Growing overseas retirement market - an opportunity for the Middle East
Some are calling it "grey tsunami" - growing number retirees in OECD countries are moving overseas to retire - in search of better and more affordable quality of life. Although the exact numbers are hard to come by – the State Department estimates 8.7 million Americans live abroad, and whilst they do not parse those statistics by age – the Social Security Administration send over 500,000 payments per month to overseas residents. That number is up from 2016, when 400,000 retiree payments were sent abroad. Closer to home, the number of Australians retiring overseas is on the rise. According to the ABS, there has been a 47% increase in overseas retirees over the past 10 years. In 2016, 11,660 Australians over 55 permanently relocated overseas, compared to just 7,910 in 2005, according to ABS data. The most popular retiree destinations for Australians include New Zealand, Italy, Greece and Spain.
The latest report from HSBC on retirement provides a better sense of the magnitude of the issues facing the retirees, home country governments and host countries. More than two-thirds (69%) of working age people are worried about running out of money in retirement. For 46% of working age people, paying off the mortgage is a key form of retirement saving. Most retirees don't know how much to save and are surprised by the magnitude of savings required when commencing retirement - almost 29% of retirees who did not prepare adequately for a comfortable retirement were not aware of how much they needed to save. Almost two thirds (65%) of retirees who did not prepare adequately for a comfortable retirement did not realize this until they had retired.
Finally, more than two fifths (45%) of working age people say that the cost of living is increasing faster than their income. In addition to more conventional ways of funding their retirement, many pre-retirees own or plan to own a second property in their home country (65%) or overseas (32%).
The foremost challenge for the home country is supplying pensions to the retirees in a foreign country and lose out on taxation, consumption whilst continuing to provide them with medical care if required. Most OECD countries are now taking the steps to reduce tax leakage through forming social security agreements whilst at the same time putting limitations on medical care available for absentee citizens. In Australia, for example, the government has 31 agreements in place now with a range of popular destination countries for the citizens. Additionally, the absentee citizens who have been away for more than 5 years forfeit Medicare entitlements.
The key criteria emerging for retirees in choosing the overseas retirement venues are -
- Low cost living being the foremost requirement
- Well-developed social support environment - Language and cultural environment that they can engage with, in a short period of time
- World class and affordable medical facilities
- Low tax regime
- Legal clarity on rights and stability allowing for long term stay
Host countries, are falling over themselves on one-upmanship and delivering differentiated value proposition. The opportunity to receive retirees that are well funded, low cost to the state and create high local consumption is a boon to many developing economies. In South East Asia, countries like Thailand, Malaysia, Philippines and Singapore are rolling out retirement visas with minimal upfront financial outlay and reduced administrative challenges. The low cost of high quality living, including well developed medical facilities, are a big draw for OECD retirees. Going one step further are the Latin American countries such as Panama, Belize, Mexico, Costa Rica and Colombia. Not only these countries offer high quality of life, great weather but also seamless citizenship options for long term stay. European countries are now trying to catch up as well offering low tax regimes and capitalizing on their well-developed social support environments.
Missing in the action are the countries in the Middle East. The region has tremendous potential to attract these very lucrative economic migrants. With its famous "zero tax" proposition, it also offers a well-developed medical infrastructure and a diverse social infrastructure to accompany. Low cost manpower could mean that care industry could boom in the conditions offered by the region. However, the region has not been able to resolve it's booming real estate supply ambitions with its reluctance to offer any assurance to long term stay for retirees. Most retirees are put off by the uncertainty associated with the visa regime offered by the countries in the region. Gaining a market share of the OECD retirees through a planned and structured programme could not only help the consumption in the region - but could also create a more stabilizing effect for the resource driven economies.