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.

@ilcuk @sinclairda
And are supported by.. (declaration of interest)

@ilcuk @sinclairda
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

@ilcuk @sinclairda
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

@ilcuk @sinclairda
But the “oldest” places in the future will be
different to the “oldest” places today
2010 2060
Countries with a proportion over 65 years of age above the
EU average

@ilcuk @sinclairda
The future is uncertain
Life expectancy of a 65 year old man (UK)

@ilcuk @sinclairda
Beware the joys of forecasting (IFS Green
Budget)

@ilcuk @sinclairda
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

@ilcuk @sinclairda
What does this mean
for the global economy?

@ilcuk @sinclairda
Working age populations are falling relative to
older people

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

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

@ilcuk @sinclairda
The developing world does not offer an escape

@ilcuk @sinclairda
Which means falling dependency ratios

@ilcuk @sinclairda
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.

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

@ilcuk @sinclairda
And the cumulative cost to the state could be
very scary

@ilcuk @sinclairda
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.

@ilcuk @sinclairda
“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

@ilcuk @sinclairda
Moving Micro –
the retirement
challenge

@ilcuk @sinclairda
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

@ilcuk @sinclairda
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

@ilcuk @sinclairda
And some industries will need to find new
ways of attracting consumers
http://www.bloomberg.com/news/articles/20
16-01-24/china-s-foreign-condom-frenzy-
gives-low-libido-japan-a-boost

@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.”

@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

@ilcuk @sinclairda
To maximise the potential we need to better
understand the older consumer

@ilcuk @sinclairda
Yet Google thinks “shopping” is smiling
women with bags

@ilcuk @sinclairda
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)

@ilcuk @sinclairda
Spending declines with age in retirement

@ilcuk @sinclairda
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.

@ilcuk @sinclairda
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)

@ilcuk @sinclairda
And even if retirees wanted to take more risks,
financial literacy may be a barrier
NUMERACY/FINANCIAL LITERACY
SCORES (UK)

@ilcuk @sinclairda
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

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

@ilcuk @sinclairda
A growing % of us have no savings (UK)
Declining final salary (DB) pension coverage
(UK)

@ilcuk @sinclairda
And the young are less well placed to save

@ilcuk @sinclairda
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

@ilcuk @sinclairda
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/

@ilcuk @sinclairda
It’s not all bad news
There are some
economic opportunities

@ilcuk @sinclairda
There are some demographic funds emerging

@ilcuk @sinclairda
The opportunity and risk of housing (UK)

@ilcuk @sinclairda
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…

@ilcuk @sinclairda
From 1979-2012, health output increased by 1.1%
per annum
Sensitivity of net debt projections to health productivity
assumptions

@ilcuk @sinclairda
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; Care
And “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 Sinclair
Director
International Longevity Centre - UK
Davidsinclair@ilcuk.org.uk
02073400440
Twitter: @ilcuk and @sinclairda
Linkedin:
https://www.linkedin.com/in/davidasinclair

It's the demography, stupid

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It's the demography, stupid