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Global Aging and Demographics Playbook

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In partnership with the Council on Foreign Relations, SSA & Company hosted a group of CEOs and leading partners of the private equity industry at The Los Angeles Country Club for a discussion on the world’s aging population and its implications for business. The roundtable featured Michael Hodin, Adjunct Senior Fellow at the Council on Foreign Relations; Executive Director of the Global Coalition on Aging; and author of an age-related blog on The Fiscal Times. The event was moderated by David Niles, President of SSA & Company and hosted by Scott Miller CEO of SSA & Company. Below we offer some of the key insights shared at the meeting

National aging phenomenon

  • Over the next four decades, the population of people in the U.S. 65 years of age or older is projected to more than double, from 40.2 million in 2010 to 88.5 million by 2050, a growth rate of 120%. Meanwhile, the working-age population − those aged 20-64 − will grow only 28%, from 185.5 million in 2010 to 237.5 million in 2050.
  • As a result, the proportion of the 65+ population to the working-age population will almost double.
  • This demographic transformation will have a tremendous impact on both company operations and global economic productivity.
The companies that take advantage of aging demographic transformation – through workforce management and customer segmentation – will be big winners.


Why should businesses care about aging populations?

  • David Niles suggested that the companies that maximize their aging workforce will have the competitive edge in the 21st century. For example, one large industrial products company with 20,000 employees is projected lose 30% of its workforce to retirement within five years.  The company, with approximately 150 plants worldwide, risks losing hard-to-replace employees. While the company developed a plan around talent pipeline management, it had not addressed the critical question:  how do we rethink our work? The risk of getting this wrong is huge.  However, the potential opportunity for those companies that get this right is enormous.

Population aging is the result of three intersecting demographic forces   

1) The Longevity Revolution:

  • People are living longer all over the world, in developed and developing nations alike.
  • Increased life spans create a new, lucrative market for many industries.

2) The Birth Dearth

  • For decades, fertility rates have been dropping, often below replacement level. This is felt most acutely in the developed world.

3) The Baby Boomer Bulge

  • 77 million American Boomers − and 450 million of their peers world − are reaching traditional retirement age.
  • Soon, for the first time in history, there will be more people over 60 than under 15.
  • By 2050, the old-age dependency ratio (number of elderly versus number of working age) will almost double in North America, Africa, and Australia. It will more than double in Europe and more than triple in Asia, Latin America, and the Caribbean.
  • In sum, people are living longer and fewer children are being born, which will reshape the demographics of our society in a systemic way.

Demographic shifts, risks, and global competitiveness

  • While China has been predicted to become the world’s largest economy in the near future, several roundtable participants referenced the work of Nick Eberstadt, a demographer, who has predicted otherwise. According to Eberstadt, China will get old before it gets rich. Many of its elderly citizens are being left behind in communities, with no social safety net and no one to look after them. Historically, the elderly have been taken care of by younger generation, but most of China’s younger generation has moved to urban centers.  Eberstadt’s insights portend a far better outcome for India than for China over the next few decades, attributing this to the growth of India’s highly educated, younger population.

 

 “No other force is likely to shape the future of national economic health, public finances, and policymaking as the irreversible rate at which the world’s population is aging.”3

 

For all the opportunity, aging also brings fiscal and economic challenges, especially with age-related diseases like Alzheimer’s

  • Those over 65 face a 1 in 8 chance of getting Alzheimer’s. For those over 85, the risk is nearly 1 in 2. Globally, the number of Alzheimer’s patients will double by 2030, and more than triple by 2050, affecting 115.4 million people worldwide.[i] This explosion explains why every major pharmaceutical company is investing heavily in Alzheimer’s.
  • Total spending on Alzheimer’s in 2010 reached $604 billion, 1% of global GDP. By 2050, that figure is expected to triple to $1.8 trillion.i

The productivity side of the equation

  • Over the past 50 years, the U.S. economy has grown from $1 trillion to around $14 trillion. This growth has been driven in large part by a doubling of the working-age population. Over the next 20-30 years, the working-age population will be relatively flat – meaning that replicating these growth rates will require workers to become far more productive on an individual basis.

Population aging demands that government entitlement programs change

  • The current social policy framework underscoring America’s entitlement programs, the UK’s National Health System, and Japan’s system, to name a few, are based on the 19th century Bismarck model – the original “welfare state.” Under Bismark’s system, people began collecting pensions after retiring at 55, an age, not incidentally, that most people never reached.
  • Clearly, this model is ill-fit for the demographic realities of the 21st century. In many ways, the current financial crisis, epitomized by Greece, is a manifestation of these structural demographic changes.
  • No country with one-third of its population over 65 can maintain the traditional notion of retirement and remain fiscally sustainable.
  • As S&P noted in its 2010 report on population aging, “No other force is likely to shape the future of national economic health, public finances, and policymaking as the irreversible rate at which the world’s population is aging.”[ii]

The traditional, linear life plan is not aligned with 21st century longevity

  • Ken Dychtwald, a thought leader in gerontology, argues that the “longevity bonus” that comes with longer lives should not be pushed to the end of one’s life. Such models of life-courses continue a 100-year-old model of education and work, a model unequipped for 21st century life-spans. Today’s demographic realities demand new thinking about how we live, learn, work, and retire over a life course.
  • Joe Coughlin, of the MIT Age Lab, is conducting pioneering research into how technology can be used in transportation, housing, and machinery to improve the quality of life for older adults. This work promises to have a tremendous impact on businesses looking to make work environments more “age-friendly.” Funding for this work comes from a number of equipment companies, transportation companies, housing and pharmaceutical companies – all of whom recognize the potential impact on their businesses and the importance of transforming aging from a financial burden into a driver of growth.

Challenges and opportunities for public and private policy

      • The WHO “Age Friendly Cities” Program is working to create living environments that support and enable healthy, active aging.
      • Age-friendly NYC is a collaborative effort to respond to and benefit from this population change. It is led by the Office of the Mayor, the New York City Council, and The New York Academy of Medicine.
      • The European Union has announced that 2012 will be the European Year for Active Ageing. The EU has allocated $12 billion to fund programs and research to support a healthy and active aging population. Additionally, the WHO will recognize aging as part of their annual effort to highlight the importance of a single global issue.
      • APEC held a policy dialogue on Aging, Health and Innovation: Preparing APEC Economies for the Fiscal and Economic Opportunities of Aging Populations – March 8, 2011.
      • In September, the UN outcomes document on non-communicable diseases was finalized. The initial workup of the document focused on diabetes, heart disease, lung cancer; Alzheimer’s was recently added to that list – a sign of the disease’s growing importance in the world health community.

 

the big market opportunity for consumer businesses will be the 50-75 year-old population, not the 20-35 year old population.

 

However, these discrete efforts won’t be enough. More systemic change will be necessary.

  • One attendee shared the success story of José Piñera, Chile’s minister of labor who led the privatization of the state pension system. This process included years of public education, including prime-time TV tutorials discussing the perils of existing Social Security program and the realities of demographics. As a result of these efforts, Chilean voters approved a ballot initiative that privatized the government retirement system.
  • The Global Coalition on Aging is working with the US Government and APEC to develop an Age Friendly Economy Index to measure and guide public policy reform to align with aging.

Commercial opportunities (The Global Coalition on Aging):

  • Some companies recognize the opportunity to grow by speaking directly to an older population.  Andy Sieg, head of retirement services at Bank of American Merrill Lynch, has led a revamping of a financial services unit around the idea of a “Second Act,” to appeal to elderly citizens who are looking to begin a new chapter in their lives, rather than “retire.”
  • In December 2010, Pfizer launched an employer coalition, ReACT (Respect a Caregivers’ Time), to promote workplace environments that support the challenges of juggling work and caregiving for an adult with a chronic age-related disease.
  • AEGON, another Global Coalition on Aging member, has also taken the lead in recognizing this commercial opportunity by developing pension de-risking solutions for companies looking to control or remove longevity risk, investment risk, interest rate risk, and inflation risk.
  • Intel has launched Technology for an Aging Population: Intel’s Global Research Initiative. By helping people become more proactive in managing their health, and by providing caregivers with the tools and information they need to deliver care in any setting, from the home to the hospital, Intel hopes to play an important role in addressing the needs of the coming age wave.

New market segments and commercial opportunities:

  • In the near future, Scott Miller, CEO of SSA & Company, noted the biggest market opportunity for consumer businesses will be the 50-75-year-old population with larger disposable incomes, not 25-35-year-olds saddled with college debt.
  • Many food companies are already building this insight into their strategies. Recent survey data, for example, suggests that older people have different dining habits that effectively change the entire competitive landscape for food companies. Rather than competing over three meals, they have shifted focus over to the new 2pm or 7pm meal.
  • Tesco, a supermarket chain in the UK, is creating an Elderly-Friendly supermarket plan with wider aisles, brighter lights, shopping carts equipped with magnifying glasses and seats, and “senior corners” that contains sofas, water coolers, and access to the Internet.

The aging workforce: examples of leading companies that are using tactical but pragmatic programs 

  • CVS launched a “snowbird program” which allows employees to work part of the year in one area of the country and part of the year in another. The program is designed to accommodate older workers who split their summer and winter months between two residences.
  • Amazon hires retired people for temporary work at some of their warehouse centers during the holiday season, helping the online retailer fulfill its spike in orders.
  • At Bosch, retiring employees create an intellectual property database to preserve critical knowledge before it walks out the door. Project managers around the world have access to specialized knowledge and can even “hire” a retired worker to help support a team on a short-term basis.
  • RWE Power, a power generation company in Germany, has started to break apart the taxonomy of work. By retrofitting a work process originally designed for a 25-30 year old to fit a 65 year old – focusing on everything from physical comfort to memory – the company hopes to keep critical employees on the job longer.

A focus with two fronts – policy and opportunity:  

  • One participant asked whether and how the Global Coalition on Aging separates issues that are social and public from those that are commercial and within the domain for the private sector.
  • Mike Hodin responded by describing the two main areas of interest to members of the Coalition:  1) research, ideas and collaborative ways for them to apply aging to their own companies, both from a workforce point of view and commercially; and 2) changes in public policy that will align to this new demographic reality and support their commercial and strategic interest. In the pharmaceutical arena, for example, changes in regulatory requirements, including changes in the design of Alzheimer’s and other clinical trials is critical.

Building awareness through the World Health Organization

  • Working with the International Federation on Ageing and the World Health Organization, the Global Coalition on Aging has taken the lead on developing an e-portal. This e-portal aims to raise awareness and build alliance between private sector leaders and government officials to capitalize upon the opportunities of population aging.

KEY ACTION POINTS

Private Policy

  • Do you understand the current and future demographics of your company? Of employees, vendors, and customers?
  • Do have a plan to manage these demographic shifts?
  • Have you analyzed the composition of your organization’s work to determine the best way to use an aging population to gain a competitive edge?
  • Have you recognized how the “brain drain”–the loss of tribal knowledge with retiring workers–will impact your organization? Have you developed strategies to capture and preserve critical information?

Public Policy

  • Among colleagues in the business community, have you created awareness about the seismic impact that population aging will have on business, public policy, and the global economy?
  • Are there ways you can support the policy efforts that have begun to meet these challenges?

[i] alz.co.uk

[ii] a Standard & Poor’s “Global Aging 2010: An Irreversible Truth”

 

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