Has the COVID-19 Pandemic Made Retiring Harder?

Has the COVID-19 Pandemic Made Retiring Harder?

The United Arab Emirates is a popular hub for expatriates. The affordable luxury lifestyle, stable economy, and tax-free benefits make it a fantastic location to work and one day as a retirement destination. Unfortunately, with government operations and businesses grinding to a halt, almost all communities and emirates are bracing for tough economic times. The COVID-19 pandemic is affecting many sectors in the UAE, forcing companies to layoff some of their workers. Many UK expats stuck in their home countries due to travel restrictions are staring at the possibility of unemployment. Global markets have weakened, and pension investments and stocks are likely to continue with much volatility. However, there is time for your investment to recover and enjoy significant returns if you have an extended period before retirement. However, those nearing their retirement age may have to continue working or even part-time to maintain their current lifestyle standards, due to COVID-19 implications.

Retirement Options for UK Expats Living in the UAE Before COVID-19

Many expats are unprepared for retirement. They start saving late and end-up working throughout their golden years to finance their lifestyle. In the UAE, many expatriates fail to create a pension plan, with only having the limited few having access to a retirement scheme from their employers. While most of them anticipate a gratuity package after their years of service, it is barely adequate to sustain a decent retirement.

Expats from the UK for example have three options to secure a lucrative retirement income. They can contribute to their home country’s pension scheme to receive the state pension when they hit retirement age. Fortunately, you can claim the retirement savings from any country. You can also invest in private pension schemes in the UAE to grow your retirement pot. With private pensions, you decide the investments, funds and ETFs to put your money and watch them grow.

Previously UK based expats can also invest in an overseas pension using QROPS (Qualifying Recognised Overseas Pension Scheme) or a SIPP. Expats can access their UK pension pots from any country. They can transfer any personal schemes or company contributions into the pot without worrying about heavy taxes. If you choose to retire in the UAE, you will not pay taxes on your pension. Expats also enjoy pension freedoms when accessing their benefits.

The COVID-19 Implications on Pension Plans

Many countries are yet to truly quantify the impact of the novel virus on their economy. However, the current figures are not promising, and stock markets have crashing at an alarming rate although we have now seem some extraordinary recoveries. Living in a foreign country presents a unique set of challenges in times of crisis. Expats who were looking forward to retirement may have to hold on to their jobs until the uncertainty dissipates. Let us look at the COVID-19 implications on your pension.

Reduction in Pension Contributions

With the poor performance of businesses, many expats will likely lose their jobs or sources of income. Since some of them rely on the employer’s contributions toward their pensions, they may not afford to contribute towards a savings scheme. Those who are lucky to keep their jobs are likely to take pay cuts until the economy recovers. The low income affects the amount of contributions and reduces the available savings during retirement.

Stock Market Plummeting

Most personal pensions invest in the stock markets and bonds for the money to grow. These investments often earn huge profits that can sustain a retiree. Unfortunately, with the local and global markets volatile, the stocks will remain incontinent. While most pension portfolios are well diversified to withstand volatility, it still may leave a dent in an expat’s pension pot in badly managed.

Low Gratuities

Companies in the UAE often give gratuities to their employees when they complete their contract. Many expats going back to their countries during the pandemic, and they are unlikely to complete their contracts. Therefore, they may not be eligible to receive the gratuity they had planned for. Besides, companies may review their reward packages and reduce base salaries after this harsh economic times.

How to Reduce COVID-19 Implications on Your Retirement Living Standards

With most economies heading to a deep recession, expats are worried about their pension and the amount in their pots. If you were planning to retire, you need to consider your options carefully. Fortunately, many pension schemes are invested in safer and less volatile investments. When you grow older, the plans go for low-risk investments with fixed interest. Some of the options expats have to improve their retirement income include:

Deferring Private Pensions

Whether you plan to retire, you should delay claiming your retirement savings. Do not let the market uncertainty scare you into making rash decisions. If you defer the withdrawal of your pension, you stand to have a bigger pension pot when the market recovers. You can also delay withdrawing your state pension if you have been contributing.

Investing During Uncertain Times

It is tempting to pause pension contributions during the market volatility. However, if you can afford to save, you will earn considerable revenue when the market is in better shape. With the stock prices at their lowest, you can get more for your money. Besides, with the low buying price, you stand to reap huge profits when the market bounces back. The COVID-19 implications aren’t all negative!

Postponing Your Retirement

If you were planning to retire before reaching the retirement age, consider keeping your job. The expats who are lucky to remain in employment should work until they complete their term. If the tide turns and the economy recovers, you can retire with enough savings to sustain your lifestyle.

The novel virus makes retiring in the near future seem impossible, but expats who have been contributing to their pension pots should not fret. The savings they have accumulated can tide them through their golden years. Whether or not you are set for retirement, you should not make impulsive decisions out of panic.

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Blog published by Mike Coady.