it's the demography, stupid

The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.

@ilcuk @sinclairda

It’s the demography, stupid

David Sinclair, International Longevity Centre – UK @ilcuk @sinclairda


@ilcuk @sinclairda

We cover a big agenda

pensions, retirement, demographic change, divorce

economy, isolation, futures, ageing, lifecourse, health, housing, transport, communities, dementia,

advice, cancer, employment, care, jobs, investment, consumers, nutrition, Eurozone,

growth.


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And are supported by.. (declaration of interest)

http://www.pfizer.co.uk/sites/uk/Pages/default.aspx


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The world is ageing

This will have major economic impact and is likely to hit investment returns

Moving micro – the retirement challenge

There is an economic opportunity to be grasped


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We live in an ageing world

Today almost 1 in 10 people are over 60 years old

By 2050 1 in 5 people will be over 60

People aged over 60 will outnumber children aged 0-14 by 2050


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But the “oldest” places in the future will be different to the “oldest” places today

2010 2060Countries with a proportion over 65 years of age above the

EU average


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The future is uncertain

Life expectancy of a 65 year old man (UK)


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Beware the joys of forecasting (IFS Green Budget)


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We could be underestimating life expectancy

• The IMF warns that, based on past underestimations, it is possible that current global longevity projections could be underestimated.

• If longevity projections are being underestimated, this could add between 1.5% to 2% of GDP to the annual costs of pensions in countries with advanced economies by 2050


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What does this mean for the global economy?


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Working age populations are falling relative to older people


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The US will see growth in working age population but bigger growth in the older population


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But generally, developed countries face a falling working age population (%)


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The developing world does not offer an escape


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Which means falling dependency ratios


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There are already significant skill shortages in parts of the developed world (UK)

http://www.birminghammail.co.uk/whats-on/food-drink-news/brum-chef-opens-indian-restaurant-7190927

Unless a higher proportion of older people remain in the workforce, we estimate that total Eurozone employment could fall by up to 17% over the next 35 years.


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Government tax receipts will be hit hard by fewer people of working age (UK)


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And the cumulative cost to the state could be very scary


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Japan might be a precedent for the rest of the world?

Excess savings relative to investment which has acted as a drag on economic growth.

Individual savings too high relative to the economy’s investment opportunities.


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“Japan, like the United States only much more so, is an aging society. Thanks to a declining birth rate and negligible immigration, it faces a steady decline in its working-age population for at least the next several decades while retirees increase. Given this prospect, the country should save heavily to make provision for the future […] and it does. But investment opportunities in Japan are limited, so that businesses will not invest all those savings even at a zero interest rate. And as anyone who has read John Maynard Keynes can tell you, when desired savings consistently exceed willing investment, the result is a permanent recession.” Paul Krugman, economist


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Moving Micro – the retirement challenge


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Some industries will rely on demographic change for new consumers

“Older people and their consumer demand is the primary driver of economic growth, accounting for $7.1 trillion in economic activity.” Jody Holtzman, AARP


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The insurance industry is set to lose 40 million customers

“Well, over the next 25 years we’ll see a dramatic decline in the population aged 30-49 in developed countries.

Because of lower historic birth rates, we’ll ‘lose’ 40 million of the insurance industry’s supposed ‘ideal’ customers.” Matt Singleton Vice

President and Senior Business Analyst Swiss Re


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And some industries will need to find new ways of attracting consumers

http://www.bloomberg.com/news/articles/2016-01-24/china-s-foreign-condom-frenzy-gives-low-libido-japan-a-boost


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The potential of the “golden economy”

“They have fewer ties to family responsibilities... With their homes paid for their major housing concern is for property taxes and repairs... Being essentially free from obligation, they may spend their income and assets as they wish. Here is a potential market, therefore for those marketers who wish to appeal to it. It is a new market, almost unrecognised which must be developed with care as it depends upon the changing role of older persons in our society and the realisation that they are more free than their predecessors in the past century.”


@ilcuk @sinclairda

The potential of the “golden economy”

“They have fewer ties to family responsibilities... With their homes paid for their major housing concern is for property taxes and repairs... Being essentially free from obligation, they may spend their income and assets as they wish. Here is a potential market, therefore for those marketers who wish to appeal to it. It is a new market, almost unrecognised which must be developed with care as it depends upon the changing role of older persons in our society and the realisation that they are more free than their predecessors in the past century.”

Dodge, 1962


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To maximise the potential we need to better understand the older consumer


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Yet Google thinks “shopping” is smiling women with bags


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And we have a retirement consumption puzzle. Many retirees are saving, not spending

We calculate total per annum savings made by those in retirement in the UK today of around £48.7bn. This equates to 2.8% of GDP. The majority of savings made by older people are sitting in low interest current accounts. (UK)


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Spending declines with age in retirement


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If older people are saving (too much?), we need to find effective ways of putting those savings to good use to help drive economic growth.


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But many don’t want to take risks with their money

• Only 3% agreed with the statement “I am prepared to take risks with my savings and want to have the chance to earn extra investment returns even in retirement”.

• When actively prompted on what percentage of their pension fund they thought they could afford to lose before it seriously impacted upon their retirement plans, the most common answer was none (35%). (5000 people 55-70 UK)


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And even if retirees wanted to take more risks, financial literacy may be a barrier

NUMERACY/FINANCIAL LITERACY SCORES (UK)

http://blog.ilcuk.org.uk/wp-content/uploads/2016/01/blog-table.jpg


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More advice will be needed (UK)

18.2 million people took out a financial product between 2010 and 2012, with nearly 3.1 million investing in risky assets.

2.7 million people took out a financial product in the last two years without collecting any information at all


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But whilst retirees may be saving too much, for the next generation of retirees, savings are inadequate (UK)


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A growing % of us have no savings (UK)

Declining final salary (DB) pension coverage (UK)


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And the young are less well placed to save


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Meanwhile, pension funds may be taking fewer risks (UK) Equity investment has fallen to around 1/3 of total asset

allocation, from around 2/3 before the financial crisis. Over the same period, allocations to gilts and fixed

interest securities has risen from under 30 per cent to around 45 per cent.

There has been a marked increase in holdings of cash deposits, doubling to 6 per cent of total asset allocations.

There has been a steeper increase in allocations to hedge funds, from a negligible amount at the time of the financial crisis, to almost 6 per cent.Pension Protection Fund’s (2014) Purple Book


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A “new normal”

Might we see a “new normal” period of relatively low investment returns, with average annual returns on bonds and equities least 50% smaller than they were in the 30 years prior to the financial crisis.


@ilcuk @sinclairda

So, not only are people finding it harder to put money away at the end of the month they are also finding that those savings are growing more slowly.

The de-risking may have a knock on impact on the wider economy in terms of reducing access to finance. http://www.flickr.com/photos/mtsullivan/with/5524654470/


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It’s not all bad news

There are some economic opportunities


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There are some demographic funds emerging


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The opportunity and risk of housing (UK)


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Health offers potential

I think there’ll be a cure for cancer one day. That we never thought we’d see…and Alzheimer’s.

I would wish for a pill to cure everything…


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From 1979-2012, health output increased by 1.1% per annumSensitivity of net debt projections to health productivity assumptions


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Irrespective of health innovations we will need more care

[6]


@ilcuk @sinclairda

It’s the demography, stupid

There are some certainties– We are living longer– There are more of us living longer (boomers)

Ageing is already having a major economic impact.

Retirees are over saving. Younger people are under saving

There are opportunities but they aren’t easy wins– Housing; Health; CareAnd “the older consumer” if we can work out

what they want.


@ilcuk @sinclairda

Thanks to Ben Franklin, ILC-UK for analysis


@ilcuk @sinclairda

Many thanks

David SinclairDirectorInternational Longevity Centre - [email protected]: @ilcuk and @sinclairdaLinkedin: https://www.linkedin.com/in/davidasinclair

mailto:[email protected]

it's the demography, stupid

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