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Is the world ready for 2 billion retirees?

The Hague, August 20, 2012

Life expectancy is continuing to rise around the world; with the number of people globally age 60 and older expected to reach 2 billion by 2050.

Longer lives are to be celebrated, but global aging will also lead to big social and economic changes. Michael Hodin, Executive Director of the Global Coalition on Aging and Marc van Weede, Global Head of Sustainability at Aegon discuss the scale of the challenge presented by global aging and what governments, corporations and individuals can do to address it.

How will global aging affect individuals living around the world?
Michael Hodin The fact is, people who thought they were going to be able to rely on support structures that were built for different times, are going to be sadly disappointed. We have got used to social welfare support. That worked up until around 20 years ago, but will not work in the future.

Marc van Weede And for individuals, that means retirement will not be what they are currently expecting. The inevitable reforms to State and occupational pensions mean that the income of 70 per cent of pre-retirement earnings expected by many will not be realistic. Retirement will in the future involve cashing in value from the family home, postponing the date individuals stop working, identifying other sources of income, and possibly also reducing spending.

What effect will global aging have at a national level?
MVW The burdens that pensions and healthcare put on nations' economic systems are steadily getting bigger. They risk putting such great stresses on governments' finances that they could ultimately cause a crisis much larger than the one we are in right now. This pressure is not speculation - it will happen. The demographic trends and their impact on public finances of this are very predictable.

MH This pressure will have a huge impact on countries' ability to sustain any fiscal momentum for the medium to long term. The banking crisis is masking the demographic crisis and governments' attention is focused on the immediate financial situation. But we in the developed world have to understand that the current financial crisis is as much about the underlying structural misalignment of 20th-century welfare programs with 21st-century demographics, as it is about banking.

MVW And there is also a concern that global aging will lead to reduced economic growth as we move from a generation of wealth generators accumulators – to a generation of dissavers. This will lead to reduced equity investments and low interest rates as an increasing proportion of the population relies on fixed income assets for secure income flows.

How does the relationship between the state and the individual need to change?
MVW The trend everywhere is for more responsibility to rest with the individual. There is still an important role for governments, but that might be in provision of structures that enable individual responsibility. These include education and building awareness amongst employers. That means making it easier for individuals to make the right choices and harder to make the wrong choices. In the area of workplace pensions, for example, this means a trend away from individuals having to actively opt in to schemes – to a situation where they are in, unless they actively opt out.

MH Even countries that are not liberal democracies accept the idea of an increased role for the individual and the private sector in combating aging. For example, China's 12th five year plan calls for 90 per cent of long-term care of the elderly to take place in the home.

MVW But attitudes to the idea of greater individual responsibility for old age vary widely around the world. The Aegon Retirement Survey, which polled 9,000 people in nine countries, found people in the US, and to a lesser extent in the UK, more aware and accepting of the idea of individual responsibility. But continental European culture meanwhile still places more reliance on government or employers to provide for retirement, and large numbers of people do not accept that retirement ages need to rise at all. For that reason, continental Europe has the furthest to go in raising increasing understanding and awareness.

Are governments doing enough to address the challenges presented by global aging?
MH We are just beginning to see the level of awareness increase at the governmental level, where policy changes are being made in the workplace. But there are two key areas where we are barely scratching the surface.

We have health ministers looking at global aging as a doom and gloom issue rather than as a driver of economics. We need to get to the stage where spending on health is seen as an investment.

And we need to address education, re-tooling and skill enhancement. We need to get away from the idea that education stops when you leave school at 22, towards a place where it is something that happens through the course of your life. We need to think about the institutions that will take up the challenge - not just universities, but also corporations, non-governmental organizations and business centers.

MVW But part of the problem is getting governments to take a long-term view, when they tend to be driven by short-term issues. The only way forward is to build a consensus that these issues really need to be addressed. I do not think we have achieved that yet, but awareness of the challenges of global aging is increasing.

Is the private sector starting to tackle the global aging challenge?
MH Within the Global Coalition on Aging we have companies such as Intel and Microsoft that are looking at ways technology can be used to manage care. We are seeing growth in new areas such as telemedicine, which uses smart technology to monitor patients' movements and medicine intake, in either an institutional setting or at home. The companies that understand changing demographics will be the ones that succeed in the 21st-century.

MVW A good example is BMW, which recently staffed one of its production lines completely entirely with older workers, just to see what modifications will be needed to maintain productivity as the age of their average worker moves from 35 towards 50. Initially productivity was lower, but by taking measures to adapt processes it was possible to recoup that lost productivity.

MH But to achieve change you need leadership. And that means engaging CEOs, mayors, age-friendly city networks and other stakeholders to get global aging on the agenda.

Let's do for aging what Bill Clinton has done for HIV/Aids through the Clinton Foundation HIV/Aids Initiative - let's make aging something philanthropists engage with. We need change urgently. It took four decades to get environmental issues to the top of the agenda – let's hope we can get there more quickly.

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