Pension planning in the United Arab Emirates is at a time of take-off. WealthTech firm Kidbrooke recently took the opportunity to delve into the topic.
The financial dynamics in the Middle East, particularly the UAE, are undergoing a notable change. This transformation is largely driven by the need to adjust to changing demographics and the evolving economic requirements of its varied population.
Historically, the region has leaned on family support systems and government-backed benefits. However, rapid digitalisation, demographic changes, and influences from Western financial systems are ushering the industry into a new chapter.
One main catalyst behind the UAE’s growing focus on enhancing pension planning is its unique demographic make-up. Over recent decades, the nation has seen a significant increase in its expatriate workforce. As of 2023, expatriates in the UAE make up an impressive 88.52% (9 million) of the population, while the local populace stands at 11.48% (1.17 million). This significant foreign workforce is due to factors such as the growth of the private sector, numerous job prospects, the lack of income tax, and a high living standard.
Interestingly, a large number of these expatriates save for their post-retirement life while working in the UAE, often without financial institutions’ assistance. This poses a golden opportunity for the UAE’s financial sector. On one hand, the UAE has the task of sculpting an effective pension system, while on the other, the absence of outdated systems combined with available technology and global expertise positions the UAE favourably.
The rise of digital pension planning in the UAE is a monumental stride. It signifies an increased accessibility and empowers individuals to take charge of their retirement. As these digital models become more prevalent and trusted, it becomes pertinent to investigate their potential impact on the region’s financial framework.
Governments in the UAE have already begun taking measures to cater pension services for its populace. The General Pension and Social Security Authority (GPSSA) launched the ‘Get Ready – Proactive Financial Planning’ campaign. National Bonds, under the ownership of the Investment Corporation of Dubai, unveiled a golden pension plan, aiming to amplify financial planning for both locals and expats. The DIFC Employee Workplace Savings scheme, initiated by His Royal Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, aimed at bolstering savings for public sector expatriate employees. With these initiatives, it’s no wonder the UAE ranked 25th in Mercer Institute’s global pension indicators.
However, a challenge remains. A vast majority are still not covered under retirement services even after years of work in the UAE. Many rely heavily on end-of-service gratuities. Alarmingly, 45% of UAE residents, according to Friends Provident International, haven’t started their retirement savings yet. This hints at a lifestyle sustained by credit, which might pose challenges post-retirement. The need of the hour is more accessible pension planning and partnerships between companies and tech providers for tailored financial advice.
Digital tools like OutRank have surfaced to assist employees in understanding their pension journeys better. It’s a perfect window for insurers in the region to offer corporate pension planning products. Such tools can aid employees in making informed decisions like increasing their tax-deductible pension inputs or initiating an additional private pension scheme.
Digitalisation can usher in more efficient, cost-effective, and enhanced service offerings, be it in investments, wealth management or pension planning. By leveraging tools like OutRank’s analytics, individuals can receive custom advice rooted in their financial decisions. Companies like HAYAH Insurance, in collaboration with Kidbrooke®, utilise OutRank to provide forecasts on client cash flows and identify required investment amounts to achieve their financial goals.
In summary, the UAE stands at a pivotal moment of financial transformation, harmonising its distinct demographics with the urgent requirement for thorough pension planning. With the integration of tech advancements and best global practices, the UAE aims to offer groundbreaking solutions to both its expatriate and local populations. As platforms like OutRank continue to bridge knowledge gaps and enhance financial literacy, the UAE’s financial domain might just set a new global standard in digital pension planning.
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