Retirement planning more important than ever in face of global disruption, says expert
Canada has held steady in the Global Pension Index Rankings but short- and long-term risks abound.
The index covers almost two-thirds of the world’s population, with the Netherlands and Denmark retaining first and second place respectively, with both enjoying the coveted A grade.
Globally, COVID-19 and its economic impact has heightened the financial pressures that retirees face, coupled with increasing life expectancies and rising pressure on public resources to support the welfare of aging populations.
From an investment perspective, the global health crisis has led to reduced pension contributions, lower investment returns and higher government debt in most countries. This raises the likelihood that people will have to work longer or settle for a lower standard of living in retirement.
Teresa Palandra, partner and wealth business leader, Mercer Canada, said Canada’s retirement system continues to have a sound structure but that risks need to be considered and addressed. She said the pandemic has significantly increased the amount of government debt as a percentage of GDP and that there are savings gaps that have a disproportionate impact on certain groups, such as women, who are over-represented in the industries most impacted by the pandemic.
“Given the widespread effects of COVID-19, retirement planning is more important now than ever before. Our workforce is changing and dealing with unexpected challenges, and retirement planning must continue to evolve to help Canadians manage their future finances in the face of significant disruption,” she said.
Palandra pointed to Mercer Future Wise, its delegated defined contribution solution, which provides a full suite of services, ranging from portfolio management to plan design and fee negotiation.
Of course, to help alleviate the impact of COVID-19, governments deployed a diverse range of responses to support their citizens and pension systems. Professor Deep Kapur, director of the Monash Centre for Financial Studies (MCFS), said that the outlook for investment returns is muted while volatility may be elevated, adding to the risk management challenges in a pension portfolio.
He added: “Additionally, some governments have allowed temporary access to saved pensions or reduced the level of compulsory contribution rates to improve liquidity positions of households. These developments will likely have a material impact on the adequacy, sustainability and integrity of pension systems, thereby influencing the evolution of the Global Pension Index in the coming years.”
For example, Australia enabled individuals whose income had dropped by more than 20% to access up to AUD $20,000 (approximately USD $13,000) from their pension assets, while Chile allowed active contributors to voluntarily withdraw 10% of their individual pension funds up to USD $5,600.
Dr David Knox, senior partner at Mercer, said: “It is interesting to note that the top two retirement income systems in the Global Pension Index, the Netherlands and Denmark, have not permitted early access to pension assets, even though the assets of each pension system are more than 150% of the country’s GDP.”