Investment returns for the next 20 years are likely to be significantly lower than they’ve been over past 30 years, posing challenges to retirement savers, policymakers, and the financial industry, warns a report from McKinsey Global Institute (MGI) published on Monday.

The report from the research arm of the global consulting firm McKinsey & Co. suggests that equity and fixed-income returns in the U.S. Europe are likely to be much weaker over the next 20 years.

Returns over the past 30 years have been “considerably higher” than the long-run trend, the report notes.

“Some of these conditions are weakening or even reversing,” the report says, which it expects to lead to lower returns in the years ahead.

Real total returns for equities between 1985 and 2014 averaged 7.9% in both the U.S. and Europe, the report indicates. Over that same period, real bond returns averaged 5.0% in the U.S., and 5.9% in Europe.

“A confluence of economic and business trends drove these exceptional returns,” the report explains. “They include sharp declines in inflation and interest rates from the unusually high levels of the 1970s and early 1980s; strong global GDP growth, lifted by positive demographics, productivity gains, and rapid growth in China; and even stronger corporate profit growth, reflecting revenue growth from new markets, declining corporate taxes over the period, and advances in automation and global supply chains that contained costs.”

However, some of these trends have run their course, the report notes. “The steep decline in inflation and interest rates has ended. GDP growth is likely to be sluggish as labor-force expansion and productivity gains have stalled,” it says, adding that corporate profits are facing new competitive pressures. “As a result, investment returns over the next 20 years are likely to fall short of the returns of the 1985-2014 period,” the report adds.

In a slow-growth scenario, total real returns from U.S. equities over the next 20 years could average 4% to 5%, the report suggests, and fixed-income returns could be 0% to 1%.

Even in a higher-growth scenario, driven by improved productivity, returns could still fall below the average of the past 30 years by 140 to 240 basis points for equities, and 300 to 400 bps for fixed income, the report says. It forecasts a similar outcome for Europe.

If these projections prove true, this will have implications for investors, pension funds, and governments, the report warns. “Individuals would need to save more for retirement, retire later, or reduce consumption during retirement, which could be a further drag on the economy,” the reports.

“To make up for a 200 basis point difference in average returns, for instance, a 30-year-old would have to work seven years longer or almost double his or her saving rate,” the report adds.

Additionally, a prolonged period of lower returns means that pension funds could face increasing funding gaps and solvency risk, the report says. And governments “may face rising demands for social services and income support from poorer retirees at a time when public finances are stretched,” it adds.

Asset managers will face an impact from these trends, too. “Investors may seek to bolster returns or invest in products with much lower charges, thus continuing the trend toward alternative assets and passive, low-cost investments. In a low-return era, the proportion of returns given up to management fees in a high-return period becomes less acceptable,” the report says. “To confront this, asset managers may have to rethink their investment offerings.”

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