Funding Your Future Is Today’s Hot Topic

Ebrahim K Ebrahim

Pension Researcher & Chairman of the Annual MENA Pensions Conference

With pension saving low on MENA citizens’ priority lists, how we intend to fund our future is today’s hot topic.

For many, retirement feels a long way off and saving for the future is something we’d all rather put off until tomorrow.

Nowhere, it seems, is this sentiment truer than in the MENA region. Almost 30% of MENA citizens save nothing, and those that do prioritise short term saving goals over long term saving.*

Housing, precautionary savings and children’s education are cited as the top drivers for saving (25%, 19% and 16% respectively) with retirement in seventh place with only 7% of respondents indicating it as their top reason to save.

Despite low levels of personal pension saving and a lack of interest in long term saving, two thirds of citizens say they plan to retire before the age of 65 and more than half (53%) believe that their standard of living will be unchanged or improved in retirement. This highlights a worrying gap between retirement perception and reality.

Bridging the gap

MENA citizens are labouring under an entirely false illusion when it comes to their retirement finances and need to ask themselves three key questions:

  1. When do I want to retire?
  2. What lifestyle do I want to have in retirement?
  3. How much do I need to save to achieve this?

For those that want to retire before the age of 65 with a comfortable retirement income in order to maintain their existing lifestyle, starting to put money aside for retirement sooner rather than later is imperative.

Those that begin saving in their twenties, will find it much easier to build a good sized pension pot than those that start later in their working careers.

Those that leave saving until their late thirties or forties will have to set aside a much greater proportion of their monthly salary to achieve their ambitions and will probably have to work longer than they would ideally like.

Building a nest egg for the future

Once in the savings habit, it makes good sense to increase pension contributions in line with pay increases. This way, the deductions are less noticeable and don’t feel like such a sacrifice.

Unlike other savings vehicles, pension savings are, or should in the case of private individual plans, locked away and cannot be touched until retirement; this avoids the temptation to dip into it for household emergencies or home improvements.

By starting saving early, a relatively small amount set aside each month into a personal pension pot can make a big difference to a citizen’s final retirement income and the age at which they can comfortably and confidently say goodbye to working life.

The changing face of state provision

While state pensions in the GCC are generous compared with other countries, the trend worldwide is increasingly for the responsibility for retirement finances to shift from the state to the individual.

UN data suggests populations in the MENA region will reach 700 million by 2050. As the population rises, and longevity continues to improve, pressure on the state funded retirement schemes will increase. As a result, state benefits will need to be reviewed across the region together with end-of-service benefits to ensure affordability.

Although this is unlikely to happen in the immediate future, there is no real certainty over state benefits therefore having a secondary income stream in retirement is extremely wise.

A long term approach

Retirement saving is a long term investment and as such, it is important to select a savings provider that is well regulated and well-funded.

It is also important to give consideration to investment approach and investment strategy. Look for providers that offer comprehensive investment choices including Sharia compliant options for our regional market, and take advice from experts if you need guidance.

It makes good sense for savers to review their pension investments annually to ensure that financial plans are on track and make adjustments where necessary.

Conclusion

Retirement should be a time to relax and enjoy life. But, with increasing life expectancy and a burgeoning population, the ability of governments to fund these lifestyles will inevitably diminish.

To ensure retirement reality lives up to retirement dreams, MENA citizens need to take control of their own retirement savings.

A small amount set aside from an early age can make a huge difference to retirement income and, in turn, retirement lifestyle.

*Towers Watson Savings and Benefits Survey Middle East and North Africa