The global financial crisis hit almost every country, starting in mid-2007. It started in the US and reached worldwide because of global financial institutions’ linkage to the country.
Thus, banks worldwide experience losses and have to rely on the government to avoid going bankrupt. Aside from that, many people have lost their jobs too.
Although almost every country has experienced the tremendous effects of the global financial crisis, Australia was one of the countries that did not experience extreme recession. However, it does not mean that the global financial recession has not affected the country.
Since then, Australia has faced slower economic growth and a significant increase in unemployment. Despite the world’s economic recession has not affected Australia that much, it does not mean that it has not affected the people, which they can still experience until today. They can feel its effects in loans, employment, and retirees securities.
This impact has become worse because of the challenges brought by the events that happened in 2020. Not only because of the pandemic but also because of natural disasters, continuous economic recession, and economic inequality. One of the areas that have been affected the most is retirement security.
The Natixis Investment Manager’s Annual Global Retirement Index has recently revealed the impact of the 2020 challenges in several areas. The index serves as a tool to assess the issues and find the best solutions for secured retirement.
The challenges of 2020 brought disruption to the financial market, causing a more increased unemployment rate and immediate action from policymakers. Both affect people’s retirement security.
Circumstances in retirement security have worsened because of it was already unstable even before 2020.
Natixis found a few factors affecting global retirement security. According to Natixis Center for Investor Insight’s Executive Director Dave Goodsell, these factors are dynamic. These are not stagnant because they can change depending on what is happening globally.
However, the current situation challenges the traditional retirement process.
The negative events that happen in 2020 have affected the following areas in terms of retirement security.
The government has to develop economic measures, also known as stimulus packages, to prevent recession and combat the pandemic’s economic effects. It may seem an excellent idea in the short term, but it can affect retirement security in the long run.
Because of such measures, policymakers have to cut down their retiree programs’ rates to counter stimulus packages’ effects.
As of today, the public debt remains high because of the economic recession that started in 2008.
Another solution that the government sees to cope up with recession is to stimulate spending by cutting rates. Since 2009, the interest rates are lower than how they should. The pandemic caused several cuts of 173 more worldwide in just six months.
In Australia, the Reserve Bank Australia (RBA) cut its interest rate for the second time in March. The Central Bank cut the rate by 0.25 per cent, and the public expects to cut it down further up to 0.1 per cent in November.
At a glance, it seems ideal for individuals. It makes car loans, mortgages, and other loans more affordable, and Aussies recently feel confident about spending. Many of them spend their money or ask for mortgage loans because they believe that now is the best time to buy a house.
However, the cut-down on interest rates can affect the retirees more. It will be more difficult for them to come up with an income, causing them to touch their principal, which will lead to having small retirement savings.
Aside from the pandemic, 2020 also brought other issues, such as environmental disasters and forest fires. All these events can cause detrimental health effects in which retirees are the most vulnerable.
Because of these circumstances, many retirees and individuals have to use the money they reserve for retirement savings to pay for healthcare. Some of them also have to get some from their retirement savings to help cover up the healthcare cost and buy the essentials because of the inflated prices.
The coronavirus affected recession tremendously when 2020 came. Economists expected it to decline further by 3 per cent this 2020.
Because of the continuous recession, many people became jobless. Also, many employers had to suspend their sponsored contributions to cope.
Because of unemployment, individuals use their funds to pay for their short-term needs instead of saving them for retirement savings. Also, there are reductions to income taxes, which are the ones that are funding the retirement pensions. Others also have to take out some money from their retirement principals to cover their immediate expenses.
Financial inequality still exists among genders and races. This inequality also leads to inequality in retirement security.
Among genders, women are the ones who face discrimination more than men. The statistics that state that women tend to live longer than men on average only makes it worse. It only means that women are more at risk of facing extreme poverty in retirement.
Some reports reveal that some employers refuse to provide sponsorship of retirement plans to their employees of colour.
Everyone has a role to play to make the current risky situation of retirement security become better. It includes all people, even ordinary individuals.
According to Ed Farrington, the retirement strategies head in Natixis Investment Managers, one way for each individual to improve retirement security is to have a workplace savings plan. He also encourages employers to provide automatic enrollment so everyone can have access to it.
Another solution is that people should plan their retirement while they can still work. They should plan their retirement lifestyle and possible financial needs.