4 critical threats confronting global retirement security

4 critical threats confronting global retirement security

By: 
PC Lee
06/09/18, 04:32 pm

SINGAPORE (Sept 6): Historic-low interest rates, staggering levels of public debt, expanding old-age dependency and eroding quality of life for retirees are some of the economic realities and societal trends putting retirement security under much pressure in the decade following the Global Financial Crisis (GFC).

In theory, retirement security should work on the principle of workers saving over a lifetime, employers providing retirement benefits, and policy makers collecting payroll taxes to fund government benefits. However, in reality, the traditional three-pillar model is no longer able to live up to the promise of retirement security.

“To make retirement security systems more sustainable, it is critical for policy makers to understand how these and other factors pose a risk to retirees in order to strike the delicate balance needed to ensure long-term sustainability of retirement systems globally,” says Natixis Investment Managers in its 2018 Global Retirement Index report.

Here are four main threats confronting retirement security:

1. Monetary policy that’s perpetually stuck in crisis mode
A decade of low yields has translated into greater liabilities for pension managers who have fewer options for growing assets over the long term.

This is likely to be one of the main reasons why respondents to Natixis IM's 2017 Global Survey of Institutional Investors rank interest rates as their top portfolio risk concern (62%), ranking it higher than volatility spikes (53%), liquidity (32%) and inflation (27%).

“The big challenge going forward will be how rate hikes are implemented as central banks start the unprecedented process of quantitative tightening and raising interest rates to normal levels,” says Natixis IM. “While higher rates will be a positive for pensions and pensioners in the long run, it is the short run that poses an immediate challenge.”

2. Slow growth and the weight of public debt
Even though markets recovered from the GFC, they now presented a new and maybe bigger threat to global retirement security – staggering levels of public debt.

Policy makers have limited funds to work with and retirement benefits, education, and infrastructure must all vie for a share of the same revenues that fund both defence budgets and interest payments on public debt.

“As debt increases, the funding available for retirement benefits and other social services decreases. Depending on who’s in power at any given time, tough decisions will have to be made about where to spend and where to cut,” says Natixis IM.

3. Old-age dependency keeps growing
According to United Nations data, the world’s population of individuals age 65 and above increased from 6.2% in 1990 to 8.3% in 2015. But it is within the next 25 years that the ageing phenomenon is likely to reach critical mass in the developed world, as the number of individuals age 65 and older is estimated to reach 25.2% in 2040.

Old-age dependency ratios measure the burden placed on workers to provide pension, healthcare, and social security benefits to retirees. The higher the ratio, the greater the burden on workers. Policy makers have limited tools at their disposal to help alleviate the impact of aging on retirement systems, few of which are popular.

While immigration is also seen by some policy makers as an opportunity to offset an aging population by increasing the number of working age individuals within their country, this remains “a hot button populist issue across the globe”, says Natixis IM.

4. Eroding quality of life for retirees
Access to employment opportunities, healthcare services and a clear, stable environment are all essential to ensuring a high quality of life for retirees in the 21st century. However, employment in the decade following the GFC is an issue that has evolved from record unemployment to the appearance of the gig economy to the rise of automation and machine learning.

Although the gig economy can give employers access to qualified workers without adding to benefit and tax rolls and give workers access to flexible employment, it can present a significant long-term retirement problem if gig workers do not have access to retirement savings plans.

Rising healthcare costs present yet another quality-of-life challenge to retirement security. Following the logic that as individuals age, so do the frequency and severity of health issues, it is right to assume that on average retirees face much higher healthcare costs than they did in their younger years.

Singapore's housing dilemma: What are the broader implications?

SINGAPORE (Sept 17): In the past year and a half, the issue of the 99-year leases on Housing & Development Board (HDB) flats has triggered much debate. Now might be a good time to step back and examine what exactly has changed as a result of this debate and what the broader implications are. In fact, this issue could be a major game changer in many areas. Certainly, housing market dynamics will change, there could be shifts in savings behaviour and we are also likely to see major policy changes over time. These are big changes and it is important that Singaporeans have a clear understandin....
Read More >>

Najib to be charged tomorrow for RM2.6 bil in accounts

SINGAPORE (Sept 19): Malaysia’s former prime minister Najib Razak has been arrested today in connection to RM2.6 billion ($860 million) of 1MDB funds deposited into his personal account. According to a press release issued by the Malaysian Anti-Corruption Commission (MACC), Najib was arrested earlier today at 4.13pm at the MACC headquarters in Putrajaya. The former premier will be brought to the Kuala Lumpur Sessions Court tomorrow (Sept 20) at 3.00pm to face “several charges” under Section 23(1) of the MACC Act. The MACC also said that it will cooperate with the police to recor....
Read More >>

HNA explores sale of newly acquired CWT logistics unit

HONG KONG (Sept 19): China's HNA Group is in talks with banks to find a buyer for its CWT logistics unit, nine months after it acquired the Singaporean business in a US$1 billion  ($1.4 billion) deal, several people familiar with the matter told Reuters. See: CWT receives formal US$1 bil takeover offer from HNA See: HNA to face $3.1 bil liquidity crunch this quarter See: HNA's fire sale gets into full swing from Hong Kong to London See: HNA Group co-chairman Wang Jian dies after accident in France The sale, if completed, would be the latest in a series of divestments aimed ....
Read More >>