For the second year in a row, Canada ranked No. 8 among developed nations for retiree well-being, according to Natixis Investment Managers’ annual global retirement index.

The index, which provides an overview of the relative well-being and financial security of retirees in 44 countries, examined 18 factors across four categories: finances in retirement, material well-being, health and quality of life. It found retirement security in Canada and other developed nations around the world now faces elevated threats of lower-for-longer interest rates, record levels of public debt, recession, income inequality and climate quality.

“When we started the year, retirement security was already on shaky ground — the demographic and economic realities of the developed world challenged the math behind traditional retirement,” said Dave Goodsell, executive director of the Natixis Center for Investor Insight, during a webinar on Tuesday. “Nine months into the year, retirement security looks more like a high-wire act as the pandemic and economic decline, climate-related disasters like the wildfires in California and Australia and a growing awareness of economic inequality underscore the long-term risk.”

Read: Most Canadians would choose greater retirement security over more money now: survey

Despite losing ground in the material well-being, finances and health categories this year, Canada held steady in its position. It dropped slightly, from No. 11 last year to No. 8 this year in the health category and suffered lower scores in the finances category, from No. 7 to No. 9. Within material well-being, increased unemployment caused its ranking in that indicator to slip from No. 26 to No. 29.

Canada’s quality of life ranking, which dropped from No. 16 to No. 15, helped stabilize its position. However, it slid two positions in the happiness indicator, which measures the quality of retirees’ current lives.

Globally, the top three nations remained unchanged from 2019, with Iceland in first place, followed by Switzerland and Norway. Ireland improved its performance steadily in each of the past several years, from No. 7 in 2018 to No. 5 in 2019 and No. 4 this year. The Netherlands had the largest climb in the overall rankings, moving from No. 10 to No. 5, mainly because of improvements in the quality of life sub-index.

The only country to leave last year’s top 10 was Sweden, which dropped from No. 4 to No. 11. Its steep decline resulted in part from poor performance in the finances category. Specifically, its decreasing five-year average for real interest rates – a concern for retirees on fixed income – moved into negative territory.

Read: Where can pension funds find returns in a low interest rate environment?

Indeed, interest rates in the major economies in North America, Europe and Asia have trended downwards over the last four decades, noted the report. In 2016, when the index’s methodology was adjusted to use a weighted five-year average of interest rates as part of the finances in retirement category, only one country — the U.K. — was working with negative rates.

That number has increased steadily and, in 2020, 16 countries in the index have had their five-year average for real interest rates move into negative territory. This means that almost 40 per cent of the developed countries ranked in the index are facing this retirement challenge today.

Looking at low interest rates from a pension plan member perspective, Edward Farrington, executive vice-president of institutional and retirement at Natixis Investment Managers, noted these savers have the ability to continue to expose themselves to riskier and riskier assets.

“That deal has paid off in the accumulation phase to a great degree for most savers around the world. But when you move into a part of your life where you’re spending your accumulated savings . . . there’s this reverse effect that starts to happen when you start to decumulate or spend. And that is, if you’re withdrawing, even if it’s on a monthly withdrawal plan . . . and the majority of your assets are risky assets and they’re highly volatile, . . . you’re withdrawing a substantial percentage of your accumulated savings and it can have this extremely negative effect.”

Read: Governments must focus on decumulation in the age of coronavirus

Looking at how pension plans are managing the challenges of a low interest rate environment, Esty Dwek, head of global thematics and macro research at Natixis Investment Managers, said one trend she’s seeing is an increase in investments in equities. “We’ve seen, across a number of countries, that regulators are allowing the portion of equities to go up somewhat. And everyone realizes that very low yields are going to stay for a very long time, so income isn’t coming back and we need to find other sources of performance.

“Beyond that, one of the big trends that we’re seeing, at least internationally, is private assets in liquids, alternative investments, trying to find different sources to complement. Now, you’re giving up something very often in terms of liquidity; if not, some pension funds can probably afford to have a small portion that’s locked up. It’s not a magic potion, but we are starting to see diversification coming up because you can’t be just exposed to fixed income anymore.”

Read: Half of institutional investors concerned about fixed income liquidity: survey

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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