Could you retire in the UAE?

According to the World Bank, the UAE is one of the top 10 countries in the world that will experience the largest increase in the share of people aged 60 and over between 2000 and 2050 – that’s a rise of more than 22%. But how many of this demographic will actually retire in the UAE and under what circumstances could expats be allowed to do so?

A staggering 90% of the UAE’s population is expats, many of whom would love to spend at least some of their golden years in the country. “For retirees from the UK, the UAE could offer a very real retirement option to the more traditional countries such as Spain or Portugal,” said one expat close to retiring. “English is widely spoken, and there are good facilities and amenities in a generally safe environment, plus an agreeable climate for about two thirds of the year. The higher cost of living in the UAE compared with most of Europe will no doubt deter those retirees with limited savings and/or pension funds, creating a natural watershed between those who can afford to continue living in the UAE and those who prefer to settle for cheaper options elsewhere.”

Susan Turner from Lux Actuaries & Consultants and Shiraz Sethi from the Employment and Pensions Team at Stephenson Harwood Middle East LLP consider the current legislation and how it will impact upon those reaching retirement age.

Thomson Reuters: How easy is it to retire in the UAE?

Sethi: UAE Federal Law No 7 of 1999 for Pension and Social Security, as amended by Law No 7 of 2007, stipulates the retirement age is 60. Prior to January 2011, employees falling under the Ministry of Labour's jurisdiction were required to obtain express approval to continue working once they reached the age of 60 years. However, the age limit after which such express approval must be obtained has now been increased to 65 years. There is no current legislation relating to retirement age in the DIFC. In order to legally reside in the UAE post normal retirement age, one of the following three options is available:

• Set up a consultancy company
• Obtain sponsorship through a family member/dependent
• Become a resident in a continuing care retirement community

Thomson Reuters: Why choose the UAE for your retirement years?

Turner: No-one can deny that the UAE has many benefits; year-round sunshine, crystal-clear sea, golden beaches and opportunities for a good social life. It is also well positioned as a hub to service travelers. Other factors that make it attractive to retirees include:

• Tax-free status, with no income tax payable (whilst the Government is looking at this, it is expected that the earliest date at which it would be introduced is 2019 and even then the rate set would most likely be far lower than in other developed countries);

• Liberal and enlightened leadership that welcomes all nationalities and religious beliefs; little or no racial tensions, political or social unrest;

• Sound government policies and a robust, strong and expanding economy; and

• Quality infrastructure including communications, roads and air transport that benefit from continual investment and improvement.

Sethi: Furthermore, under a recent initiative, the DIFC Wills and Probate Registry gives expats the ability to register English-language wills in accordance with the laws of their home country (ie outside of Sharia), giving people legal certainty and peace of mind that their wishes are carried out upon their death. This development makes Dubai the first jurisdiction in the Middle East where non-Muslims can make a will under internationally recognized common law principles.

Thomson Reuters: What pros and cons should be weighed up when considering retirement in the UAE?

Turner: Starting with the positives, pros include:

• The UAE is a developed country where English is very widely spoken;

• Inexpensive domestic help;

• Low level of crime and high level of personal security; and

• Easy access to all of Asia, Africa and Europe.

Possible negatives are:

• A high income is required to sustain a reasonable standard of living;

• Loneliness if long-term friends have returned to their country of origin and family are in a different country;

• High-speed and often challenging driving conditions;

• Artificial house price increases due to increased demand/inflated rents;

• No access to state pension in country of origin or state pension is ‘frozen’, unless a reciprocal social security agreement is in place;

• Expensive healthcare – residence visas will not be renewed without health insurance in place, in accordance with the new Dubai health insurance laws; and

• Minor risk of earthquakes (the UAE is on the edge of the Arabian tectonic plate) and occasional sandstorms.

Thomson Reuters: What’s in it for the UAE, if expats opt to retire there?

Sethi: One distinct benefit of allowing expats to retire in the UAE is wealth will be retained in the region, ensuring economic stability and viability. Setting aside the pressure on utilities and infrastructure, as well as potential higher demand on healthcare facilities, the advantages of expats retiring in the country include:

• Greater income injected into a number of industry sectors, including property/hospitality and food and drink/retail/motor and transport/health and leisure/utilities;

• Savings continue to be invested, aiding the growth of the local economy/capital markets;

• Helps fill an over-supply in housing (the residential market is expected to be over-supplied until at least 2019, according to a recent report by Phidar Advisory);

• Retirement-focused accommodation can be built where access to commercial work areas is less important; currently less desirable areas can become desirable; and

• Affluent retirees continue to generate jobs; the multiplier effect. To illustrate, a couple may employ a maid on a permanent basis and a gardener on a part-time basis; each of these employees will in turn generate further jobs, for example in the retail and housing sectors.

Thomson Reuters: What are we likely to see happen next?

Turner: As the UAE Government continues to find ways to diversify and stabilize revenues, the ability to allow retirement in the country could be a key component to future economic growth. The Government could introduce legislation to permit retirement in the UAE, and expats would then probably look to transfer any ‘home-grown’ savings, to gain greater accessibility and tax efficiency.

Philip Goodchild, Partner at Stephenson Harwood’s Pensions Team says that subject to tax and financial advice, members of a defined contribution pension arrangement may be in a position to transfer their UK benefits into a Qualified Recognized Overseas Pension Scheme (QROPS). There are no such QROPS in Dubai, but the arrangements for QROPS in Gibraltar and Malta could be a solution.

Thomson Reuters: Should we expect any changes to employment policy?

Sethi: Three out of five expats in the UAE will not have enough funds to maintain their desired lifestyle in retirement, according to a survey conducted by Guardian Wealth Management, released in February 2016.

In consideration of those expats who may have 5 to 15 years of employment service remaining, the Government could reform employment policy. For example, it could impose a requirement on employers to provide a compulsory, funded pension scheme for expats, or offer incentives for companies to provide voluntary employer-sponsored funding solutions/investment products to make it affordable for expats to retire in the UAE.

The Dubai Government has been considering retirement/savings options for non-Nationals for some time, with the World Bank encouraging such fiscal reform. Whilst the economy is reasonably resilient when compared to other regions, the UAE Government is nevertheless considering strategies to generate and diversify income streams. If the Government were to change Federal legislation to make it a requirement that companies invest end-of-service gratuity benefits into a funded retirement scheme, with possibly a further requirement for part of the cash to be invested in the local stock market or Government bonds, then the local money markets would grow, as would the presence of local institutional investors.

Authors: Susan Turner BSc, FPMI – Head of Employee Benefits Services at Lux Actuaries & Consultants and Shiraz Sethi, Senior Associate, Employment, Stephenson Harwood Middle East LLP

Susan holds a BSc First Class Degree in Mathematics from a leading UK university and is a Fellow of the Pensions Management Institute. Her career in financial services started some 20 years ago and she has worked for some of the largest Employee Benefit Consultancies in the world. Susan is responsible for providing technical consultancy and advisory services, relating to all types of employee benefit provision. She is also charged with the sales and marketing of these services and the ongoing development of new service propositions.

Shiraz has more than eight years’ experience and whilst he specializes in advising clients on DIFC Employment Law, he also tackles issues pertinent to the UAE Labor Law. He was commissioned to draft the legal commentary to the DIFC Employment Law by the Chief Justice of the DIFC Courts and was retained on an exclusive basis by the DIFC Authority to assist in drafting the revisions to the DIFC Employment Law. Shiraz was awarded Young Lawyer of the Year at the 2015 DIFC Courts Annual Legal Gala.

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