Low interest rates, COVID, a recession – the challenges are thick on the ground for retirees and pre-retirees. And while Australia is in seventh place in the Natixis Global Retirement Index (GRI), the outlook is sobering.
The index, published since 2012, rates 44 developed countries on 18 factors in four categories that drive retirement security: finances in retirement, material wellbeing, health, and quality of life.
The report said that COVID-19 had made life tougher for millions of retirees, saying: “The chances for a financially secure retirement depend on a fragile balance of social, economic and public health pressures. The global coronavirus pandemic has tipped the scales further against retirees.”
The top three nations worldwide are unchanged from 2019. Iceland is in first place, Switzerland in second and Norway third. Nine of the top 10 have been in the top 10 in each of the past two years and Australia has now been in the top 10 for four straight years. In 2019, we slid three places to ninth, though that was changed to seventh this year due to updated methodology. In 2018, we were sixth.
Ireland was fourth after improving its performance in each of the past few years, from seventh in 2018 to fifth in 2019 to fourth this year.
The Netherlands was the biggest mover from 10th to fifth. The other countries in the top 10 were New Zealand (No. 6), Canada (No. 8), Denmark (No. 9) and Germany (No. 10) up from 13th place last year.
Australia was 10th in the health sub-index, 22nd in the material wellbeing sub-index, and 15th in the quality of life sub-index – on par with its 2019 ranking but much lower than in 2017, when it was ninth.
It placed Australia in third place for finances, on the back of our superannuation system, although our ranking in interest is low at 0.25 per cent; the report noted that 16 countries had negative rates.
The report said that retirement security in developed nations was under threat from lower-for-longer interest rates, record levels of public debt, recession, income inequality and climate quality.
Jean Raby, CEO of Natixis Investment Managers, said that balancing the needs of current and future retirees with other public policy demands had “long been one of the most intractable issues for nations around the world, and the global pandemic and its economic fallout have only compounded the challenge”.
Damon Hambly, CEO for Natixis Investment Managers in Australia, said retirees in Australia faced the prospect of living for longer on lower incomes.
“Possible solutions may include a higher retirement age, and for retirees to reconsider how they think about retirement – possibly continuing to work into their retirement,” he said.
“The asset management industry also has a role to play in taking the lead on products that will address the long-term needs of individuals and institutions to have a real impact on global retirement security.”
In a supplementary report to the index, titled What Could Possibly Go Wrong?, Natixis identified the five issues it believes present the greatest threats for retirement security.
The long-term impact of the recession on savings: The speed and severity of the global economic slowdown stemming from the COVID-19 outbreak are greater than those in recent recessions. Resulting measures taken to cover income shortfalls may dampen the savings needed for future retirement security. For instance, workers may make hardship-based early retirement withdrawals that are never replaced.
Falling interest rates disadvantage retirees: Rates have been at historic lows for a dozen years. Lower rates may require individuals and institutions alike to be more creative about how they prepare to meet longer-term needs and commitments.
Fiscal stimulus raising public debt: The $12 trillion of fiscal and monetary stimulus provided globally has kept economies afloat during the pandemic, but will magnify already high levels of public debt. While low interest rates keep debt servicing costs manageable today, those same low rates may tempt policymakers to boost spending, further increasing public debt. In order to control spending in the future, governments could be forced to raise taxes, including on retirees, and reduce funding for retiree healthcare programs and public pensions.
Climate-related disasters threatening retirees: As seen in bushfires in Australia, wildfires in California and typhoons and hurricanes in Africa, Asia and the Americas, climate-related natural disasters are becoming more frequent and more severe. Air pollution, too, is worsening, posing greater safety and health risks for vulnerable retirees, including chronic cardiac and pulmonary illnesses. Such disasters also have financial implications, including higher insurance costs, increased food expenditure as crops fail and greater housing expenses as storm severity grows.
Inequality worsens economic outcomes: The issues of inequality – of race, gender and other factors – have come to the fore. Research globally illustrates race and gender gaps in both worker pay and access to workplace retirement plans, with implications for inequality in retirement income.
Data from the Australian government’s Workplace Gender Equality Agency (WGEA) shows that women earn on average 20.8 per cent less than men across occupations and sectors. Women also live longer on average and tend to retire earlier, facing greater risk of outliving their assets.
Louise Watson, Natixis Investment Managers managing director and head of distribution for Australia and New Zealand, said the super and retirement industries needed to work together to find ways to close the gender wage and retirement gaps.
“Lower wages mean lower super balances, so improving wage equality and general financial literacy is an important step for our industry to take to make sure that women are empowered to take control of their financial future,” she said.
Mr Hambly said that while Australians had benefitted from mandatory super, “many still had balances too low to sustain their lifestyle through retirement”.
“Now, Australian retirees whose balance has been affected by market disruption throughout 2020 may have to reconsider what their retirement looks like,” he said.
“It is important for everyone involved in the retirement income system – individuals, employers, institutional investors, policymakers, and asset managers alike – to recognise and adapt to the additional challenges presented to global retirement security.”
Australia had the seventh-lowest score for environmental factors, with Natixis noting climate aspects added health concerns and financial risk.
*The Global Retirement Index assesses factors that drive retirement security across 44 countries where retirement is a pressing social and economic issue. It was compiled by Natixis investment managers with support from CoreData Research. The index includes International Monetary Fund (IMF) advanced economies, members of the Organisation for Economic Cooperation and Development (OECD) and the BRIC countries (Brazil, Russia, India and China). The researchers calculated a mean score in each category and combined the category scores for a final overall ranking of the 44 nations studied.
Are we still the ‘lucky country’? Has COVID forced a major re-evaluation on retirees and pre-retirees all over the world? Have you already been forced to make adjustments to your finances?
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