Wealth gap, low rates hinder retirement savings

In a Tuesday webinar hosted by Natixis Investment Managers, panellists spoke about critical risks to retirement, such as economic inequality and the rapidly growing wealth gap.

“This wealth gap is accelerating and it’s a problem,” said Edward Farrington, head of retirement and institutional at Natixis Investment Managers.

Farrington noted that in 1970, 62% of aggregate income in the U.S. was held by middle-income households and 29% was held by upper-income households. By 2018, middle-income households held only 43% of the wealth and upper-income households held 48%.

Race is also a factor in income inequality, Farrington noted.

“Black households in America have only 61% of the wealth of white [households],” Farrington said. “That issue is going to continue to show up and cause social unrest.”

Esty Dwek, head of global market strategy for Natixis Investment Managers Solutions, noted that Black Lives Matters protests around the world may signal that change is coming.

“With everything that has happened in the U.S. and with the protests that went global eventually, maybe — finally — we’re going to start to change,” Dwek said.

With regard to Covid-19, Dwek said the effects of the pandemic on the global economy will likely be felt “for months and quarters to come.”

Dwek said she expects it won’t be until 2022 or 2023 “before growth returns to 2019 levels.” Interest rates, she added, are likely to stay low until nearly 2030, considering how long it took for central banks to ramp back up after the 2008 recession.

Low rates make it tough for retirees across the globe to net decent returns and compound their savings, Farrington and Dwek noted.

Dwek suggested that retired people and people approaching retirement will have to take on more risk, give up liquidity, or do both. In general, increasing exposure to equities is a must, she said, adding that investors are working longer to add to their nest eggs.

Farrington and Dwek also pointed to the “serious risk” of climate change and the related health implications.

Dwek said she expects institutional investors and pension plans will seek to reduce climate risk through environmental, social and governance analysis.

A greater number of investors will “want to have more ethical investments going forward,” she added.

Canada holds spot in global ranking

During the webinar, Natixis also discussed the results of its 9th annual Global Retirement Index (GRI), in which Canada once again ranked eighth out of 44 countries.

Canada’s overall score was 75%, down from 76% a year earlier, based on assessment of 18 criteria grouped into four thematic categories: health, quality of life, material well-being and finances in retirement.

Canada received an improved quality of life score — 77%, up from 76% in 2019 — and enjoyed “higher scores in the environmental factors, biodiversity and happiness indicators,” although it had the eighth-lowest score for biodiversity.

Iceland topped the Natixis ranking, followed by Switzerland, Norway, Ireland, the Netherlands, New Zealand, Australia, Canada, Denmark and Germany.

The country with the lowest score was India (9%), preceded by Brazil in 43rd place (36%) and Turkey (40%) in 42nd place.

Read the full Natixis report.