Natixis' latest Global Retirement Index report highlights how COVID-19 has compounded challenges for retirees
For the second year in a row, Canada ranks at number 8 among developed nations evaluated in terms of the relative wellbeing and financial security of its retirees – but that doesn’t negate the increasingly grey picture of retirement that’s developing because of the COVID-19 pandemic.
In its 2020 Global Retirement Index, Natixis reported that despite losing ground across all four main assessment categories – Finances in Retirement; Material Wellbeing; Health; and Quality of Life – Canada was able to maintain its position among 44 developed countries evaluated.
Canada dropped the most in the Quality of Life category, from 11th to 8th place, due primarily to a decline in life expectancy from 16th to 10th.
It was also hurt by lower scores in Finances, where it still placed 9th among all countries surveyed, making the category its strongest suit. With the exception of the inflation indicator, Canada showed declines in all sub-metrics including governance, non-performing bank loans, and government indebtedness.
In terms of Material Well-Being, Natixis demoted Canada from 26th place to 29th place, due to increased unemployment as well as worsened income inequality.
And while it also went from 15th to 16th place the Quality of Life standings, Canada derived some stability from the category as it received the seventh-highest ranking in terms of air quality and saw improvements in environmental factors ranking. However, it also dipped two positions in the happiness indicator, which measures the current quality of life of its retirees.
Looking at the broader global picture, Natixis said its analysis of multi-year index trends suggests retirees will face even greater challenges moving forward due to aftershocks from the COVID-19 outbreak and policy actions taken to soften its economic impact.
In a supplemental report, Natixis identified five specific issues as the greatest threats to retirement security:
- Recession and its long-term impact on savings – With a speed and severity exceeding those seen in recent recessions, the COVID-19-induced slowdown has forced innumerable people to make hardship-based early retirement withdrawals, as well as employers to scale back or suspend matching contributions to defined contribution plans;
- Falling interest rates – As a way to keep locked-down economies on life support, the Bank of Canada and other central banks moved to cut interest rates that had already been at historic lows pre-pandemic, further crimping retirees’ ability to squeeze yield out of fixed-income investments;
- Fiscal stimulus raising public debt – Globally, US$12 trillion of fiscal and monetary stimulus has been unleashed around the world to keep economies afloat during the pandemic, resulting in an explosion of public debt. Notwithstanding today’s low interest rates, high debt levels may in the future force policymakers to raise taxes, including on retirees, as well as cut funding for retiree healthcare programs and public pensions;
- Climate-related disasters threatening retirees – Aside from the dangers of increasingly frequent and severe climate-related natural disasters across the world, retirees face health risks from worsening air pollution. The financial ramifications can run anywhere from increased insurance costs, higher food prices, and steeper housing expenses as disasters grow more devastating;
- Worse economic outcomes from inequality – inequality in terms of race, gender, and other factors have been shown to have an aggregate impact on worker pay and access to workplace benefit plans. Over people’s lifetimes, that can result in imbalances that persist well into retirement, including income and savings gaps that, in the case of women, are made worse by longer lifespans.
“[T]he COVID-19 pandemic, economic crises and other issues that have come to light this year have intensified longer-term threats,” said Edward Farrington, head of Retirement Strategies at Natixis Investment Managers. “It will be important for individuals, employers, institutional investors, asset managers and policymakers to plan for how they will take on the challenge of retirement security in the years and decades to come.”
