Pamela Heaven
Oct. 2, 2020
Risks posed by the pandemic could be felt for decades to come
Canada ranks in the top 10 of the best places in the world to retire, a new global study finds, but the COVID-19 pandemic is tipping the scales against retirees.
For the second year in the row, Natixis Investment Managers’ Global Retirement Index placed Canada in 8th place among 44 developed nations. Iceland, Switzerland and Norway top the ranking while the United States came in 16th and the U.K., 17th.
The Natixis index looks at 18 factors that influence retirement security including finances, health and quality of life.
Though Canada kept its ranking this year, its position is shaky because of declines in material wellbeing, finances and health, the study said. Its worst performance was in health and life expectancy, which slipped from a ranking of 10th to 16th. Finances took a hit because of poorer governance and non-performing bank loans. Canada also slipped two positions in the happiness indicator.
But according to Natixis, the outlook is darkening for retirees around the world.
Retirement security was already precarious at the start of 2020. Twelve years of low interest rates have decreased seniors’ income and increased liabilities for pension managers.
“If the world was risky in January, by June it had become a high-wire act as public health, social, economic, and financial risks all reached peak levels of concern,” the report said.
Natixis says the pandemic and policy actions taken to ease its economic impact will have lasting implications for retirement security. Here are the five key threats:
Eroding savings
The unprecedented speed and severity of the COVID-19 recession means that workers around the world have been forced to draw on retirement savings to make ends meet, funds that likely won’t be replaced. Employers too may reduce or suspend contributions to pension plans, measures that may become permanent.
Falling interest rates
Interest rates have been low for more than a decade but now they are hitting bottom and below, with all indications that they could stay that way for years. Sixteen countries in the study now have negative rates.
“From an individual perspective, low rates are generally good for those buying houses, cars and other goods because it costs less to borrow money. However, for retirees, negative rates magnify the problem they face in generating income from investments. The implications of negative interest rates today likely will continue to affect retirees for many years ahead,” said Edward Farrington, Natixis’ head of retirement strategies.
Ballooning public debt
So far $12 trillion of fiscal and monetary stimulus has been pumped into world economies to keep them afloat in this crisis — and low interest rates may mean policy makers are encouraged to spend more. When the reckoning does come, taxes will go up and public pensions and health programs could be cut.
Climate disasters
Climate-related natural disasters such as wildfires, hurricanes and floods affect everyone, but retirees are especially vulnerable to effects such as worsening air pollution. Disasters also mean higher insurance costs and could hike food and housing expenses.
Inequality
Lower lifetime earnings and contributions to savings because of race and gender last long past the working years into retirement. For women, this can be exacerbated by longer lifespans.
“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,” said Natixis CEO Jean Raby.
