Longevity on the one hand, fertility declines on the other
When it comes to longevity i.e. the extended duration of individual life, the majority of studies seem to be in solid agreement – we’re all living longer, and this pattern shows no sign of easing. Presently the majority of children born in developed economies today are likely to live to more than 100 years old (Exhibit 1), while developing countries look set to follow the same path1 .
Simultaneously however, birth rates in most parts of the world are actually falling 2 and, as a result of these two opposing demographic forces, the global population is rapidly ageing. In 2017, the proportion of people aged 60 plus represented 13% of the global population but it is expected to represent approximately 25% by 2050, in all regions of the world but Africa – and then 30% by 2100 3 .
The greying population looks set to have a profound impact on the workplace and, as a result, we will need to create not only new ways and patterns of working but evolved human capital policies too.
The consequences of an ageing population: Will 80 be the new 60?
Longevity and the shrinking of the working-age population are together very likely to conspire to make current working and retirement systems unsustainable.
For public funded systems, there is an alarming trend of decreasing numbers of workers, per retiree. Notably the old-age dependency ratio 4 i.e. the level of support available to people aged 65 or over by the working age population, is expected to reach 4:1 in 2050 globally. This issue is likely to be even more problematic in some specific regions such as the European Union and Organisation for Economic Co-operation and Development, where we expect only two working-age people for every person aged 65 or over in 2050 5 , versus 3:1 today.
In parallel, under the current global model i.e. with the average retiring age typically between 60 to 70 years-old, the size of the retirement savings gap is estimated to swell to a massive US$400tn by 2050 for eight selected economies. This compares to an already sizeable $70tn savings gap, as at 2015.  Indeed, extending life means people will spend much more time in retirement than they used to, which in turn calls for an increase in pension reversion, and therefore savings. In such a context, it is not surprising to see that most of the people won’t be able to save enough during their working life to support themselves for probably 30 plus years of retirement. Therefore, it is very likely that the global population will need to work longer, to make up for its longer lifespan.
Additionally, depending on the retirement system – people may need to financially support the new “real seniors”, for whom we could reasonably see the threshold hovering around 80 years-old. In fact this is already the case for a number of countries, such as Indonesia and Iceland, where the share of people aged over 65 in the labour market is significant. (Exhibit 2).
One option in terms of avoiding an extension of working life, and improving the old-age dependency ratio – a political issue as much as it is a corporate one – lies in increasing migration flows. However this option, albeit essential in making up for the population growth slowdown and working-age population shrinkage in most of developed countries 7 , won’t be of help for the funded pension system.
Also worth noting is that some countries, especially Japan 8 , have already combined the use of robots and artificial intelligence to manage the shrinking labor force. If this helps companies to keep business productivity and continuity, the solution is limited as the impact on workers’ future pensions won’t change – or perhaps marginally if a dedicated robot tax is implemented – and in addition, not all the tasks are automatable9 .
Longer time at work: An opportunity for companies and economies
The aging and shrinking of skilled workforces and the consequences of this scenario on the pension system may be put on hold if companies start to tap into the mature workers’ market. But on the other hand, this extra-pool of workers may provide an opportunity for companies to maintain business productivity and growth in highly competitive markets weighed down by talent shortages, 10 especially in knowledge-intensive occupations and difficult-to-retain millennials 11 . Retaining mature workers with a strong skill-set could actually be a boon for economies as a whole. If the OECD were to bring the employment rate of people aged 55 plus, currently at 60%, to levels similar to those seen in The OECD could potentially achieve a $3.5tn GDP increase in the long-term, if employment rates of people aged 55 plus, could match New Zealand’s levels, where 78% of this cohort is still employed, versus 60% on average for OECD nations. 12
National measures emerge to better integrate older workers in the workplace
Some countries have already taken the lead when it comes to incentivising workers to stay longer in work. But one of the biggest obstacles for ageing workers is to stay up-to-date with companies’ expectations, given the path of technological and cultural change. It is tempting for firms which haven’t yet felt the pressure of the working-age population, to bank on new generations, as after all, they are typically more flexible, tech-savvy and less expensive.
When it comes to banning or postponing default retirement ages, a number of countries have put strategies and national initiatives in place in a bid to engage the older workforce.13 These include:
- The UK encourages employers to retain, retrain and recruit older workers (“Fuller Working Lives” strategy)
- In Japan, we saw an interesting adaptation to the ageing society by a University in Kyoto. The Hanazono University offers free tuition to anyone over 100 years-old, and 50% off for people in their 50s, to entice older people to come study social work. More generally, a public-private partnership (Silver Center Workshops) helps retirees find part-time jobs
- Germany is encouraging people to postpone retirement through its “Initiative 50 Plus” which provides training and learning to older workers
- In 2012, Singapore passed a legislation that required companies to offer re-employment to their staff up to the age of 65 years-old – extended to 67 years-old from July 2017
The implications for companies
The majority of large firms are not ready to deal with an ageing workforce14 . This is unfortunate, as we highlighted the importance of this pool of workers for companies to keep their competitive edge. But a paradigm shift in attitudes is needed. It is crucial to rethink the way we work and to open up the door to different generations. The ‘one-size-fits-all’ human capital policies are now a thing of the past and we can already see evidence of this as newer generations lead the charge for change. Forward-looking businesses should seize this opportunity to revamp their whole human capital management and processes, and implement age-friendly policies, while not putting off younger generations.
How can companies attract mature workers?
When it comes to attracting mature talent, there are a number of options on the table. These include flexible working hours, alternate work arrangements and prolonged career breaks. Corporations could also look at putting new career models in place, design new wage policies and ensure managers have the right skills to manage people from different generations. They could also look at developing cross-generational mentoring and/or reverse-mentoring programmes to not only better integrate mixed generations but mitigate the risk of age prejudice and conflict.15 In addition, firms could offer lifelong training for employees especially in terms of digital skills development.
With a broader range of skills and experiences, we believe a multi-generational workforce could be a solid growth driver, in much the same way gender and cultural diversity can help a company. Managing different layers of generations is no easy task, by any means, but we believe investors should engage with companies on the current composition of their workforce – how they foresee its evolution in the context of increased longevity and falling birth rates and ask what measures they are putting in to attract, retain and better assimilate, the older worker population.
Examples of efforts companies are making:
- Barclays, Boots, Aviva and the Co-op have plans to increase the number of employees aged 50 and over by 12% between 2017 and 2022. Public data about workforce composition is available online
- Westpac provides workers aged 50 plus a “Prime of Life” programme, where targeted employees are given support to move on to their next challenge
- Mercedes has introduced demographic audits to encourage discussions around the age structure of its teams and drive inter-generational cooperation. It also makes part-time shifts available for older workers, hires retirees for short-term projects and redesigns workplaces to make them more ergonomic and comfortable for older workers, as does BMW
- SAP runs reverse-mentoring programmes and a knowledge transfer process before older employees retire
- Michelin offers a “pre-retirement” scheme under which workers aged 55 plus can scale back to part time work. It also has a mentoring programme in place.
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