The annual Global Retirement Index survey conducted by Natixis provides a telling snapshot of the relative performance of the world’s retirement systems, broken down by workers’ ability to meet expectations, needs and ambitions around long-term financial health.
Like Switzerland, Natixis finds other countries in the top 10 this year share three important characteristics—a well-developed and growing industrialized economy with a strong financial system and effective regulations; public policies that provide broad access to health care and other social services; and substantial public investment in infrastructure and technology.
“Given these factors, it is not surprising that eight of the 10 highest-ranking countries are located in Northern Europe,” Natixis explains. “New Zealand and Australia are the two non-European countries to reach the top 10 due in large part to mandatory retirement savings schemes. Australia’s Superannuation Guarantee system and New Zealand’s voluntary KiwiSaver demonstrate that security for retirees begins well before the date an individual actually retires.”
Despite relatively high tax burdens, the Northern European countries that comprise the largest share of the top 10 also rank highly in per capita income and demonstrate a narrow or improving gap in income equality across their citizens, Natixis says. Like Switzerland, number-two ranked Norway also provides universal health care to citizens and has a sound banking and financial system.
Where does the United States rank on the list? Not as high up as industry practitioners might expect given the nation’s global influence. For the second year in a row the world’s second-largest democracy achieved 19th place on the global retirement readiness ranking. Among other challenges like income inequality, Natixis finds retirement success in the United States is hampered by its strained health care system, which is improving on some measures but still underperforms care delivery in the Scandinavian countries and other parts of Europe.
Apart from the direct labor and economic factors influencing retirement planners, Natixis says health care significantly impacts the Global Retirement Index results. Researchers say the quality of a nation’s health care and the physical wellbeing of its population are key contributors to widespread retirement readiness.
“Each of the top 20 performers in the 2015 index have modern health care systems, which include high levels of physicians per capita, sustainable health expenditure per capita and high life expectancy,” the survey report suggests. “The worst performing countries in the 2015 index lack modern infrastructure and have non-existent or underdeveloped health care systems.”
For the third year, Austria ranked highest in health care effectiveness, followed by Germany and France. Despite having the world’s highest health expenditure per capita, Natixis says life expectancy in the U.S. has actually declined slightly. In addition, the U.S. health system is constrained by high demand and limited capacity of beds and physicians per capita, causing concern for retirees.
Looking more deeply at the U.S. data in this year’s survey report, Natixis says a persistent budget deficit and high levels of government debt continue to create headwinds for widespread retirement success. Coupled with increasing tax pressure, these factors have largely overshadowed improvements in other financial indicators coming out of the most recent financial crisis.
“In fact, the U.S. banking industry has improved its loan quality as the default ratio dropped to 2.3% from 3.9% last year,” Natixis observes. “Moreover, inflation had decreased from 3.1% to 2.07% by mid-year and then dropped under 2% for the remainder of 2014. With unemployment on the decline and revived economic growth on the horizon, expectations of a rise in interest rates in 2015 are high.”
Natixis finds this is likely good news for U.S. retirees purchasing an annuity and those relying on fixed-income investments to fund their retirement goals—though market volatility resulting from interest rate policy changes could spell short-term trouble. Despite having one of the highest income per capita ($54,000) levels, the United States continues to rank low for income equality relative to other developed economies, Natixis finds. This could be a potential explanation for a comparatively low life expectancy despite the world’s highest health expenditure per capita, the report observes.
Another key finding from this year’s analysis is that the role of the financial advisory community has never been more critical, as noted by David Lafferty, the chief market strategist with Natixis.
He tells PLANSPONSOR that, as investors around the world look to ease the burden of funding retirement, financial advisers are in a unique position to step forward to help clients set clearer goals and establish more specific plans for both accumulating retirement assets and turning savings into a reliable income source in retirement.
“Our research identifies that helping clients to more clearly define retirement goals and expectations on retirement income is among the key trends that are shaping today’s advisory practices,” the survey report explains. “While they cannot resolve the deep structural challenges some governments face, financial advisers are in a position to drive demand for investing strategies that will empower individuals with greater control of their own financial security and deliver durable portfolios that can withstand market fluctuations over time.”
Natixis says its previous research reveals two-thirds (66%) of investors agree a traditional approach that relies only on stocks and bonds is no longer the best way to pursue investment returns. And at the same time, only 38% of financial advisers now deem conventional portfolio strategies (i.e., a diversified 60/40 portfolio of equity and fixed income) as the right solution.
Instead, top advisers are offering goal-based investing programs to their clients. As Natixis observes, this approach places the emphasis on what an individual needs to save to meet specific goals, rather than simply trying to outperform “an irrelevant benchmark.” Nearly seven in 10 advisers globally say they encourage clients to have a target return that is independent of the market, Natixis finds.
The Natixis Global Retirement index incorporates 20 performance indicators, grouped into four thematic sub-indices, which have been calculated on the basis of reliable data from a range of international organizations and academic sources and taking into account the particular characteristics of the older demographic retiree group, in order to assess and compare the level of welfare in retirement in different countries around the world.
More information about how to obtain the 2015 report is available here.