Australia in the top 10.
Australian retirees’ wellbeing is ranked number six in the world, according to new research from Natixis Global Asset Management.
The 2017 Global Retirement Index (GRI), released yesterday by Natixis Global Asset Management, measures the ability of countries to meet the needs of retirees. It examines the factors that drive retirement security and provides a comparison tool for best practices in public, fiscal and retirement policy in 43 nations around the world.
Top ten countries for retirement outcomes
The top ten countries are dominated by Western Europe (8 of the top 10), with Norway at number one, followed by Switzerland, Iceland, Sweden, New Zealand, Australia, Germany, The Netherlands, Denmark and Luxembourg. While Australia and New Zealand reach the top ten, the wider Asia Pacific region was the worst performing region overall as the poor rankings of China and India and population-weighted methodology impacted the region’s score.
“Australians can be justifiably proud of our robust retirement system, which is held up as an example of global best practice on many fronts, particularly financial wellbeing. There’s no question that Australians benefit from mandatory superannuation polices, which have contributed to ongoing strong performance in the Global Retirement Index. However, the index reveals room for improvement in Australia’s score for material well-being, which measures retirees’ ability to support themselves based on income per capita. This suggests that there still needs to be greater individual engagement with super in order for retirees to achieve the outcomes they desire,” said Kevin Haran, Managing Director of Natixis Global Asset Management in Australia.
Introduced in 2013, the GRI creates an overall retirement security score based on four factors that affect the lives of retirees. Finances in retirement are weighted most heavily, but the index also includes considerations for material wellbeing, health and quality of life to provide a more holistic view.
Australia’s environmental performance improves
Australia registered the fifth-strongest improvement of all countries in the environmental factors indicator, primarily due to declines in CO2 emissions and the increased prevalence of renewable electricity. Nevertheless, the country still has the ninth-lowest score in the environmental indicator, so further improvements are needed.
“Australia’s strongest year-on-year improvement was within the environmental ranking, which in turn boosted the country’s overall performance for Quality of Life in Retirement (9th place in 2017 vs 13th place in 2016). This is in line with recent research from Natixis Global Asset Management that shows that ESG investing is becoming a key consideration for investors. From a local perspective, we’ve seen an increased demand for ESG offerings within superfunds’ offerings, and a strong interest from local institutions in Natixis affiliate manager Mirova, which specialises in ESG and impact investing,” said Mr Haran.
Superannuation policy remains the centrepiece for high achievement
Australia’s compulsory superannuation is the centerpiece of what is viewed by many as one of the best retirement systems in the world. The Australian pension market is one of the world’s largest ($2.3 trillion as at March 2017, according to ASFA), and is praised for its voluntary contributions system.
Australia’s low interest rate environment and sustainable public finances drive its strong ranking in overall finances in retirement (5th overall), demonstrating positive signs for the purchasing power of retirees. While Australia still ranks favourably for governance, a slight decline in indicator score sees it fall one spot and out of the top 10 for this sub-index.
Innovation needed from asset managers
Mr Haran said innovation from asset managers could help Australians achieve better retirement outcomes.
“Australia’s mandatory superannuation policies are lauded by policy-makers around the world in terms of their improvement to retirement outcomes. However, at an individual level, many people don’t have a clear idea of what is needed to retire comfortably. The GRI aims to help spark the initial conversation about retirement plans. The asset management industry has a vital role to play here in helping to educate investors; understanding their goals, and constructing durable portfolios to respond to market factors and each individual’s risk tolerance,” said Mr Haran.
Global Trends
Policy makers and employers can learn from the following major trends that characterise the top-ranked nations:
1. Access: An ageing workforce and increased lifespans in many Western countries have made traditional pay-as-you-go models for government retirement benefits unsustainable. As individuals assume greater responsibility for their retirement funding, public policymakers in leading countries ensure workers have access to alternative savings models.
2. Incentives: Smart policy expands short-term incentives for retirement savings in order to reduce long-term challenges in providing support for retirees. Favourable tax treatment for retirement savings helps workers put away more money, making it more likely they can take care of their own needs.
3. Engagement: Automatic enrolment in workplace retirement plans is a step in the right direction, but there needs to be more information and education about how to maximise plan benefits. Good policy also ensures that workers have the right balance of investments.
4. Economics: Retirement security extends beyond the savings vehicles themselves. It includes consideration for an ageing population that will be living on a fixed income. Monetary, fiscal and healthcare policies all play a role in ensuring retirees are self-sufficient.