Retail investors and financial advisers are at odds over expected long-term portfolio return potential with the former group off in la-la-land, according to a just-released Natixis Investment Managers study.
The 2023 Global Retirement Index survey published by the French funds management group late in September found retail investors globally expected to garner long-term returns of almost 13 per cent above inflation versus the more subdued financial adviser view of 9 per cent real.
“But the global number doesn’t tell the whole story,” the Natixis report says.
“The gap between what’s expected and what’s realistic is greatest in the US, where it is 123%. Investors say they expect 15.6%, but advisors call 7% realistic. Australians have an 81% expectations gap between investors’ expectations of 12.5% above inflation and advisors’ 6.9%. In Hong Kong (12.4% vs. 7.6%) and Canada (10.6% vs. 6.5%) the gap is 63%. In Japan (13.6% vs. 8.7%) it’s 56%, and in Italy (9.6% vs. 6.3%) it’s 52%.”
Investor assumptions about long-term portfolio performance also run counter to their tolerance for risk, the study found: while almost 60 per cent of respondents said they were “comfortable taking on risk in order to get ahead” about three-quarters would prefer to “take safety over investment performance if forced to choose”.
Retirees, the main focus of the Natixis study, “may want to take an even deeper look at their risk concerns”.
“While they want returns of 10.1% above inflation, just 31% are willing to take risk to get ahead and 84% prefer safety over performance,” the report says.
“One down year like last year’s -19% loss from the S&P 50 could substantially undermine their ability to maintain a sustainable stream of retirement income over the long term.”
In addition to better policy-settings, the study says sound retirement savings systems need both buy-in from employers to support contributions and professional advice for scheme members.
“Advice is a particular concern for individuals,” the Natixis report says. “Even as 60% of those surveyed say they fully understand the investment options in their retirement plan, two-thirds say they need professional help in making selections for their portfolio.”
The Natixis survey of more than 7,550 individuals in 23 countries found almost 70 per cent of respondents were downbeat about their retirement prospects amid cost-of-living increases despite declining inflation and higher interest rates (which boost retiree income and funding ratios for many pension schemes).
“In fact, 48% of working individuals included in the survey think
the problems are insurmountable and say ‘it’s going to take
a miracle to be able to retire securely’ – an increase over the 40% who said the same in 2021,” the report says. “Half of those surveyed say they are so concerned that they avoid thinking about retirement altogether.”
NZ retirees emerge in a better state than many based on the overall health of the retirement income system with the country rated among the best in the world as per the Natixis index (which is based on an analysis of four factors – finance, quality of life, health and material wellbeing).
“New Zealand stays in the GRI top ten this year but falls from 6th to 8th in the rankings despite an increase in overall score from 75% to 77%,” the Natixis report says. “The country finishes with higher rankings in almost all four sub-indices and achieves top ten placement in Finances in Retirement and Quality of Life (both 8th).
“… New Zealand ranks 8th in the Quality of Life sub-index, up from 9th last year,” the survey says. “This is driven primarily by strong performances in air quality (4th), happiness (10th), and environmental factors (11th). High scores for GDP per capita and social support are the key factors driving New Zealand’s strong happiness ranking.”
However, NZ lingers near the bottom of the top 20 retirement systems on the health and material wellbeing metrics – albeit with some improvement over the previous Natixis survey.
Norway, Switzerland and Iceland rank first, second and third, respectively, in the overall standings with Australia just ahead of NZ in seventh place.
Both Iceland (third) and Ireland (fourth) have been the big improvers over the long-term, rising to their respective positions from 14th and 25th in the 2013 report.
India rates worst of the 44 nations in the Natixis table, just below Brazil and Turkey.