defuse this retirement funding time bomb. Employers can help to facilitate this cultural shift by providing a cost effective way for their employees to save for their retirement rather than just focusing on paying their gratuity liability."

Under UAE Labour Law, employees are entitled to a gratuity at the end of their employment if they have completed one or more years of continuous service. The gratuity rises depending on length of service and is linked to basic salary, excluding allowances, bonus and commission payments.

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Joe 5 years ago

Is it working in Greece, Portugal and Spain??

nigel 5 years ago

did you really read the article?