Research undertaken by French asset manager Natixis for the 2017 edition of its Global Retirement Index (GRI) shows the UK scoring 72 out of 100, placing it right below the Czech Republic and the United States, and just above France and Israel.
In a report accompanying this year’s release, Natixis attributed a large part of the decline in the UK ranking “to the continuing low-yield environment, exacerbated by uncertainty over the UK’s future and implications of Brexit”.
Launched in 2013, the index assesses how well citizens in various nations are set up to enjoy a comfortable retirement. It does so by creating an overall retirement security score for each country.
This is based on 20 performance indicators grouped in four thematic sub-indexes – each covering key aspects of welfare in retirement – by which countries are ranked:
- access to quality financial services to help preserve savings value and maximise income (indicated as “Finances in retirement” in the index);
- the material means to live comfortably in retirement (“Material well-being”);
- access to quality health services (“Health”); and
- a clean and safe environment (“Quality of life”).
Index analysis
The United Kingdom registered a fall in its Health score to 16th place but has improved in Finances in retirement (34th) and Quality of life (14th). Its Material well-being score (15th) is the same as last year.
In particular, the investment firm’s findings emphasise how the country still ranks in the bottom 10 for the Finances in retirement sub-index – whose contributing factors include interest rates, inflation, tax pressure, public debt and old-age dependency.
Despite improving in both rank and score from last year, this is still by far the worst performing category for the UK.
Low-interest rate woes
Notably, this is the second year in a row in which the UK scores at the very bottom of countries surveyed on the interest rates indicator.
This is mainly due to low rates eroding retiree savings, the report pointed out.
“Any potential interest rate rise would have a positive impact on retirees’ ability to generate an income from their savings”, said Chris Jackson, chief international operations officer for Natixis.
“However, as the UK’s future remains uncertain the likelihood of an interest rate rise is unlikely”.
On the flip side, the UK “continues to boast the ninth-highest score for bank non-performing loans of all countries in the GRI and does relatively well in governance”, the report said.
As mentioned, the country also manages to improve its Quality of life sub-index performance. This can be attributed to developments made in environmental factors – most notably, increased renewable energy usage and a reduction in CO2 emissions per capita.
Reacting to shifts in demographics
Two major themes of the report – which aims to be a comparison tool for best practices in retirement policy – are the challenges to retirement security in a world of ageing populations and increasing longevity, and the need for governments to address these demographic trends sooner rather than later.
“Demographic shifts towards an older population and ever expanding life spans challenge the abilities of public and private institutions to meet the needs of a rapidly growing number of retirees worldwide”, observed said David Goodsell, executive director of Natixis’ global research centre and one of the authors of the report.
In Japan, the United Kingdom, the United States, Italy, and Australia 90% of those in the over 65 age bracket receive some sort of public pension, according to the 2015 report ‘An Aging World’ published by the US Census Bureau and referenced in the Natixis study.
These countries already have high old age dependency ratios, which measure the number ratio of people age 65 and older as compared to those of working age. The bigger the pipeline of younger workers relative to older workers, the lower (and better) the score.
The need to adapt
The overall takeaway of the study is that traditional retirement funding models and support systems will need to be adapted to address these new realities.
With a decreasing number of defined benefit pensions in the UK still accepting new employees, the Natixis analysis suggests that the most effective solution to widening access to retirement benefits is sharing responsibility between government, employers and individuals.
“The introduction of auto-enrolment has been a big step forward”, said Chris Jackson, chief international operations officer for Natixis.“But it will be crucial to find ways to encourage employees to increase their contributions over time. This is the only way to avoid a serious retirement crisis in future years”, according to Jackson.
“But it will be crucial to find ways to encourage employees to increase their contributions over time. This is the only way to avoid a serious retirement crisis in future years”, according to Jackson.
Strategies to help workers finance their own needs in retirement as indicated in the report include “broadening access to workplace savings plans, providing tax incentives to encourage savings and solutions, and enacting policies to foster financial education and investment options”.
Global results
Overall, forty-three countries with developed retirement systems were assessed in 2017 at a global level. Among the leading countries for retirement security identified by the index, Northern Europe dominates the top 10 with eight countries drawn from the region.
Norway, Switzerland and Iceland remain the three most attractive countries for retirement as they once again claim the top three spots in the GRI.
Rounding out the top 10 were include Sweden, New Zealand, Australia, Germany, Denmark, The Netherlands, and Luxembourg.
Luxembourg and Denmark were new additions to the top 10 this year and two of the most-improved performers. Canada and Austria, which ranked 10th and 9th in 2016, respectively, fell to 11th and 13th place respectively.
The five lowest ranking countries in 2017 were Turkey, Russia, Brazil, Greece and India – unchanged from 2016.
