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Retirement

UK falls to 22nd place in global retirement study

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The United Kingdom fell in the world rankings of retirement security, according to the 2015 Global Retirement Index, an analysis of 150 countries published today by Natixis Global Asset Management. 

The findings overall suggest that retirement security is uncertain for most retirees given unsustainable demand for government resources and macroeconomic factors that affect the value of retiree savings, placing more responsibility on individual investors for their own welfare in retirement.
 
The third annual Natixis Global Retirement Index showed the UK dropped back to 22nd place from 18th place a year ago. Northern Europe dominated the top 10, taking eight places, outranking Southern European countries which have been forced to cut their social benefit programmes more severely in recent years.
 
In the UK, real interest rates remained negative and government debt was higher than average. While the recovery has taken hold with a healthy rate of economic growth and the unemployment rate on a downward trajectory, real incomes have yet to benefit significantly from these improving fundamentals. However, as the improving economy translates into an improved quality of life for retirees and healthier public finances we can expect the UK to rise gradually in the rankings in years to come.
 
“Individuals will always be subject to sweeping political and economic events,” says Chris Jackson, Head of UK Retail and International Products for Natixis Global Asset Management. “This is particularly true in the UK With the pension reforms taking effect in 2015, individuals will have even greater freedom to provide for themselves in retirement. Our industry must continue to help individuals recognise that reality, and to help them do as much as possible to ensure their own retirement security.”
 
Most investors will need help to achieve retirement security. A worldwide survey by Natixis Global Asset Management1 found that 68 percent of investors don’t have a financial plan and only 16 percent say they have a clear idea of the annual income they’ll need to maintain their standard of living in retirement. Individuals should focus on factors within their control, such as financial planning, setting goals and being more engaged with their finances.
 
The index ranks 150 nations on 20 trends across four broad categories: personal income and finances; health and healthcare quality; and socioeconomic factors. Together, these trends provide a measure of the life conditions and well-being expected by retirees and near-retirees in each country.
 
European nations continue to enjoy the greatest financial security in retirement, taking eight of the top 10 places, with Switzerland and Norway leading the way for the second consecutive year.  Australia and New Zealand (No 3 and No 10 respectively) were the only non-European countries among the leaders.
 
The biggest movers in 2015 were Japan, Qatar and Kuwait, each moving up more than 10 places in the ranking, with Japan moving from 27th to 17th due to improvements in its health ranking, Qatar moving from 31st to 21st and Kuwait moving from 40th to 26th. The two countries have experienced rapid growth, enjoy the world’s first and second highest income per capita, and their unemployment rates are under 1.5%. Qatar has seen the quality of healthcare available to its retirees improve substantially over the past few years. Conversely, Greece slipped down 37 places to 76th and Spain dropped 26 places to 55th. 
 
Countries where retirement security is least secure are predominantly developing parts of the Sub-Saharan, Middle Eastern and Southeast Asian nations.
 
The top 10 nations are:

1. Switzerland
2. Norway
3. Australia
4. Iceland
5. Netherlands
6. Sweden
7. Denmark
8. Austria
9. Germany
10. New Zealand
 
The leading nations typically have growing economies; strong financial systems and regulations; public policies that provide broad access to healthcare and other social services; and substantial public investment in infrastructure and technology. For workers, they provide mandatory or quasi-mandatory retirement savings programmes.
 
As developed economies, these nations also face challenges. More of their citizens are reaching retirement age, and a high percentage of them are living decades beyond. At the same time, there are fewer working-age people to support the social programmes retirees have relied on. Since many of these nations already impose high taxes and their governments carry a heavy debt burden, the long-term viability of their retirement programmes could be at risk.
 
“A secure retirement involves the combined commitment of governments, employers and the individual,” says Jackson. “Governments’ capacity to provide their share of the well-being of retirees is limited meaning the responsibility has to fall elsewhere. This is exactly what is happening in the UK. Government is struggling to keep up with the demands of an ageing population. Consequently, individuals will have to assume an increasing personal responsibility for reaching a comfortable retirement.”
 
The UK enjoyed a one-year increase of 3% in gross domestic product, as of the third quarter of 2014, a more robust growth rate than many European nations after several years of stagnant growth. Still, the country’s index scores dipped slightly in all four major categories measured – finances (down 5%), material well-being (down 3%), health (down 2%) and quality of life (down 5%). 
 
Government debt and taxes continue to be weak points. The UK’s debt stands at well over 90% of GDP and rising, which could put further pressure on retirement income and public spending programmes that benefit retirees, therefore helping place the UK in the lower quarter of the nations measured by the index. 
 
“Despite its relative economic strength, the index shows that the UK still has a way to go to stabilise its finances and safeguard the retirement security for its people,” Chris Jackson said. “As the nation reckons with a growing ageing population and changes to how people can access their pensions, individuals will need to make critical decisions about their own retirement finances going forward.” 
 
The combination of debt and an ageing population could make it more difficult to maintain public spending on programmes that benefit retirees. The UK is forecast to have fewer workers per retiree over the next few decades. The portion of Britons over the age of 65, which was 17% in 2010, is projected to rise to 25% by 2050.
 
“Financial advisers play a critical role in educating clients; helping them to set personal financial goals and to understand the inherent risks in investment. They are increasingly creating portfolios, bespoke to the individual’s goals that aim at delivering stable long-term returns commensurate with those goals,” says Jackson.
 

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