Pension scheme would benefit all

A national fund could boost the economy and enable us all to enjoy a comfortable retirement

A generous contribution to the pension fund would ensure a comfortable retired life. Sammy Dallal / The National

Pension contributions for Emiratis aren't going up just yet – but workers should steel themselves for the day that they do. That would seem to be the message from the acting director of the General Pensions and Security Authority, Mohamed Al Hameli. He should be listened to.

The relative generosity of public sector pay packages has long been cited as an obstacle to getting Emiratis into the private workforce. The provision of a better pension system across the board would help make the private sector more attractive.

Further, the low oil price means that the state’s spending on social welfare will come under pressure. The government’s spending plans indicate that Dh20 billion will be saved through reductions to subsidies and grants. While denying rumours of an imminent rise in the retirement age from 60 to 65 and an increase in employee contributions, Mr Al Hameli said that a committee was looking into possible changes and that such measures could not be ruled out in the future.

One alternative the committee could consider is a national pension fund. A Sharia-compliant fund, supported by contributions and available to Emiratis and expatriates alike, would help employees to better plan for their future, the government to save money on social transfers, and the burgeoning Islamic finance industry to grow.

In the US, state-mandated pension funds served as a motor for the growth of the asset management industry. An influx of new funds to manage would help the UAE to bolster its reputation as a global financial hub. It would create jobs in the financial sector. It would also help the development of Islamic finance – new Sharia-compliant institutional investors with sizeable assets under management would lead to the development of new financial products and help build the pool of capital that the Islamic economy needs. A contributory pension scheme would also benefit employers who have no accurate means of budgeting for the current system of end-of-service gratuities, which vary according to the number of people who leave.

By taking advantage of the country’s youthful population, the system would be sustainable. Thanks to the UAE’s bottom-heavy demographic pyramid, a national pension fund would face none of the solvency challenges that are faced by welfare states in the West.

It would also help expatriates prepare for retirement and build a stake in the country that they call home, no matter how temporarily.