The true value of the Gulf’s ‘silver dollar’

For a savings vehicle to achieve its goals, it needs to reach a sufficient scale

By Robert Ansari

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Published: Tue 19 Mar 2024, 8:41 PM

Last updated: Tue 19 Mar 2024, 8:42 PM

Many of us have had the conversation – the friend who moved out for a couple of years and ended up settling; the colleague whose ambition was to pay off student loans and is still here 20 years later. The number of expats staying longer in their host countries than they originally planned is on the rise. This tendency to extend the duration of our stays reflects the evolving economic opportunities in the region, and the ever-increasing attractiveness of life here in the Gulf.

However, many of those arriving are in their mid 30s and with average global retirement hovering around 65, few, if any, arrive with what once would have been straightforward question: Where do you want to retire? Whilst saving may have been more than a fleeting consideration in the decision to move abroad, the question of where these savings will go the furthest in retirement was perhaps not on the list of pressing things to consider, after all the plan was just a few years.

Just as the questions are growing more consequential for professionals, so too are they increasing in importance for expat host countries. There were an estimated 169 million workers of all levels of income employed outside of their home nations in 2019, according to the International Labour Organisation (ILO), and the number is expected to continue to grow as workforces become more mobile. Technology and financial services sectors are expanding the range of opportunities for expatriate workers.

Attracting this population of high-skill knowledge workers brings several significant economic benefits to host countries, including heightened knowledge transfer, enhanced innovation and entrepreneurship, and higher levels of consumer spending. Encouraging this population to invest locally and then create an environment to both retain these professionals and their local investments into retirement can provide an important source of long-term capital.

A new report released during the World Governments Summit (WGS) in Dubai this month examines the rising competition for retirement capital – the so-called ‘Silver Dollar.’ It highlights the different measures countries are taking to understand and appeal to skilled workers and retirees, particularly via financial reforms that make it easier for them to access, save, and move their money.

The report examines the progress of countries – among them, Saudi Arabia, Oman, and the UAE – that have adopted measures to make it easier for people to relocate, by way of strategically deployed and revamped visa programmes, enhanced infrastructure, and more transparent retirement vehicles. The report cites the example of Dubai International Finance Centre (DIFC), which overhauled its end-of-service benefit programme in 2020 and launched DIFC Employee Workplace Savings (DEWS), a defined-contribution retirement plan in which employers pay monthly to provide employees with a savings pot.

Robert Ansar, Head of Wealth and Retirement, Mercer, IMEA.
Robert Ansar, Head of Wealth and Retirement, Mercer, IMEA.

For a savings vehicle to achieve its goals — that is, encouraging investment and making a meaningful contribution to the economy — it needs to reach a sufficient scale. With increasing size comes a greater ability to negotiate lower prices from providers, which can be passed on to plan participants. In addition, the larger the pool of capital, the more money may potentially be invested in the local economy.

However, achieving this scale is not easy. It takes several years for a plan to become established and grow its membership, but it needs to present an affordable and reliable offering to potential participants from day one.

Deciding on the appropriate tax treatment of a proposed long-term savings vehicle for expatriates is a key challenge and varies by country. It can also be affected by international and bilateral tax treaties and the way an expat’s home country deals with the taxation of overseas citizens.

Of course, even with the right financial vehicles in place, there are still concerns that need addressing. Many expatriate professionals cite healthcare costs and the wider cost of living among their key worries about their choice of potential retirement destinations. However, even here, policymakers in the region are having far-sighted conversations to maintain their competitiveness into the future.

Indeed, it would seem as though governments are taking a longer-term view than the professionals they are hosting, with many expatriate workers still undecided about their retirement destination late into their careers. According to research cited in the report, only 4% of expats move abroad specifically to retire, with far more moving for work or to be with a partner.

Given that so many people still have a choice to make, it is abundantly clear that there is everything to play for in the Gulf’s contest for the ‘Silver Dollar’.

The writer is Head of Wealth and Retirement, Mercer, IMEA.

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