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NewsmakersJune 28, 2022

Worsening Economy Threatens Retirement Security for Canadian Millennials

Survey finds rising inflation and interest rates are putting retirement savings in jeopardy, particularly for those under 35.

By Michael Katz

Rising inflation and interest rates are threatening to erode Canadians’ retirement security, particularly for those younger than 35, according to a report released by the Healthcare of Ontario Pension Plan.

The 2022 Canadian Retirement Survey, conducted by market research firm Abacus Data, polled more than 1,700 Canadian adults and found that they are increasingly worried about their financial future. The responses suggest the retirement security for younger Canadian workers is increasingly in jeopardy due to barriers to home ownership and saving capacity, which the survey report says are being worsened by deteriorating economic conditions.

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The survey found that 55% said they were concerned about having enough in retirement, which is a six-percentage-point increase from last year’s survey. And 66% cited the day-to-day cost of living as a major concern, which was up 11 points from last year, while 62% cited “income keeping up with inflation” and 56% said “housing affordability” were weighing heavily on their minds.

“Retirement and savings concerns have been high every year we’ve done the Canadian Retirement Survey, and now they’re being exacerbated by rising interest rates and inflation,” Steven McCormick, senior vice president, plan operations at HOOPP, said in a statement. “Well over half of Canadians expect these factors to cause financial challenges and force them to retire later. At the same time, funding retirement through the sale of a home is becoming a less viable strategy for many individuals. It raises the question of whether Canada’s younger generations are headed for a perfect storm on retirement security.”

Although saving for retirement was cited by respondents as their second-highest priority, the survey found that many of them were having difficulty accomplishing that goal, as 32% said they have not yet saved anything for retirement, while 38% said they have saved nothing for retirement in the past year.

The survey also found that 45% of Canadian homeowners expect to rely on the sale of a home to provide for retirement funds, but the report notes that that is becoming increasingly risky in the current economic environment. In addition to housing affordability concerns, 58% of non-homeowners said they are worried about how rising interest rates will affect their ability to buy a home, and 58% of homeowners are worried about their ability to sell their home as they approach retirement.

“The general outlook for retirement security in Canada is darkening,” David Coletto, CEO of Abacus Data, said in a statement. “Seventy-five percent of all Canadians agree there is an emerging retirement crisis in Canada and 72% feel that saving for retirement is prohibitively expensive — both up seven points over last year. And if current trends continue, it will be tougher for younger generations.”

The Healthcare of Ontario Pension Plan serves more than 420,000 participants among over 620 employers within the province’s hospital and community-based healthcare sector.

Real Assets Rake In Investments, PitchBook Says

The copious inflows of fresh capital mostly favor infrastructure projects.

By Larry Light

Among alternative investments, real assets are receiving a torrent of new investment dollars, as asset allocators look for generally inflation-resistant assets that have a good long-term track record on returns.

For the four quarters ending March 31, the investment inflows of $159.7 billion were the strongest in five years. The money has gone to investment funds specializing in real assets, including private equity and master limited partnerships, according to a PitchBook report. And infrastructure has claimed the bulk of it, with oil and gas a distant second.

Real asset fund financial performances for the year through September 2021, the latest available, topped historical norms, and then some: They returned 18.5% collectively, far better than the 6.2% 10-year and 6.8% 20-year annualized results.

The explosion of new capital appears to be a gathering trend. Hilary Wiek, the research firm’s lead analyst for fund strategies and sustainable investing, wrote in the report that “we’re looking at rolling four-quarter fundraising, we do see a clear recent uptick in interest in real assets.” Alongside that, the real asset funds hold an enormous amount of uninvested capital, aka dry powder, awaiting deployment—some $322 billion.

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For the first quarter, the fundraising crown goes to KKR Global Infrastructure Investors IV, a new fund that closed in March. It raised $16.7 billion, which makes up almost 40% of the period’s inflow.

North America and Europe are getting the bulk of the new money, as opposed to Asia, which has garnered a mere 3% during the quarter.

The preference for infrastructure appears to stem in part from the $1.2 trillion package that Congress passed last year to upgrade the nation’s aging, crumbling physical plant—bridges, roads, ports, etc.

Right now, infrastructure commands more than 90% of all the new investments pouring into real assets. Wiek noted that rebuilding and constructing new roads and the like requires much more money than some other uses, such as oil and gas.

Oil and gas fundraising totaled less than 2% of real assets inflow in the first period of 2022. Energy producers, especially in the U.S., have said they don’t want to sink more money into drilling or equipment. PitchBook, though, believes that continued high oil and gas prices will eventually lead to more financial inflow to energy.

Funds targeting Europe and North America have led real assets fundraising in recent years at the expense of Asia. While Asia has represented 10% of overall fundraising since 2008, it accounted for just 3% of assets committed since the start of 2021.

Amid swelling inflation and rising interest rates, plus talk of a recession, some other asset classes have not been as successful as real assets in attracting fresh investment dollars.

Fundraising for private equity has dipped with the stock market’s plummet. Likely reason: the decreased chance of taking PE portfolio companies public. PE investor inflow shrank by 10% in the first quarter, compared with 2021’s last period, and by a third from last year’s initial quarter, Preqin data show.