We all recall last year’s demise of BHS and its failure to protect the company pension scheme. Frequent news headlines report huge numbers where future pension liabilities exceed assets, and estimates of overall underfunded final salary (defined benefit, or DB) schemes are at 80 percent.
Years of low interest rates and increasing lifetimes have made it difficult for pension investment trustees and their actuaries to ensure that there’s enough in the pot to make good on pension promises. DB schemes were originally designed for folks living 10 years into retirement – not 30.
It’s no wonder we worry about the ability of our companies to still be around when it comes time to draw our pensions. And if a company goes bust, we have the PPF (Pension Protection Fund) in the UK, although there are limitations on that as well.
So your DB pension scheme’s not in deficit, life’s good? Not necessarily.
While many DB schemes (including all of the FTSE 100) have been closed to new employees for years, the cost of providing for existing members is still there and growing. Increasingly, even well funded schemes are at this and concluding that changes must be made.
Marks & Spencer closed its scheme to new accruals from March 2017. No additional benefits will continue to accrue to existing members – they’ll still get their pension, but future work won’t count. Royal Mail made a similar announcement earlier this year, one that is likely to lead to a postal strike in the UK very soon. A company does not have to be in a situation like Tata Steel where the choice is closing the pension fund or closing the company.
34% of the FTSE 100 schemes are now closed to future accruals and the number is likely to rise. Some companies are rewriting other aspects of their schemes, such as making a “final salary” now a “career average earnings”.
There are a number of reasons for the large number of people transferring their pensions out of their company’s plan. High transfer values (the multiple of an annual pension), wanting to take control of probably one’s largest asset and underfunding concerns may all play a part. Considering a transfer out is a big decision and needs professional advice. But uncertainty about changes to even strong plans is now adding another consideration to that decision.
Pamela Morgan CPA
UK Liaison and Guest Blogger
Investme Financial Services LLC
If you are working in Dubai and you’re earning at least Dh20,000 per month, but you no longer have money in your savings account, then you will most likely be ruining your chances for a good future in the UAE. As a matter of fact, this is a sad reality for thousands of expats who came to the country with dreams of earning big money, but only to end up as broke with hardly enough savings to support their daily needs. Expats who spent years of living the high life or were lured by various discount offers and shopping festivals are the most common candidate for this dilemma.
Usually, people who succumb to temptation like those who want a bigger villa, nicer car and pricier signature items are trading their present for a bad future, according to some financial experts. Take the case of Hans, a German working in Dubai for almost 10 years. He has never been married and has no children, but he has gathered an accumulated debt of Dh250,000 on six separate credit cards. His bills, food and rent take up most of his Dh27,000 paycheck, and this has left him with no savings or money at the end of the month. Hans earns well, but he is struggling due to his debt and his chances for having a good future in the UAE are quite grim.
How can you protect your finances in Dubai?
When you come to Dubai to live and work, then you must have a positive mentality. You need to maximize your earnings by listing all your financial priorities. So, what would be your priorities?
- Get a pension plan – In 2012, Dubai has become the first Gulf state to have a pension fund specifically for expatriates. This will guarantee that expat workers will receive their ESB (End of Service Benefits). Financial experts also think that a pension fund can help protect expats in their retirement years. However, before you get a pension plan, you need to check if you’re dealing with a reputable company (beware of high costs and long lock-in periods).
- Avoid getting too many credit cards – Expats are tempted to get as many credit cards as they can, because it is relatively easy to acquire one in Dubai. When you have credit cards at your disposal and you go to a mall, chances are that you will end up shopping for items you don’t really need.
- Always include savings in your budget – It would be wise to set your savings up to 30 percent of your total net income. In the UAE there is not social buffer like in Europe, no unemployment and no pension. That is why there is no tax. From the moment you land and until the moment you take off, put 30% away. If it means going without your latte, then go without the latte, the alternative is leaving and having built nothing for the future.
- Diversify your investments – this only means that you should not only put your money in the bank, but you should also invest in other fruitful ventures like buying a property that would generally increase in value over time. It would also be a great idea to put some of your money in stocks or mutual funds that could provide you with a good long-term growth potential.
- Get a life insurance – I am against insurance savings packages due to large costs and lock-in periods. Instead invest directly (it is cheaper) only take out insurance for your needs, it is much cheaper and more flexible. Also consider critical illness, who knows you may fall seriously ill and still have to look after your family. Tip.. if you buy a property, banks will insist on life insurance. The banks tend to be expensive. Save money by using your current life insurance or take out a new one. Check to see that this is allowed with the bank, consider another bank if they do not, you may save a small fortune on this tip.
Seek the services of a credible financial advisor or a firm who has years of experience in the financial industry, especially those who are also living in the UAE for quite some time now. These experts will give you some good options which you can choose to secure your future in the UAE. Also, you need to balance your wants against the needs and demands of your family.