It is mid-February, and as Storm Dennis chases Storm Ciara through the northern hemisphere, the prospect of year-round sunshine, a tax-free salary, a housing allowance and an annual return flight to your home country can seem distinctly appealing.  But is life as an expat teacher in the UAE really worth it in the long run?

(It is also worth bearing in mind that many of the issues examined in this article would be relevant for salaries in non-Emirati countries.)

For the purposes of this exercise, I will assume that the gross salary of a teacher in the UK is the same as the gross salary of a teacher in the UAE. The gross salary contained in this article is based upon a teacher’s salary at the top of the upper pay range in England and Wales, £40,490.

Experienced UK Teacher                                           

• Salary: £40,490          
• Pension (9.6 per cent): -£3,887.04
• Tax: -£4,820.59
• National Insurance: £3,822.96
• Take home: £27,959.41

Experienced UAE teacher

• Salary: AED194,352 (£40,490)       
• Gratuity: 21 days’ salary (5.7 per cent) in years 1-5: (£2,329.56); one-month salary (8.3 per cent) in years 6 and over (£3,374.17)
• Housing: AED97,000 (£20,245)
• Take home: AED291,352 (£60,698) 
   

Wow, at first glance you can take home more than double your UK salary as a teacher in the UAE!

However, it’s not that simple.

If your UK employer is part of the Teachers’ Pension Scheme, they will also contribute 23.68 per cent to your pension pot, which, combined with your 9.6 per cent contribution, will accumulate over time to pay for an annuity when you retire. Do not underestimate how valuable that is.

Using the teacherspensions.co.uk website, you can calculate that you would receive an annuity of £26,993 each year until you die, after working for 40 years as a teacher in the UK. While you do not benefit from this money during your working life, you will be immensely grateful for this income for life upon retirement.

International school pay and pensions

Assuming you do not save any other money and work for 40 years in the UAE, accumulating your gratuity each year for 40 years, your retirement pot will be worth £129,743.75. Please note, however, that UAE labour laws state that your gratuity should not be worth more than two years’ salary in total (but we will ignore that for now).

Let’s assume at this point that you return to the UK and you want to pay yourself the equivalent of the £26,993 you would receive from a teachers’ pension in the UK. Your £129,743.75 would only last you 4.8 years if you spent it. Compare your situation to your UK counterpart, who will be paid £26,993 every year for the rest of their life!

An old age of penury?

This is worrying. The average life expectancy of an adult male in the UK is 79.2 years. Let’s assume you retire from teaching at 65. Your UAE gratuity will last you until you are 69.8. What are you going to live off for the last decade of your life?

Therefore, in order to secure the equivalent of the £26,993 annuity you would receive from your teachers’ pension in the UK, you will need to do more with your salary in the UAE than simply wait for your gratuity at the end of 40 years. You will need to invest.

The FTSE 100, the index of the UK’s 100 largest companies by market capitalisation, has returned an average of 8.8 per cent annually for the past 10 years if you reinvested all your dividends. Simultaneously inflation in the UK over the past 10 years has averaged 3.2 per cent, which means that £1 is worth 3.2 per cent less each year than it was the previous year. If you take the 3.2 per cent inflation away from the 8.8 per cent return of the FTSE 100, in real terms, the FTSE 100 has returned 5.6 per cent per year.

Let’s assume that, over 40 years in the UAE, you manage to save £500,000. If you were to invest that money into the FTSE 100 upon retirement it would generate approximately £28,000 per year - ie, 5.6 per cent of £500,000. This way you would have £500,000 to pass on to your spouse, partners or dependents when you die as well as an income for life upon retirement.

Saving for retirement

In order to save £500,000, however, you would need to save £12,500 every year for 40 years in the UAE. We originally calculated your annual take home as £60,698 when you combine salary and housing. However, unless you are saving £12,500 every year for 40 years in the UAE you will not be able to afford the same lifestyle in retirement as you would in the UK. And this reduces your actual UAE take home to £48,198 per year.

Still, this is a great deal more than the £27,959.41 take home you would receive in the UK.

Of course, there are other options for you to reach a £500,000 target when you retire from Dubai. Rather than saving £500,000 and then investing it as one lump sum when you retire, you could invest in a FTSE 100 index-tracker each month. Using the compound interest calculator on Moneychimp you can see that if you invested £300 per month (or £3,600 per year) and received an annual rate of return of 5.6 per cent (ie, the 8.8 per cent return from the FTSE less 3.2 per cent inflation) that you could also reach £500,000 when you retire in 40 years’ time.

Essential upskilling                                                    

Whatever you do, however, living in Dubai and expecting that your gratuity will set you up for life is not an option. You will need to upskill yourself, read about pensions and investments, which may include property as well as equities.

In short, life in Dubai is wonderful, but the salary structures are more complicated than they appear at first glance.

Michael Lambert is headmaster of Dubai College and not a financial adviser. The opinions expressed herein are his own and not those of Dubai College. They do not represent financial advice