Investor sentiment

2020 Global Retirement Index

September 27, 2020 - 11 min read

Executive Director, Natixis Center for Investor Insight – Natixis Investment Managers – US Distribution

What could possibly go wrong? Five critical risks bring retirement security into focus

From aging demographics and record levels of public debt to low interest rates and climate-related disasters, global retirement security was on shaky ground at the beginning of 2020. By June, public health, social, economic, and financial risks all reached a boiling point.

The 2020 Global Retirement Index brings five critical risks to retirement security into focus: recession, interest rates, public debt, climate change, and income inequality. Learn more about what they mean for institutions, financial professionals, and individual investors.

Download the full report and our top 10 slideshow

2020 Global Retirement Index – full report

7.81 MB

Top 10 countries for retirement security – slideshow

2.14 MB

5 critical threats to global retirement security

High unemployment means that both retirement plan contributions and payroll taxes earmarked for public pensions are dramatically reduced. Adding to long-term retirement saving challenge, many workers have been forced to take hardship withdrawals from their retirement plans to replace lost income.

Retirement savings tapped for short-term income relief

In response to the pandemic, 15 countries relaxed regulations

Here’s how that’s playing out for workers in Australia and the US

Australia What's the rule? Unemployed or underemployed workers can withdraw up to $10,000 from retirement savings in their Superannuation plans Who took advantage? Over 500K workers withdrew $4B+ in the 1st month By July 7, 24M had withdrawn $25B Average of $7,500 per person

United States What's the rule? Individuals can take penalty-free hardship withdrawals from their defined contribution plans under the CARES Act Who took advantage? 165,000 took money out in the month of April alone Americans withdrew an average of $5,500 Over 3,000 took out the maximum amount of $100,000

*Peru is one of the 15 countries to relax hardship withdrawal regulations as reported by OECD, however they are not an OECD member and therefore not a GRI ranked country.

Sources:

Daniel Kemp, AgriInvestor, First wave of superannuation withdrawals in Australia amounts to A$4.4bn, April 24, 2020.

Michael Janda, Australian Broadcasting Corporation, Coronavirus superannuation early withdrawal scheme hits $25 billion as new financial year starts, July 7, 2020.

Rates have been at historic lows for 12+ years, but the global shutdown forced even more cuts. Going forward, retirees will need to be resourceful in how they manage income needs, while pension managers will need to get creative about how they’ll manage long-term liabilities.

Lower interest rates mean greater liabilities. Here's why.

It’s counterintuitive, but when rates are low, pension liabilities increase substantially. That’s because current interest rates are used to estimate the amount of future payouts.

Interest rates were low. And moved lower.

Public spending on stimulus and aid has been essential to keep the economy afloat, but it also compounds record public debt levels. In the future, debt will present policy makers with difficult decisions about how they address the needs of retirees.

COVID stimulus pushes public debt to new highs

Sources:

Rakesh Kochhar, Pew Research, Unemployment rose higher in three months of COVID-19 than it did in two years of the Great Recession, June 11, 2020.

International Monetary Fund, POLICY RESPONSES TO COVID-19. Updated August 28, 2020.

Climate change poses risks to global retirement security. Environmental changes can greatly affect the health and wellbeing of the elderly and other vulnerable populations. And climate-related disasters can present significant potential financial costs to retirees – including damage to real estate and increases to cost of living.

Increased air pollution can contribute to chronic illness

Icons of: Head, Heart, Lung, Bones, Lower Abdomen

Head: Dementia, Parkinson’s Disease, Huntington’s Disease. Heart: Accelerated atherosclerosis, Ischemic heart disease, Stroke. Lung: COPD, Lung cancer, Respiratory diseases. Bones: Paget’s Bone Disease, Osteoporosis. Lower Abdomen: Kidney cancer, Digestive system cancers, Infertility

Sources:

World Health Organization, 7 million premature deaths annually linked to air pollution, News release.

Numan, M. S., Brown, J. P., & Michou, L. (2015). Impact of air pollutants on oxidative stress in common autophagy-mediated aging diseases. International journal of environmental research and public health, 12(2), 2289–2305.

Barcelona Institute for Global Health, Air Pollution Can Worsen Bone Health, 3/1/2020.

The social justice movement has brought income inequality into focus. Whether the data is examined by race or gender, it demonstrates that a lifetime of lower earning potential adds up to a greater imbalance in retirement savings, funding, and income.

There’s a wide retirement security gap for people of color

In the US, they’re significantly less likely to be covered by an employer-sponsored retirement plan

Many people of color have no retirement savings at all

The majority of those who do have retirement savings have set aside less than $10,000

Source: Nari Rhee, PhD, Race and Retirement Insecurity in the United States, National Institute on Retirement Security, December 2013.

It will take a coordinated global response to address the dire public health challenge posed by the pandemic – and head off a financial crisis. But as critical measures are taken to meet short-term threats, individuals, employers, institutional investors, policy makers, and asset managers will need to recognize the additional challenges presented to global retirement security.

What individuals can do

Increase focus on how – and how much – they save for retirement.
Since low rates will likely be with us for a long time, investors should consider saving more to make up for lower earnings.
Potentially reconsider what retirement looks like. Instead of ceasing to work completely, it may mean transitioning to a new career and different kind of job.

What employers can do

Help workers meet their savings objectives by making it easier to save with auto-enrollment and matching contributions.
Offer investments that workers are asking for. For example, 61% of plan participants in the US say they’d be more likely to participate or increase their participation in their company’s retirement plan if they could select investments, like ESG strategies, that match their personal values (Natixis Investment Managers 2019 Survey of Defined Contribution Plan Participants).

What institutional investors can do

Workplace pensions are less common than 20–30 years ago, but pension managers still play a critical role in ensuring global retirement security.
Smart asset management will continue to look for strategies that help manage both current income and long-term liabilities.

What policy makers can do

Over the long term, policy makers hold many of the keys to global retirement security.
Setting effective regulations and tax incentives that encourage plan participation and retirement savings is a critical first step.
Understanding the investment strategies needed to meet liabilities is critical to setting smart regulation: Liquidity concerns must be balanced with the need to shore up sustainability of income over the long term.
The needs of an ever-growing elderly population must be a priority in budget debates. It’s no easy task as many solutions will require additional spending, which could further add to already record levels of public debt.

What asset managers can do

Asset managers are at the nexus of global retirement security, connecting individuals, employers, institutions and policy makers.
The industry should not only lead in providing the investments needed to grow pension pots, but they should also take the lead on some of the issues that are critical to global retirement security.
Product leadership may help address the long-term needs of individuals and institutions.
Social leadership is needed in the area of income equality.

Learn more

Global retirement security is a worthy goal. If stakeholders live up to their role and responsibility, it can be within reach. To learn more about the key threats to global retirement security – and see where your country ranks – download our full report.

2020 Global Retirement Index – full report

7.81 MB

About the 2020 Natixis Global Retirement Index

The Global Retirement Index (GRI) is a multi-dimensional index developed by Natixis Investment Managers and CoreData Research to examine the factors that drive retirement security and to provide a comparison tool for best practices in retirement policy.

The GRI includes International Monetary Fund (IMF) advanced economies, members of the Organization for Economic Cooperation and Development (OECD) and the BRIC countries (Brazil, Russia, India and China). We’ve calculated a mean score for each category and combined the category scores for a final overall ranking of the 44 nations studied.

Methodology Update

The construction of the Quality of Life sub-index in the 2020 GRI has been slightly updated to reflect changes in the data sources. In particular, three indicators – Air Quality, Biodiversity and Habitat, and Water and Sanitation – and the way they are measured are different compared to last year.

For Air Quality, the average annual concentration of PM2.5 has been replaced with the number of years lost due to exposure to PM2.5, exposure to indoor air pollution has been replaced with number of years lost due to exposure to household air pollution, and the percentage of a country’s population exposed to annual concentrations of PM2.5 with number of years lost due to exposure to ground-level ozone pollution. The Water and Sanitation indicator has been updated with a new data source and new definitions: unsafe drinking water compared to access to improved water source and unsafe sanitation compared to improved sanitation facilities in previous years. The data for Biodiversity is relatively similar to last year except for the addition of a new indicator called the Biodiversity Habitat Index.

Since the 2020 GRI scores with these updates would no longer be comparable to 2019 GRI scores, we calculated 2019 scores with the updated data and methodology. As such, the 2018 and 2019 scores and rankings in this year’s GRI report show what the scores would have been with these new calculations and may not necessarily be the same as published in last year’s report.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of September 2020 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

All investing involves risk, including the risk of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Natixis Distribution, L.P. is a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers.

3215233.1.1