Canadians worrying about the state of their retirement savings can enjoy some good news this week: Canada has been ranked 10th in the 2016 Global Retirement Index, up from 12th last year. The annual ranking, by Natixis Global Asset Management, compares the state of retirement security in 43 countries around the world. The ranking placed Norway, Switzerland and Iceland in the top three slots, the United States at 14, with Brazil, Greece and India rounding out the bottom of the list.
The news comes just a few weeks after Canada’s finance ministers agreed to an expansion of the Canada Pension Plan. “When you look at what is driving these results for Canada, we can point to some things that are clearly working, and some things on the horizon that it would be good to address now,” says Ed Farrington, executive vice president for retirement at Natixis. “What we’re hoping is that this ranking will provide policy makers, employers and individuals with information to use moving forward with planning for retirement savings programs.
Farrington points to Canada’s health care system and “impressively low level” of income inequality as factors that placed it in the top 10. “To have a high per-capita income and low income inequality is worth noting, because it means that a broad section of the population has the ability to put money towards their retirement,” he explains.
But it’s not all good news: while Canada ranked relatively high for retirement security, Natixis also found that many Canadian investors are underestimating how much they should be saving for retirement. While 72% of Canadians surveyed identified retirement saving as their highest financial priority, many believed they would need to replace only 60% of their income after retirement, short of the 75-85% generally assumed by planning professionals.
What’s more, while Canadians reported setting aside an average of 10.5% of their annual income for retirement, the international average sits at 12.2%.
“My sense of the problem is that people aren’t knowledgeable when it comes to the risks involved in retirement savings,” says Farrington. “As investors, they’re used to the risks of the market, or short-term pressures like debt. Those risks are very different than the ones one assumes when they’re in retirement.”
Farrington says Canadians are underestimating how long they’ll need their savings to last. “If you’re a couple, and you both retire at the age of 65, there is close to a 9 in 10 chance that one of you will be alive in your 90s,” he explains. “I don’t think people fully grasp that.”
When it comes to possible solutions, Farrington is quick to point to programs that have “strong participation from the government, the employer and the individual.” He lists a worrying statistic—only 55% of Canadians participate in workplace-based savings programs.
“Taking a look at a country like New Zealand—number four in the ranking—we can see the impact of a program they implemented 10 years ago,” says Farrington. “The KiwiSaver program is a compulsory program which automatically enrolls employees in a workplace savings program, where the employer provides a match to contributions.” Farrington says that a decade after implementing the program, New Zealand has become “an international role model for retirement savings.”
That being said, Farrington is firm in his belief that if the participation rate in workplace saving plans went up, Canada too could be a role model. However, despite his advocacy of nation-wide programs, Farrington has a simple message for Canadians thinking about their retirement security: “We hope that this ranking can be a rallying cry to employees to be saving as much as possible, as early as possible.”