The combination of low interest rates, a pandemic-ravaged global economy and reduced investment returns are straining pension systems, according to an annual survey.
Covid-19 has also exacerbated gender inequality in pensions, the Mercer CFA Institute Global Pension Index says. Women already retired with less money than men, and the pandemic’s effect on the hospitality and food services sectors, where women are overrepresented, will add to the gap.
Canada’s pension systems held at ninth overall in the 2020 study with a score of 69.3, virtually unchanged from last year. Canada maintained a B grade, placing it behind A-grade Denmark and the Netherlands in a group that includes Australia, Singapore, Germany, Ireland and Chile, among other countries. The U.S., U.K. and France were in the next tier with C+ grades.
“The economic recession caused by the global health crisis has led to lower pension contributions, reduced investment returns and higher government debt in most countries,” wrote Mercer senior partner David Knox, the study’s lead author.
“Inevitably this will reduce future pensions in retirement. This will mean some individuals will need to work longer whereas others may adopt a higher level of investment risk for their savings or have to settle for a lower standard of living in retirement.”
Government fiscal and monetary responses have affected the investment outlook, said Deep Kapur, director of the Monash Centre for Financial Studies, which oversees the study.
“The outlook for investment returns is muted while volatility may be elevated, adding to the normal challenges of risk management in a pension portfolio,” Kapur said in a statement.
The average score for pensions’ sustainability dropped by 1.2 in 2020 due to the pandemic’s economic impact.
Some governments also allowed temporary access to pensions or reduced the level of compulsory contributions in response to Covid-19, which could affect pensions over the longer term, the report said.
In July, the federal government proposed regulatory changes to allow employers and employees to make retroactive contributions to defined contribution pension plans in order to replace contributions not made in 2020. It also gave pension plans more flexibility to borrow.