Expat pensions are a big topic for international workers in Dubai as the government looks at introducing ways to lock their retirement savings in to the United Arab Emirates.
Dubai wants to keep a bigger slice of expat earnings in the local economy, as most expats siphon off cash to send overseas to cover living costs back home and for retirement savings.
The estimate is 40% of salaries earned in Dubai are lost to the local economy this way.
Dubai’s Department of Economic Development, www.dubaided.gov.ae, has discussed the issue with the World Bank, which is urging the government to set up pensions for expats.
The World Bank has drafted three pension models for the Gulf nation:
- A savings account
- A lump sum in lieu of a pension based on length of service when the expat leaves a Dubai company
- A mobility savings plan that lets expats draw money while unemployed and is tied in to their visa
However, British expats need to think carefully before tying their cash in to a Dubai pension.
Expat pension options
The likelihood is many will only live and work in Dubai for a short time, leaving a dormant pension fund that may not be effectively managed for the highest returns.
Setting up a pension fund in Dubai also dilutes the size of a fund for a UK resident expat working in Dubai.
Expats have a number of retirement saving and pension options when working in Dubai.
The best option depends on personal financial circumstances – expats who are still UK resident can consider a self-invested personal pension (SiPP), while non-residents can think about a qualifying recognised overseas pension (QROPS) for expats.
Most of these expats can still claim tax relief on contributions in to a UK pension – and if they decide to live permanently in Dubai or any other country, can transfer the UK fund in to a QROPS.
More financial detail needed
Another complication in Dubai is residency status for an expat worker, as the emirate does not proffer permanent residency to foreign workers.
Other questions that need answering by the Dubai government include:
- Who manages the fund and what are the rates of return?
- What happens to the fund when an expat leaves Dubai?
- What currency will the fund pay benefits in – it it’s the local currency, exchange rate fluctuations could lead to financial losses
The jury is still out on Dubai expat pensions until the government can flesh out their plans with a lot more financial detail.