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Will your gratuity fund your retirement?

Research suggests that the majority of UAE workers plan to finance their autumn years with end-of-service payments – but is it a good idea?

Relying on end-of-service gratuity for retirement could be a cause for concern – Paul Evans, Old Mutual International

Almost six in 10 UAE workers will use their gratuity when they finish work to finance their retirement, according to research.

But given the size of these payments for many people, the financial companies behind the figures, Old Mutual International and investment management firm Quilter Cheviot, say that we should be improving our retirement plans beyond this one-strand strategy.

Nearly nine in 10 individuals (84%) say they will receive an end-of-service gratuity when leaving their company, the value of which exceeds Dhs20,000 for most respondents (62%).

“The fact that 59% of respondents are either fully or partly relying on their end-of-service gratuity for retirement could be a cause for concern, as the research shows that on average they are relatively small payments,” says Paul Evans, the regional head of Old Mutual International.

“Gone are the days of someone receiving a gold watch on the day they retire and then solely relying on their pension for the rest of their life.

Relying on end-of-service gratuity for retirement could be a cause for concern – Paul Evans, Old Mutual International

Eight out of 10 people living in the UAE plan to work in retirement

“These new practices mean that creating a financial plan, which takes into account someone’s unique circumstances, is more crucial than ever. A holistic financial plan that accounts for this gratuity but also looks at any other income streams will help someone prepare for their aspired wealth in retirement.”

Indeed, at this point, we may even need to recalibrate the very meaning of the word “retirement” – most people surveyed plan to continue working in some capacity afterwards.

Eight out of 10 people living in the UAE plan to work in retirement, either for social (45%) or financial (35%) reasons, with all saying that they expect to be self-employed.

Additionally, 35% of respondents expect to retire between the ages of 50 and 55, with 47% expecting their retirement to last between 11 and 20 years.

“Working in retirement, particularly on a self-employed basis, can be a positive experience, as it keeps people social and active,” says Mark Leale, head of Quilter Cheviot’s Dubai representative office.

“Relying on end-of-service gratuity for retirement could be a cause for concern.”

Paul Evans, Old Mutual International

“However, being self-employed also presents some challenges and anyone interested in taking on self-employed work to fund their retirement must have a financial plan in place, which takes into account the possibility that they physically could no longer be able to earn as they get older.”

The UAE’s popularity as a retirement destination, aided by new long-term visas, appears to be on the rise, according to the survey – 18% of respondents said that they would retire in the UAE, compared to 15% in 2017.

“The UAE has a dynamic and ever-changing retirement landscape, especially considering its recent decision to introduce a new five-year visa for expat retirees older than 55, which may make it a more popular retirement destination than ever,” says Leale.

“With this in mind, anyone who is looking to retire in the region must understand how their end-of-service gratuity will add to their overall retirement plan and invest and save accordingly.”

The message is clear, then: unless you have a particularly lucrative pay-off package awaiting you after decades of service, for most of us, your gratuity isn’t a retirement plan on its own.

oldmutualinternational.com; quiltercheviot.com

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