If ever there was a year to challenge retirement savings it’s 2020: with unemployment high and interest rates low as well as heightened concerns about income inequality, security of financial independence at retirement is no longer a sure thing, said panelists at a Natixis webinar.

“The demographics and realities of the developed world have challenged the math behind traditional retirement,” Dave Goodsell, executive director of Natixis Center for Investor Insight said at the late September seminar. “Nine months into the year and retirement security looks more like a high-wire act because of the pandemic [while] economic decline, climate-related disasters…and a growing awareness of economic inequality underscore the long-term risk.”

In compiling its 2020 Global Retirement Index, Natixis analysts looked at four major areas: health, finances in retirement, quality of life and material wellbeing. Iceland came in first overall, while Canada placed eighth overall. The United States did not make it to the top 10 in any of those segments.

Unemployment levels have soared

Around the world, unemployment levels have soared because of shutdowns due to COVID-19, reaching their highest levels since 1965, said Goodsell, translating into a greater risk for people to receive less income during the pandemic.

What this also means for individual employees is that if they no longer have a job or are being paid less, there will be a disruption in their savings plans, said Edward Farrington, head of Retirement & Institutional, Natixis Investment Managers.

Farrington said the employer faces the same dilemma, and have suspended matches they have made previously to employee contributions for their company pension plans.

Unique to 2020 is the growing number of countries allowing people to make up for lost income with penalty-free withdrawals from retirement and pension plans, he said. This, plus massive amounts of public money supporting employees will increase countries’ public debt, which may take years to pay off, he said.

Others might need to work longer to stop money from flowing out of their retirement nest eggs prematurely, said Esty Dwek, head of Global Market Strategy, Natixis Investment Managers Solutions.

Then, with interest rates almost as low as they can go in many places, many people, including those working towards retirement, may well go into debt, said Dwek, noting that it could be 2028 before central banks raise their rates.

Low rates will be tough on savers and they will be forced to scrimp “til it hurts,” said Dwek, struggling to put more into savings. “That means your nest egg has to become bigger because it’s not receiving the four or five per cent it was used to and now we’re closer to one-ish [per cent] and that’s going to last for a while.”

ESG investments

An interesting point made by the Natixis team is that products that purport to be socially responsible are expected to grow. While some may see ESG investments as still a little unconventional, the younger generation is adding more of these products to their investment portfolios, making them more mainstream.

Dwek said ESG strategies during the pandemic have proven defensive with structurally higher allocations to technology and healthcare.

“I think we’re also going to see something of an impact for those wanting an ethical – for lack of a better word – pension investment for our younger generation going forward.”

Farrington said that by 2025, 75 per cent of the workforce will be millennials and they will have a growing economic impact and percentage of wealth in their employer plans. Studies indicate that for that generation and the one following it, 7 out of 10 say they will invest in their pension plan for the first time or increase their contribution rate if they have access to a responsible and sustainable ESG investment.

He said employers have typically gone through rigorous ESG strategies that pass the fiduciary test and outperform in both terms of investments and participation.

Both Dwek and Farrington expressed optimism that demonstrations in favour of income equality that started in the United States and spread around the world might finally come to fruition.

A long road ahead

“But it’s going to be a long road ahead of us,” said Dwek. “Maybe the spotlight has been on it long enough that something good will come of it.”

Despite the current situation, economies have the ability to innovate and create jobs, said Farrington. Pre-COVID, the U.S. was close to full employment, making many believe that the great American dream of moving up the ladder was still possible. “That can be the beginning of a very great story,” he said.

Until all is settled, Dwek said employees should press their bosses for automatic pension plans across all sectors and push for plans that have tax incentives.

It’s almost important that employees educate themselves about tools that are available to them and to become engaged in their retirement savings, said Farrington.