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Pension issues for expats in UAE - Chapter 2



Chapter 2: Literature Review

2.1. Pension Systems in UAE

The absence of a pension policy is now under serious discussion at all the important forums in UAE. The Federal National Council of the country is responsible for advising on new laws and programs for people. There have been many active debates in the council of the topic of retirement and pensions. There has been a lot of sound support for pension schemes. Currently, different private firms provide gratuity funds in the UAE which deliver onetime payment to an employee who is retiring from the fund. There is a lot of room for improvement and enhancement in this regard. The pension schemes must also be available for both nationals as well as expatriates as the economy of UAE is run and fuelled by millions of expatriates working away from home countries for the development and running of United Arab Emirates. A state run fund is necessary for the country just as it is found in most countries around the world. UAE pays high salaries to employees when compared with most countries but firms working in the country have the lowest employee retention rates due to the absence of long term pension or retirement plans in the country. A starting plan can be a mutual retirement fund available for employees through personal choice. Such a fund would be managed by state and all the registered workers in the country will have the choice of paying in that fund. This will encourage people as well as private firms to become part of the pension fund and investments will gradually increase in the system making it more stable and prone to success. State run pension plans are available in most countries around the world and there is no issue that such systems will face any problem in UAE where state funding is not a problem and most private firms are also stable and not short on funding in the country (Khaleej Times, 2014). Currently, public sector salaries are higher than private sector salaries for nationals. A more powerful scheme can be set up for nationals to encourage them in working for private sector organizations. A common scheme will also be present to cover all employees working anywhere across UAE. Such retirement schemes will ensure that employees who work in the private sector will feel more secure at their jobs and will remain at their companies for a longer time period. Employee retention will improve nationally especially in the private sector and we will see an improvement in the overall employee productivity across the country. There are many benefits of such funds. One advantage is that the money remains on the soil of UAE and the state will be able to invest it and earn more money on a national level. The expatriates would also receive more funds at their retirements and they may choose to remain in the country and therefore take part in improving the economy of the country. Pension funds are huge investors in most developed countries and this model can be successfully repeated in the UAE. A pensions plan is also successful in creating a sense of responsibility in people and they become more serious about their future and their method of savings and job choices (Terry & White, 1997: 160-175).

2.2. Problems of Pension Systems in UAE

There are currently many issues that are faced by people who are working in the United Arab Emirates. A survey done by the famous website Bayt.com carried out a survey in collaboration with YouGov to find out problems faced in UAE has revealed many discrepancies in the UAE job market. There are many people who have indicated that there has been no pay rise at their current jobs. Most people also work in companies with a fixed payment structure. Almost half of the people were found to be dissatisfied with their current salary which means that there is a serious mistrust issue among employees and their employers in the country. Only 4% people were happy and well satisfied with their salary structure. Employees in UAE are given some common job benefits which include medical insurance and air tickets on an annual basis (Bayt & YouGov, 2013). People though are not interested in keeping their jobs if they can find work in a flexible manner. People in general are not loyal on the basis of their salaries in UAE. Most employees believe that their loyalty is mostly affected by career growth opportunities at their workplaces. Most employees in UAE receive gratuity on retirement but the number of persons who receive pensions are very low. Many people are interested in contributing in a pension plan and say that they are will to contribute in a pension fund from their salaries. The cost of living is increasing in the country which has made the expatriates more serious about saving their earnings to secure their future especially in old age after retirement (Richardson & McKenna, 2002:67-68). It is becoming difficult to save while living in UAE and this means that UAE government must take steps to ensure that people are still attracted to especially work in the private sector organizations of UAE as the conditions in neighbouring countries around the world are improving continuously and important workforce is getting attracted to return to their countries after serving for 5 to 10 years in UAE.  The quality of life is certainly better in UAE but there are a lot of issues that make the decision of staying in UAE difficult for longer periods. Most people believe that there are better jobs available and they want to switch jobs for better ones. Some people also believe that salaries are currently stagnant because there is a lot of talent available for hire in UAE which decreases its monetary value. The general laws of UAE are also employer friendly and do not support employees more frequently. Most people with good jobs also spend money outside the country as they take international holidays and go to other places for leisure. Most people find themselves in middle level management which stagnates their careers because there are fewer opportunities available in the higher management of companies.
UAE is generally a great country to live due to its tax free economy and great quality of life. The only trouble is a lack of retirement plan options for expatriates. Pension is necessary because everyone gets old and gets past the working age. The saving for pension should start with the start of earning. There are very little employer based pension schemes available in the Middle East region. People however can opt for independent financial advice to make a retirement plan for themselves. The Emirate of Abu Dhabi has seriously considered the creation of a pension system for expats in the region. There are no state sponsored funds present currently but the trend is now on the path of change with serious consideration given to such system on higher administration levels of the UAE government. Such schemes though need to be made mandatory to create regular pensions for people and this will also mean that expats will look to invest their money in UAE because of a secure future due to the setting up of a pension fund for them. The Emirate of Dubai is now also seriously considering different pension schemes for expats as most people who live in Dubai send major portions of their salary back home and do not save in UAE as they are unsure of UAE financial rules and system in general (Bayt & YouGov, 2013).


2.3. Conceptual Framework

A framework is quite necessary for the development of a research proposal and it also identifies the right methods that are required for completing a proper research. Federal pension system is a necessary benefit which must be present in the country as it is present in other countries around the world. A framework can be designed to formulate a research and select the best parameters for solving key issues (Leedy & Ormrod, 2005). The research uses common methods such as surveys and newspaper reports to evaluate the situation of pension and expatriates in the country. The basic theory of the problem here is that pension systems are available everywhere around the world. UAE is a prospering country but it does not have a proper pension system. This has adverse effects on the retention and motivation of employees in the field. The example is of BTN Company which has lost more employees than those that have joined up.

2.4. Working Theory

Pension refers to a monetary fund that is given to a person after completing a term of service at an organization. It is one of the main monetary methods available in old age to people who retire after offering their services to their employers. Pension is slightly different from job benefit or severance pay because it is usually given on a continuous basis periodically while other methods provide one time money. Governments around the world ensure that there are labour laws in place which govern different aspects of pension as how the money is generated and then distributed to old and retired employees. There are many pension schemes available around the world and it is therefore hard to understand that the concept of a regular governmental pension scheme is not present in United Arab Emirates. The absence of a regular pension program has caused many issues in the country and it is generally attributed to cause the loss of foreign workforce in a longer time period.
BTN Company can be presented as a typical example of a company which suffers from the lack of a pension program. The company suffers to maintain its size and finds it very hard to grow due to the lack of employee motivation as well as expat retention. The study stresses and finds the fact that a government based federal pension scheme is necessary for retaining expatriate employees in UAE and it is almost the major reason why people switch jobs over a shorter period of time in UAE.

 

2.4.1. Staff Loyalty and Motivation

The trend of employee turnover in UAE is creating problems especially for smaller and mid level organizations. These organizations typically have to rely on individual skills of their employees for most of their work and therefore their working style is disturbed a great deal especially if a worker leaves that has a unique skill set in that organization as the company now lacks the workforce required to complete its projects and it has to quickly spend money in employee recruitment and development to ensure that the set of necessary skills is once again present in the organization. 
All companies work in a manner that requires some special skills that can only develop while working within the organization. The loss of skilled personnel therefore removes such skills from an organization and also severely limits the training mechanism found at a firm. 
Staff loyalty is therefore extremely important for smaller firms and it is a basic prerequisite for successful business operations (Keiningham et al., 2009). BTN Company is also a mid level organization with 40 employees and it is certainly affected a great deal if a particular employee leaves from an important work position. A new employee cannot have the similar skill set because some skills are developed while working within the organization. 
The BTN Company for example uses custom software for work related queries which require some time to become perfect at use and therefore time and resources of the organization are wasted each time the company has to recruit a new employee (Murphy, 2014).
Motivation is extremely necessary for successful business operations. Motivation in employment refers to the urge in employees to perform at the best of their abilities to ensure that their businesses become successful and productive. Employees are motivated due to a lot of reasons. 
Monetary benefits also play a key part in generating motivation but they are not the most important especially in the UAE where salaries are much better from the neighbouring countries of South and South East Asia (Emirates News, 2013). Motivation of employees in UAE chiefly depends on the number of growth opportunities that are available at a person’s current job environment. Most expats can get stuck in mid level management in UAE and therefore job evolution becomes the most important factor for producing motivation in expatriates of the country. 
Companies where employees are frequently promoted along with rise in salary enjoy from highly motivated employees but such companies are hard to find in the private sector of UAE and BTN is also such a company which suffers from low level of motivation in new staff members due to multiple reasons. The company on the other hand is also short on confidence especially on the new employees on which it is spending its training and development budget because employees often change jobs within a brief period of a year or two especially early in their career. Extra benefits such as retirement plans and pension systems help in generating the interest of employees in a company and give them a relief that that their future is secure regardless of the company they are presently working at. 
UAE lacks from a federal pension scheme and this is generating a loss of motivation in all private organizations such as the BTN Company. It is a company that offers various solutions and therefore its services entirely depend on a talented workforce. It gets difficult when employees switch jobs quickly as new staff has to be hired and trained and the overall efficiency of the company drops during the preparation of new workforce for a particular task.

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