A Comprehensive Guide to Pension Planning for NRIs in UAE

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  | Published: 22 June 2021 | Last Updated On: 22 July 2021

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Being young and in the prime of your life is as thrilling as it gets. You are a lot more focused on enjoying the twists and turns of life and a lot less worried about the distant future. However, the prime of your life is the ideal time to plan and save for the future. More and more people are understanding and accepting this now. This is why pension plans for NRIs are one of the most in demand plans in the UAE. No matter when you start or how much, it is always a smart decision to invest in pension plans to secure your future. 

What is a Pension Plan?

Pension plans for NRIs and schemes are policies that allow you to make an investment in the present and receive the benefits as retirement income. You invest yourself, earn a profit on the investment and receive the complete amount at the maturity of the pension fund or plans. The investment that you make can be done as a lump sum amount or as a small set of sums over time. 

How will a Pension Plan Work in UAE?

There are two main stages in any pension plan offered by an insurance provider – the accumulation of funds (stage 1) and retirement (stage 2). In the first stage, you gather and invest funds in your insurance plan. The second stage is when you finally retire and receive a monthly or lump sum amount as your pension until death. Depending on the type of your pension plan for NRIs, your spouse can continue receiving the pension amount after your death as well. 

Types of Pension Plans in UAE

There are a few different types of pension plans for NRIs that you can explore in the UAE. The categorization is generally done based on the annuity of the plans or the additional benefits they offer. Given following is an overview of the types of pension plans for NRIs in the UAE:

1- Fixed or Deferred Annuity Pension Plans 

Deferred annuity pension plans are fixed payment plans that mature after the selected period. You can see them like fixed deposit accounts where you make an investment towards your retirement or pension fund and it stays locked for a certain period. After the said period ends or when you retire, you can withdraw the funds or receive a regular monthly pension amount. A deferred pension plan for NRIs promises a fixed rate of return on your investment upon retirement or maturity making it one of the safest pension plans for NRIs in UAE. 

2- Certain Annuity Pension Plans

These pension plans for NRIs are only required to offer pension benefits for a pre-decided period. The benefit can be received either by the plan holder or their nominee. The retirement income here is guaranteed. But since the payment period has an expiration date here, the returns on your investment are higher than another type of plans. 

3- Immediate Annuity Pension Plans

As the name suggests, an immediate annuity pension plan for NRIs offers you a return as soon as you invest. This plan offers guaranteed payments for life but the return on investment is subject to market conditions. Here you make a lump sum investment with the insurance company providing the pension plan and they convert it into a series of small payments. This is the ideal choice to go with if you are approaching retirement soon and can not lock up funds with a deferred pension plan. 

4- Pension Plans combined with Life Insurance Covers 

These pension plans for NRIs not only take care of the monthly or lump sum pension sum but also ensure that your family is compensated upon death under the life insurance cover. Although, the larger portion of the sum goes to the building up of the pension sum instead of the life insurance sum. The option for life cover can also be taken as an added benefit on your long-term pension plan with an insurance company. Deferred annuity plans and certain annuity pension plans. But if you opt for an immediate annuity pension, you may not be able to get a life cover with it. 

5- Guaranteed Period Annuity Pension Plans

A guaranteed period annuity pension plan for NRIs will ensure that not you but your family members get the benefits of pension as well. This only applies to the period of the annuity and only the immediate family members can receive the pension benefit after your death. 

6- Live Annuity Pension Plans

The most preferred and most commonly seen pension plan for NRIs, a life annuity pension plan will ensure that you get a pension for the entirety of your life. The life annuity pension plans also come with a joint-annuity feature. Here you can add your spouse to the plan and they can receive the pension amount upon your death. 

7- Life Unit Linked Investment Pension Plans

A ULIP plan is a plan that offers you the benefit of both life insurance and investment on equal terms. First, a sum is set aside for your life insurance cover and the rest of it invested either in equity or as a debt with the insurance company. The return on investment here depends on the market conditions and powers completely. But it is a very good pension plan for NRIs who have quite a few years left in their careers yet and would like to make a big leap in terms of investments.

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Tips on How to Plan your Pension as an NRI in UAE

When planning your pension and retirement plan, there are a few things that you should take into consideration. Not every plan is going to suit your needs, true. But your needs may also change in the future.

Following are some tips that you can keep in mind when choosing a pension plan:

#1 - Start Planning Early

Pension plans may seem like a concept to worry about in your old age but they are much more than that. As an NRI, you will have more things to plan and put into motion. For example, ‘where do you want to retire?’, ‘when would you like to retire?’, etc. It is wise to start planning for your pension plan as early as possible. Preferably when you are at a stable point in your career. 

#2 - Determine Your Net Worth

Subtract your liabilities from your assets and you will have your net worth in hand. You must know what will be left after fulfilling all your responsibilities such as loans, mortgages, etc. Also, determine cash on hand and liquid assets that you have. 

#3 - Decide on Fixed Monthly Savings for your Pension Fund

You need to save up money to pay for your pension plan and build up the corpus. Determine a certain percentage or amount of money that you would save every month. Most people like to save 10-15% of their monthly income to build up a significant amount of corpus. You can take that up to 30% if you can afford to make cuts in daily spending.  

#4 - Prepare a Rigid Budget 

Determine your expenses – essentials and non-essentials. Prepare a budget that not only pays the bills but also keeps up the quality of life while letting you save as well. Sticking to a rigid budget will let you build up a better corpus. 

#5 - Pay-off the Bigger Loans First and Quickly

Big loans like house mortgages, education loans, and a car loan can bring a dip into your savings. Make it a point to pay them off as quickly as possible. Bigger loans tend to keep creating a hole in your savings and hence will no let your saving capacity increase over time. 

#6 - Stick to the Plan – No Matter What 

Making a budget or creating a saving plan over the years is not enough to make sure that you will have more than enough resources and savings to support your pension plan investments. No matter what, stick to your plan and follow it rigidly. Keeping stern control over overspending is the key to make sure that you have an ideally formed pension plan for NRIs. 

#7 - Set a Retirement Goal in Mind 

The kind of life that you would like to have after retirement can help you a great deal in making sure that you keep a firm hand when it comes to present-day spending. Set a retirement goal in mind in the form of a monthly pension amount and prepare the saving chart as per that goal. This will give you a fair idea of the investment that you need to make to reach that goal after adding a return to the final investment amount.

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Conclusion 

A pension plan for NRIs is a rather important financial tool to have in your kit. You will not only have a safe future for yourself and your spouse but may also get to prepare a financial fallback for your family. Needless to say, having a proper pension plan for NRIs is a very important task to accomplish. But make sure that you weigh in all the options before you make your pick. If you are thorough with your plans and research, finding a proper pension plan for NRIs in UAE is a very easy-to-handle task.