Saving For The Rainy Day

With earlier retirements and longer life spans, there is an acute need to develop a culture of saving in the Middle East. Tim Phillips, Director at Smart Middle East explains

Published: Mon 3 Oct 2022, 1:07 PM

'Retirement, a wise man once said, is wonderful if you have two essentials: something to live for, and something to live on.'

Tim Phillips, Director, Smart Middle East
Tim Phillips, Director, Smart Middle East

And while nobody can guarantee a happy older age, it is possible, with a bit of planning, to save for your senior years. Thanks to changes in technology, it is not just possible, but easy. Or at least it should be.

Those technological changes are truly startling, as I’ll explain. But first, it’s worth pointing out that they have come just in time, because without them, we are facing a worldwide retirement crisis, with the Middle East being no exception.

According to the World Economic Forum, the savings ‘gap’ — the difference between what individuals save for their retirement and what is needed — will rise from $70 trillion in 2015 to $400 trillion in 2050. The basic problem will be familiar to many readers: across the world, not enough working people are saving for their retirement, people are living longer and the number of people in work is falling while the number of individuals in retirement is going up.

Without adequate savings at the beginning of retirement, individuals must rely on state support, creating a burden on social security systems. In countries where security support isn’t available, the burden falls on families, or retirees face destitution.

The Middle East is particularly exposed. People in the region work exceptionally hard, but many do not have adequate savings for when they want to retire; an estimated 60 per cent are not currently under any social insurance umbrella.

In the UAE, 45 per cent of residents say they have not started saving for retirement, yet 63 per cent say they want to retire before they turn 60, according to Friends Provident International Fund. The desire to retire early, coupled with a reluctance to save, means there is a regional crisis to solve, and one that must be solved quickly: the size of the working-age population in Arab countries is projected to fall by more than one-quarter by 2060.

Some states have started to respond. Morocco, Tunisia and Egypt have recently introduced legislation to raise the retirement age, but this is only a partial solution. The key is clearly to get more people saving for longer.

The good news, as I mentioned, is that a new generation of fintech firms have developed the means to set up mass-participation pension schemes in a fraction of the time, and at a fraction of the cost, of just a few years ago. With the right government policy momentum, countries in the Middle East have the opportunity to fast-forward to a savings culture that gives their people genuine options in retirement.

My own company’s technology is already used for large-scale public pension reform in a number of territories around the world. This has delivered a rapid uptake of pensions enrolment to date, putting millions of employees on a better financial footing for decades to come.

The technology is a standalone workplace retirement savings platform, interoperable with other financial services and retirement software, and with existing payroll and HR management programmes. Its versatility makes it applicable to a variety of retirement savings systems globally. It is designed to keep pace with fast-changing pensions legislation and to meet the needs of savers in any language and any currency.

This technology was road-tested in the UK, which 10 years ago introduced reforms, making it mandatory for nearly all businesses to enrol their workers into pension schemes. The results there have been almost miraculous — the proportion of the workforce now saving into pensions has risen from less than half to 79 per cent. But such a rapid uptake would not have been possible without incorporating new technology. Smart was a key provider in this pension’s revolution, and now looks after more than a million savers in the UK alone.

Even in the UK, pensions were once considered the preserve of the wealthy — a perk for the senior management teams of large corporations. In those days, the manual process of using pen, paper, stamps and envelopes to enrol members into schemes was good enough. But these days, millions of people can be enrolled — and the process can be automated to take minutes, rather than weeks. The key to making this scalable on a national level is to have the technology that makes it as simple for a small café to sign up as for a large corporation.

Now is the time for the region’s decision-makers and business owners big and small, to take notice. People no longer need to be wealthy to have access to a pension. Nor should putting small amounts of money aside for the long-term put a strain on savers or their employers. Thanks to new pension technology, preparing for retirement can become much simpler for all.

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