MOST UAE RESIDENTS USE GRATUITY

▶ But analysts say the payment is not enough on its own to support a person for the rest of their life

Six in 10 UAE residents depend on their end of service gratuity payment to fund their retirement, a survey has found, highlighting the major role the benefit plays.

According to the study from financial services companies Old Mutual International and Quilter Cheviot, 59 per cent of those polled either partly or fully rely on the payment for their future plans. The survey polled 130 residents with more than $50,000 invested last August.

Paul Evans, head of the Middle East and Africa region at Old Mutual International, said this “could be a cause for concern, as the research shows that on average they are relatively small payments”.

Nearly nine in 10 of those polled (84 per cent) say they will receive a gratuity when they leave their company, with 62 per cent stating the amount will exceed Dh20,000.

At the Mena Pensions Conference in Bahrain last October, analysts discussed how the end of service gratuity – a defined benefit pension scheme – requires a rethink as it does not factor in the lifespan of an employee, only the years they have worked at a company.

Simon Herborn, senior consulting actuary at Milliman – Middle East and Africa told The

National at the time that “the labour law gratuity is unlikely to be an adequate foundation” for a UAE resident’s retirement.

Employees leaving an organisation in the UAE are entitled to an end of service gratuity after completing at least one year of service, with the tenure calculated on the number of days worked. Those employed by a company between one and five years are paid 21 days of pay based on their final basic salary. After five years, they are entitled to 30 days of pay.

However, for many, this will not be enough to fund their retirement. Eight in 10 plan to continue working in retirement, either for social (45 per cent) or financial reasons (35 per cent) reasons, the study found. Eighty-one per cent said they expect to be self-employed.

Mark Leale, head of Quilter Cheviot’s Dubai representative office, said while self-employment can be a positive experience, it also “presents some challenges and anyone interested in taking on self-employed work to fund their retirement must have a financial plan in place”.

This plan should take into account “the possibility that they physically could no longer be able to earn as they get older”.

How to fund the retirement gap between the gratuity pay-