As society gets older

Changing demographics present huge challenges. To overcome them, we need to prepare, be flexible and think more creatively.

The average age in both developed and developing countries is rising fast. The number of people aged 60 and over will more than double by 2050 and more than triple by 2100, according to the United Nations (UN). While we may be less healthy than in the past, life expectancy in developed countries continues to increase by around two years a decade – that’s an astonishing five hours a day.

This is not just a rich world issue either. The UN says that most regions will face a “significant ageing of the population in the next several decades”. In Europe, the number of people over 60 (as a proportion of the population) will soar by 41% by 2050. But the number of older people in Latin America and Asia will more than double in the same time, representing around a quarter of their populations.

An increasing burden

To understand the impact all these older people will have, we need to consider old-age dependency (OAD), which measures the ratio of people older than 64 to those of working age.

In 2015, the OAD ratio in Italy was 35%, according to the UN. That means for every 100 Italians of working age, there were 35 people aged 65 or older, explains Brigitte Miksa, head of international pensions at Allianz Asset Management. By 2050, Italy’s OAD ratio will be more than 60%. And Germany, Japan, and Spain are predicted to double their OAD ratios over the next 30 years.

To make matter worse, the OAD ratio often underestimates the level of dependency. “Some governments have encouraged older workers to exit the labour market during economic downturns, in order to create job opportunities for young people,” notes Miksa. In Italy, for example, the age at which people can retire fell by more than five years from 1970 to 1997.

From an economic perspective, an increasing OAD is bad news. Other things being equal, it will place an increasing burden – to fund healthcare, pensions and social care – on an ever smaller number of people who have jobs. To bridge the gap, taxes might have to rise and government deficits could widen.

There could also be a potential shortage of workers as older generations retire. In previous decades younger immigrants – such as Turkish people in Germany – helped to replace retiring native workers in many European countries. Recent elections show that opposition to immigration is growing in many countries. But without young workers from abroad it’s hard to see how many economies can continue to grow.

Accentuate the positive

This bleak outlook needs to be qualified. Firstly, it assumes that people will retire at the same age in the future as they do now. The average retirement age of Western European countries is 65 years. But many countries are already trying to fix this problem. In Denmark, France, Germany and Spain the retirement age is going up to 67 years, while the UK and Ireland are targeting 68.

Some countries, such as the Netherlands, have even built in automatic increases in the retirement age based on longevity. In Finland, the state pension age will reach 67 by 2050 while in Denmark the retirement age will climb to 72 – the highest among OECD countries.

John MacInnes, professor of sociology, and Jeroen Spijker, senior research fellow at the School of Social and Political Science, at the University of Edinburgh say that discussions about population ageing “tend to exaggerate the trend’s scale, speed, and impact” because there is a misunderstanding about how populations grow older. While the average age of the population changes, longer lifespans don’t necessarily mean people are less productive.

To explain this, MacInnes and Spijker point out that age has two components: the number of years a person has lived and the number of years they have left to live – this second figure can be predicted for populations. As people live longer, remaining life expectancy (RLE) increases for everyone. This is important because our behaviour and attitude (and even our health) may be linked more strongly to RLE than to age, say MacInnes and Spijker.

Thinking young

How will an increasing RLE change our approach to work? As French author Jules Renard once noted: “It`s not how old you are, it`s how you are old.” Governments in search of solutions should pay heed.

Japan‘s population began to age earlier than other countries: it demonstrates the potential benefits of an increasing RLE. The country has the same ratio of retired people to workers as Romania, despite having an older population. That’s because many Japanese people older than 65 continue to work; many in Romania retire long before that age.

To encourage older people to stay in the workplace, we must eliminate the traditional “three-stage life” of education, career and retirement, according to Lynda Gratton, professor of Management Practice and Andrew Scott, professor of Economics at London Business School and authors of The 100-Year Life.

Gratton and Scott calculate that today’s children will need to work until about age 85 if they want to retire on liveable pensions. Few people will want to work that long in a single job or sector. Marieke Blom, chief economist at ING says that people in mid-career will need improved support. “Ideally, a consultant – familiar with both the evolving workplace requirements and the individual’s skills – should be available to help people and ensure that the labour market (and society) continues to function properly.”

What millennials want

Gratton and Scott’s predictions about older people’s likely working and education patterns align nicely with younger people’s attitudes to work.

Millennials, who were born between 1980 and 2000, are crucial because in many countries there are more of them than any group since the post-World War II babyboomers. PwC expects millennials to be 50% of the global workforce by 2020.

Millennials have different attitudes and priorities compared to older people. They start work later in life than previous generations: almost three-quarters of young people in the eurozone now attend tertiary education compared to just over half in 2000, according to the UN.

When millennials reach work, they also want different things compared to previous generations: 91% say flexible working is important while 92% want the option to work from home, according to Millennial Mindset, which conducts employee research. A report by Accenture showed that more than half of millennials had turned down jobs due to concerns about the impact on their work/life balance.

Adam Henderson of Millennial Mindset says that flexible working isn’t just about whether people work at home or in an office but how they manage their time and work-life balance. If employers can offer flexibility they will be able to hire and retain the best millennial talent. But, by ending the rigid 9-to-5 life, they will also encourage older workers back to the workforce.

Success in a new era

Change – including understanding that the traditional three-stage life is no longer tenable – is essential if corporates are to attract the workers they’ll need. For some, embracing ideas such as flexible working will be difficult. Others, especially tech and creative firms, are already innovators when it comes to working practices (see article on corporate responses to demographics). The fact that these sectors are growing rapidly is unlikely to be lost on many corporate observers.

Adaptability will be critical. “Employers must adjust corporate values, workplace environments, and team structures to stay competitive,” says Jason Wingard, dean and professor at Columbia University’s School of Professional Studies. He says smart companies will integrate corporate education into their strategic goals: “Companies that don’t learn and adapt will not last.”

Technology can help companies to resolve the challenges of changing demographics. Enterprises will have to create a new corporate culture that uses technology to enable people to constantly adapt and learn, continually create new solutions, drive relentless change, and disrupt the status quo, according to a report by Accenture. “In an age where the focus is locked on technology, the true leaders will, in fact, place people first.”




Suggested articles for you

Challenges and opportunities of an ageing society

Changing demographics will require companies to rethink their workforces but also create opportunities for nimble firms.

Read more

Rethinking education

Innovative technology and changing demographics mean that what, where, how and when we learn should evolve.

Read more

Is GDP ageing?

Changing demographics, such as an ageing population and a shrinking workforce, will affect the economy. It should prompt a reassessment of how we measure its performance.

Read more

The View is the online magazine of ING Wholesale Banking