UAE workers face retirement savings gap, says BlackRock

Only 6 percent of employees in the UAE and Saudi Arabia expect to rely on a workplace savings scheme in retirement, but nearly nine in 10 say they would welcome one, according to research from asset manager BlackRock.

This exposes a gap between demand for defined contribution schemes – in which employers and employees each contribute fixed, regular amounts into an individual savings account – and access to them.

“Historically in this region, only the largest employers or multinational companies offered employee savings plans,” said Kashif Riaz, head of financial markets advisory for the Middle East at BlackRock.

The problem falls hardest on expatriates, who make up the vast majority of the UAE’s private sector workforce.

Fewer than half of expatriates feel prepared for retirement, according to the BlackRock survey of 1,000 workers across the UAE and Saudi Arabia.

Unlike nationals, expatriates have no access to a public pension. Their primary safety net is the end-of-service benefit (EOSB) – a lump-sum gratuity paid by employers at the end of a contract, which does not accumulate investment returns.

In the absence of structured alternatives, savings remain concentrated in cash, gold and real estate.

However, reform efforts have been underway. Employers can apply to the Ministry of Human Resources and Emiratisation to establish voluntary pension schemes as a structured alternative to the traditional gratuity.

Within the Dubai International Financial Centre, the DIFC Employee Workplace Savings plan has made participation mandatory for eligible employees, effectively replacing the gratuity with a funded, invested model.

Further reading:

• Corporate relocations to the Gulf retain appeal
• British businesses in Dubai defiant despite Iran war departures
• Workplace saving scheme slow to catch on in the UAE

More broadly, the EOSB framework itself has evolved. “The end-of-service benefits system over the last few years has introduced a voluntary opt-in system for employers to create funded and invested pools and sign up with licensed providers versus the traditional unfunded programme,” said Riaz.

But with no mandate for most private sector employers, uptake remains thin and employer behaviour inconsistent.

Beyond individual financial security, the stakes are macroeconomic, according to experts. Today EOSB liabilities sit as unfunded obligations on corporate balance sheets, where money is owed to employees but not invested anywhere. If redirected into domestic capital markets, those pools could become a significant engine of economic growth.

“You could mobilise those domestic savings and channel them into capital markets, into the stock market, fixed income [and] private markets,” said Lamiaa Chaabi, solutions chief investment officer at BlackRock.

“The Australian pension fund started small, and then as it scaled, it outgrew its domestic markets and now it has to invest internationally.”

Australia’s superannuation system – which mandates employer contributions currently set at 12 percent of wages – has grown into one of the largest pension pools in the world, exceeding A$4 trillion ($2.83 trillion).

Employers stand to benefit too. “Corporates benefit from having a savings plan for their employees because that retains talent. If anything, in today’s times you want to reduce attrition and turnover,” said Chaabi.

Watch the video to find out more