The COVID-19 pandemic, economic crises and other issues have intensified longer-term threats to retirement security, including record levels of public debt, lower for longer rates, climate quality and income inequality.
In a supplemental report to the 2020 Global Retirement Index released this week by Natixis Investment Managers, titled “What Could Possibly Go Wrong?,” Natixis identifies five specific issues that the firm believes present the greatest threats for retirement security in the future. They include:
- The long-term impacts of the recession on savings: The speed and severity of the global economic slowdown stemming from the COVID-19 outbreak are greater than those in recent recessions. Resulting measures taken to cover income shortfalls may dampen the savings needed for future retirement security. For instance, workers may make hardship-based early retirement withdrawals that are never replaced, and employers may reduce or suspend matching contributions to defined contribution plans, steps that may become permanent.
Image: © Mustsansar Syed | Dreamstime.com - Falling interest rates disadvantage retirees: Rates in the U.S. and other nations have been at historic lows for a dozen years, but central bankers lowered them further as part of stimulus efforts. Lower rates may require individuals and institutions alike to be more creative about how they prepare to meet longer-term needs and commitments.
- Fiscal stimulus raising public debt: The $12 trillion of fiscal and monetary stimulus provided globally has kept economies afloat during the COVID-19 pandemic, but will magnify already high levels of public debt. While low interest rates keep debt servicing costs manageable today, those same low rates may tempt policymakers to boost spending, further increasing public debt. In order to control spending in the future, governments could be forced to raise taxes, including on retirees, and reduce funding for retiree healthcare programs and public pensions.
Image: © Trong Nguyen | Dreamstime.com - Climate-related disasters threatening retirees: As seen in brush fires in Australia, wildfires in California, and typhoons and hurricanes in Africa, Asia and the Americas, climate-related natural disasters are becoming more frequent and more severe. Air pollution, too, is worsening, posing greater safety and health risks for vulnerable retirees, including chronic cardiac and pulmonary illnesses. Such disasters also have financial implications, including higher insurance costs, increased food expenditures as crops fail, and greater housing expenses as storm severity grows.
- Inequality worsens economic outcomes: The issues of inequality—of race, gender and other factors—have come to the fore in the U.S. and other nations. Research globally illustrates race and gender gaps in both worker pay and access to workplace retirement plans, with implications for inequality in retirement income. Lower lifetime earnings and contributions to savings can result in imbalances that last past the working years into retirement, with lifelong gaps in savings and income that, in the case of women, are exacerbated by longer lifespans.
“The Natixis Global Retirement Index is an accurate snapshot of retirement security that serves as an important guide for policymakers,” said Edward Farrington, Head of Retirement Strategies at Natixis Investment Managers. “At the same time, the COVID-19 pandemic, economic crises and other issues that have come to light this year have intensified longer-term threats. It will be important for individuals, employers, institutional investors, asset managers and policymakers to plan for how they will take on the challenge of retirement security in the years and decades to come.”
The report provides suggestions for how individuals, employers, institutional investors, policymakers and asset managers can begin to address these trends now. For more information, download the 2020 Global Retirement Index here.