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Transcript of 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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
And are supported by.. (declaration of interest)
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
The future is uncertain
Life expectancy of a 65 year old man (UK)
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
Beware the joys of forecasting (IFS Green Budget)
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
What does this mean for the global economy?
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
Working age populations are falling relative to older people
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
The US will see growth in working age population but bigger growth in the older population
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
But generally, developed countries face a falling working age population (%)
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
The developing world does not offer an escape
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
Which means falling dependency ratios
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
Government tax receipts will be hit hard by fewer people of working age (UK)
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
And the cumulative cost to the state could be very scary
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
Moving Micro – the retirement challenge
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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.”
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
To maximise the potential we need to better understand the older consumer
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
Yet Google thinks “shopping” is smiling women with bags
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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)
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
Spending declines with age in retirement
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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)
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
And even if retirees wanted to take more risks, financial literacy may be a barrier
NUMERACY/FINANCIAL LITERACY SCORES (UK)
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
But whilst retirees may be saving too much, for the next generation of retirees, savings are inadequate (UK)
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
A growing % of us have no savings (UK)
Declining final salary (DB) pension coverage (UK)
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
And the young are less well placed to save
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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/
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 not all bad news
There are some economic opportunities
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
There are some demographic funds emerging
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
The opportunity and risk of housing (UK)
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@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…
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
From 1979-2012, health output increased by 1.1% per annumSensitivity of net debt projections to health productivity assumptions
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
Irrespective of health innovations we will need more care
[6]
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
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.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
Thanks to Ben Franklin, ILC-UK for analysis
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
@ilcuk @sinclairda
Many thanks
David SinclairDirectorInternational Longevity Centre - [email protected]: @ilcuk and @sinclairdaLinkedin: https://www.linkedin.com/in/davidasinclair