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Covid-19 poses long-term risks to retirement security
Retirees face more health and financial challenges amid low rates and rising public debt, says Natixis report
30 Sep 2020 | The Asset

The impact of the coronavirus pandemic on retirement security will likely be felt for decades to come, according to Natixis Investment Managers. “Covid-19 obviously poses significant risks to today’s retirees, as mortality rates from the disease disproportionately skew to older individuals. But policy actions taken to address the economic ramifications of the pandemic present long-term risk to retirement security,” Jean Raby, chief executive officer of Natixis Investment Managers, says in the company’s report titled 2020 Global Retirement Index.

Interest rates, in particular, present a huge risk. Rates have been at historic lows for more than 12  years, but the global shutdown has forced even more cuts. Raby notes that between January and July 2020 alone, central bankers around the world implemented 173 rate cuts, and a growing number of central banks have moved to negative rates to quell market fears. Rates matter in retirement as they will affect pension liabilities and retiree income. Going forward, retirees will have to be resourceful in how they manage income needs, while pension managers will need to think creatively about how they will manage long-term liabilities, according to the report.

“As we see with current challenges, it will take a coordinated effort from policy makers, businesses and individuals to address the challenge of ensuring people can retire secure in the knowledge they have adequate financial resources after a lifetime of work,” Raby says.

Along with rates, the report also looks at the current economic pressures on retirement savings, the uncertainty presented by record levels of public debt, the physical and financial risks of climate change, and the long-term impact of income inequality.

Even before the health crisis, retirees have been facing the challenge of trying to make their nest egg last. “With the new challenges that coronavirus brings, from the risks of further waves of infection, to pressures on healthcare systems, retirees have an additional challenge to maintain their quality of life,” says Fabrice Chemouny, head of Asia-Pacific at Natixis Investment Managers.

The report says that even short-term obstacles to retirement savings have the potential to compound into a long-term problem. High unemployment means both retirement plan contributions and payroll taxes earmarked for public pensions are dramatically reduced. Adding to long-term challenges are the hardship plan withdrawals many have been forced to make just to stay above water.

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, the report says.

Meanwhile, climate-related natural disasters are becoming more severe and more frequent, and they are leaving vulnerable retirees exposed to higher levels of physical and financial risk.

The report also notes that 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.

Says Raby: “With so much that is uncertain in the world today, we believe that only collaborative efforts can make a positive difference in the results. Asset managers, among others, have to work alongside policy makers, employers and individuals to meet the challenge of ensuring a secure retirement for individuals around the globe.”

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