Australia ranked 6th globally for retirement outcomes in 2018 Natixis Global Retirement Index

From

Damon Hambly

Australian retirees’ wellbeing is again ranked 6th in the world for the third year running, according to new research from Natixis Investment Managers. Australia’s ranking is largely attributed to an improvement in the “Finances” sub-indices, and stability in the “Health” and “Material Wellbeing” sub-indices, where it ranked 4th, 13th, and 21st respectively.

The 2018 Global Retirement Index (GRI), released today, assesses 43 countries on factors that drive retirement security, providing an overall ranking and percentage score as an indicator of the attractiveness of a country’s retirement environment. The index is made up of four sub-indices – Material Wellbeing, Quality of Life, Health, and Finances in Retirement – based on 18 indicators, including life expectancy, income per capita, old age dependency, inflation and real interest rates, among others.

Global high regard for Australia’s superannuation policy

Commenting on Australia’s overall ranking, Damon Hambly, CEO Australia at Natixis Investment Managers, said: “Australians should be proud of our ranking, largely attributed to our compulsory superannuation policy, considered among the best retirement systems in the world. We have performed better as a country in terms of the strength of our Finances in Retirement. However, the nation ranked 21st for Material Wellbeing, due to lower scores for income equality and income per capita indicators.
“Despite the country’s good results overall, revelations from the Royal Commission show that Australia still has further to go in terms of improving standards in our financial services sector, which is central to the quality of retirement outcomes.
“Strong social programs, widely accessible healthcare and low levels of income inequality are the hallmarks of high-ranking countries, and these are all evident in Australia. However, no country is immune from the challenges associated with an ageing population, higher life expectancies and low interest rates, all of which strain government resources and put more of the financial burden on individuals.”

Australia’s environmental performance maintained

Despite being in the top 10, Australia still has work to do on the environmental front. In 2017, Australia moved up significantly due to declines in CO2 emissions and the increased prevalence of renewable energy. While Australia has maintained its ranking, it is now ninth-lowest for environmental performance, despite holding the highest overall air quality score.

“The GRI shows that Australia’s environmental results are decidedly mixed. But we know from this year’s Natixis Global Institutional Investor Survey that the intention is certainly there, so things should change for the better. The Survey revealed that investor focus on environmental factors is stirring demand for ESG investment, which 59% of institutions say contributes to performance. And 71% of millennials say they would save more if they knew their investments were going towards a social good.

“So offering more ESG options could be one way that fund managers encourage young people to contribute more to their superannuation and engage with their money. From a local perspective, we’ve certainly seen a rise in investor demand for ESG offerings within superfund offerings, and a strong interest from local institutions in Natixis affiliate manager Mirova, which specialises in ESG and impact investing.” said Damon Hambly, CEO Australia, Natixis Investment Managers.

Investors urged to take a long-term view, embrace alternatives

One of the key themes to emerge from the GRI is the need for stakeholders in the financial services sector to re-evaluate old assumptions in order to improve retirement outcomes. A long-term view of investing is considered essential, and investment managers are urged to refrain from encouraging a focus on daily and quarterly returns that obscure long-term thinking and encourage emotional investment decisions.

“As an industry, we must have the ability to help investors navigate the complex factors which contribute to retirement security, and that means building portfolios with a focus on risk, rather than short-term performance goals.

Our latest survey of institutional investors showed that 70% look to alternatives to diversify portfolio risk and 73% of financial advisers say the same. Changing demographics have increased the burden on governments, and this means that asset managers need to work with investors to understand how they can diversify their portfolio and navigate changing economic conditions over the long term,” said Damon Hambly, CEO Australia, Natixis Investment Managers.

Global trends

Policy makers are encouraged to learn from the following major variables which, when well-managed, help ensure a more secure retirement.

  • Economics:  Monetary, fiscal and healthcare policies all play a critical role in ensuring retirees are self-sufficient. This security extends beyond savings vehicles, and must focus on the fact that a growing population will need to live on a fixed income for many years.
  • Access: As more of the responsibility for funding falls to individuals, they must be encouraged to start early and contribute more. Policy makers and employers need to work together to help them succeed.
  • Incentives: Favourable tax treatment of savings has been shown to be a powerful tool to encourage positive behaviour. The asset management industry needs to provide better long-term solutions and take steps to keep investors on track.
  • Engagement: Encouraging individuals to engage in their retirement plan, including super as well as any other savings. When they fully understand their goal, they can make better decisions around risk and long-term outcomes.

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