Which country ranks #1 in retirement security?

Norway comes out as the No. 1 country for retirement security, finds the 2016 Global Retirement Index, released by Natixis Global Asset Management. Switzerland, Iceland, New Zealand and Sweden round out the top five.

Where does Canada rank? At number 10. The U.S. is 14th on the list. The Index examines key factors that drive retirement security and provides a comparison tool for best practices in retirement policy across 43 countries.

Read: Working-age Canadians not saving for retirement

“Retirement used to be simple: Individuals worked and saved, employers provided a pension, and payroll taxes funded government benefits, resulting in a predictable income stream for a financially secure retirement,” says John Hailer, CEO of Natixis Global Asset Management in the Americas and Asia. “Demographics and economics have rendered the old model unsustainable.”

Canada places 10th

The index shows Canada has relatively high per-capita income and low levels of income inequality. Canada also spends substantial amounts on healthcare and provides excellent health insurance coverage.

On the other side of the ledger, low interest rates and relatively high levels of government debt are not as favorable to Canada’s retirees. The former makes it difficult for older Canadians to keep up with increased living costs; the latter could affect the country’s ability to finance social programs over the long term.

Read: Manitoba joins other provinces in efforts to reform CPP

Also, Canadian investors are acutely aware of the increasing need for individuals to fund a greater share of retirement. In a survey of investors conducted by Natixis earlier this year, 72% say the costs associated with old age will fall increasingly to them rather than to the government.

Although 72% of Canadians in the study identified retirement as their highest financial priority, many may be underestimating how much money they need to save to retire comfortably. Investors estimate they’ll need to replace only 60% of their current income when they retire, short of the 75% to 80% generally assumed by planning professionals. They set aside 10.5% of income for retirement, below the average rate of 12.1% among investors from 22 nations in that study. A high proportion (45%) say they don’t participate in a workplace-based savings program.

Canadian investors see clear hurdles to financial security in retirement, identifying their three greatest challenges as: long-term care and healthcare costs, outliving their assets and inflation. When asked how they would make up for an income shortfall, 52% say they’ll continue to work in retirement.

Read: Canada needs national approach to retirement income reform: IIAC

Four global trends

• Access: An aging 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 policy makers in leading countries must ensure workers have access to individual or work-based savings programs.
• Incentives: Smart policy expands incentives for individuals to save for retirement. Favourable tax treatment for retirement savings helps workers put away more money, making it more likely they can take care of their own needs.
• Engagement: Automatic enrollment in workplace retirement plans is a step in the right direction. Good policy also ensures that workers have the right balance of investments and enough information to help them maximize the benefits of plan participation.
• Economics: Retirement security extends beyond savings vehicles. It includes consideration for an aging population that will be living on a fixed income. Monetary, fiscal and healthcare policies all play roles in ensuring that retirees are self-sufficient.

“With individuals assuming greater responsibility for their retirement funding, it will be up to policymakers, employers and the investment industry to find innovative solutions to ensure workers have the tools and incentives they need to save enough for retirement,” Hailer says. “Achieving retirement security is a daunting goal, but it is within reach if all stakeholders do their part.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.