Natixis Investment Managers released its 2020 Global Retirement Index on Tuesday, indicating that the pandemic and related fiscal stimulus are putting additional pressures on the retirement savings system, which it says is now performing a “high-wire act.”
“With the world facing immediate issues resulting from the coronavirus pandemic and the economic consequences from the response of governments around the world, wildfires and other natural catastrophes triggered by changing weather and climate patterns, and heightened concerns about social justice and income inequality, the long-term goal of retirement security may not appear to be a top global concern in 2020,” says Natixis Investment Managers CEO Jean Raby, in the report. “In reality, though, the crises we are experiencing today will have long-range implications for global retirement security and the impact will likely be felt for decades to come.”
During a webinar Natixis held to coincide with the release of the index, Dave Goodsell, executive director of the Natixis Center for Investor Insight, said that not only has the nation faced a recession, but unemployment is at its highest level in decades. Layoffs impede retirement savings and reduce the payroll taxes that fund pay-as-you-go programs for pension plans, Goodsell said. On top of this, the U.S. government has permitted retirement plan participants to take up to $100,000 in COVID-19-related withdrawals, some employers have cut their matches, the Federal Reserve has kept interest rates low and, around the world, central banks have made 173 cuts to their rates year-to-date through July, Goodsell said.
Ed Farrington, executive vice president at Natixis, said the Global Retirement Index is based on three factors: the actions of individuals, employers and policymakers. Countries that rank the highest in the index, despite the global challenges facing them, do a good job of balancing all three interests.
Turning back to the unprecedented year, Farrington said unemployment or the fear of unemployment is a disruption to saving. “Employers that have suspended their match to try to keep their businesses alive” are another negative factor, he said, along with companies that had been planning to offer a retirement plan that have now put that on hold.
What also needs to also be considered, he continued, is the massive amount of spending that policymakers have put through to keep economies alive. This increased public debt will have inevitable consequences down the road, Farrington said. “We need to not only think short term, but have an eye to the long term,” he said.
Unfortunately, said Esty Dwek, head of global market strategies at Natixis Investment Managers Solutions, while we are now out of the “extremely sharp and violent recession, to continue to move forward, we are going to need that spending to keep the recovery going. Even if we have a good 2021, we are still talking 2022 or 2023 before we get back to 2019 growth levels.
“Ultimately, one of the long-term consequences is people might need to work longer to put more money into their nest eggs,” Dwek continued. As governments continue to support their economies and resources eventually wear thin, they might “need to decide where to allocate the funds because there isn’t enough to go around,” she said.
With the Federal Reserve vowing to keep rates low through 2023—and there being some talk that the policy could actually last until 2028—retirement plan participants and pension plans alike need to save more, Dwek said. Should governments permit pension plans to do so, they also have the option of “going further and further down the risk spectrum—investing in private assets, illiquids and alternatives—and giving up some of the liquidity to match what they are going to need for the longer term,” she said. “Some pension plans can afford to have a small portion of their assets locked up.”
Goodsell and Farrington also spoke of climate change as being a financial risk to economies and, through their portfolios, individual investors.
“Climate change will cause disruption,” Farrington said. “It may not be cataclysmic, but we have to plan for it because it is a real risk.” He added that by 2025, Millennials, who generally support environmental, social and governance (ESG) investing, will comprise 75% of the workforce, making ESG choices in a workplace retirement plan’s investment lineup a smart move by sponsors.
Farrington also said the wellness of individuals is one of the factors impacting the rankings in its Global Retirement Index.
Goodsell said growing income inequality has contributed to the social unrest in the United States this year. Dwek added, “Unfortunately, it is a huge problem, we know, for women and minorities, who typically are in lower paying jobs, which means lower contributions, which in turn, means less savings. With everything happening in the U.S.—including the protests that went global—maybe, finally, we are going to start to change that and find a way to address savings inequality, but it is a long road ahead of us.”
Farrington said one way companies and individuals can combat the negative forces that threaten future retirees is to save more and to offer retirement plans universally, and with automatic enrollment and escalation. Dwek said, in reality, “you are only saving enough if it hurts.”
The United States ranks 16th in the Natixis 2020 Global Retirement Index. Farrington said that while the U.S scores 85% when it comes to the health index and 71% with respect to the finances in retirement index, quality of life is 72% and material well-being is 64%. The top-ranking countries scored well on all four measurements.
Top 10 Countries for Retirement Security1.) Iceland
6.) New Zealand