The country has improved its ranking, but faces pressure from economic and demographic trends
When it comes to fostering an ideal environment for retirement, Canada is doing a better job than most of its peers — good enough to be among the top 10 countries, according to a new report from Natixis Investment Managers.
Canada has been ranked eighth among 44 developed countries for retiree wellbeing in the 2019 Natixis Global Retirement Index with an overall score of 77%. It improved its standing by one spot compared to last year by improving in retirement finances and material wellbeing and holding steady in health, though it slipped in terms of quality of life.
Canada’s finance standing is strong — but future threats lurk
The country took the 7th spot in the Finance sub-category from improvements in non-performing bank loans and governance. But the ongoing rise in the ratio of retirees to active workers has introduced a risk of old-age dependency — a trend that could impact future generations, particularly women — as well as rising pressure on government services over time. Canada’s financial ranking is also threatened by lower scores for tax pressure and interest rates.
Its Material Wellbeing ranking improved by one spot to reach 21st place, due to rising scores in employment and progress in income inequality. Improvements in life expectancy, health expenditure per capita, and insured health expenditure also helped the country maintain its eighth-place standing in the Health sub-index. However, lower grades in environmental factors as well as the happiness indicator dragged down Canada’s performance in Quality of Life from 9th place to 13th place.
Key risks to retirement
The report also identifies some critical risks with implications for retirees and future generations around the world. The low interest-rate environment, which is showing no clear signs of subsiding anytime soon, is weighing on yields in the low-risk sleeve of retirement portfolios as well as pension returns. That puts pressure on retirees to invest in higher-risk assets, increasing their exposure to volatile markets — something that’s especially concerning for an investor segment that’s less able to recover from possible losses from market downturns.
Longevity is also set to have a major impact on retirees. This is true particularly in developed countries where, according to the United Nations, the number of people who were at least 65 years old outnumbered children under the age of 5 for the first time ever back in 2018. The UN projects increasing stress on this front in future decades, with old-age dependency in the developed world expected to hit 46.4 by 2050 and 49.54 by 2070. Policymakers are therefore left to grapple with the difficult problem posed by the ensuing funding crunch.
And while climate change is typically tagged as a long-term threat, Natixis made note of the tangible health and financial risks retirees face because of it. From a financial perspective, it helps force up insurance rates and eat up government resources, with Munich Reinsurance Company reporting that severe events in 2018 helped make it the fourth-costliest year for insured losses since 1980. Citing the U.S. Environmental Protection Agency, the report also pointed to heightened risk of illness, particularly those living with chronic conditions, due to extreme heat.