The over 65’s represent a huge growth market. Their populations around the world are exploding. The declines in fertility means that the “youth markets” are shrinking. The over 65 market is the last opportunity for consumer firms. There is an accelerator on that growth. Throughout these Newsletters we have talked about “healthy ageing”. We are all staying healthier, mentally and physically, longer. We can continue to consume until much later in our lives. The question is how are we going to pay for all that consumption?

Authors writing about the 100- year- life point out that the “learn, earn and retire” model of life is no longer applicable. Life expectancy has gone up by 30 years in a generation but all we have done is to add it to “retirement”. This makes no sense and we need to look for a new model. Women are having children later. Young people are staying at home longer and are staying in learning longer. Are these the beginnings of an evolution in our social construction of life? We are now working later into life, often past the legal “pensionable age”. This is attacking the very idea of “retirement”.

State Pensionable Age is Increasingly Irrelevant

There is a huge variation across countries in the extent to which we are working past retirement age. Two things are common . In every developed country, more people are choosing to work until they are much older. The trend is upward. The economic pressure on governments of the ageing population is the same.

In many countries formal “retirement age” is no longer a relevant bench mark. The Japanese entitlement to state pension starts at 65 but half of those between 65 and 69 still work. Even in the age bracket 70 to 74 a third of Japanese work. These numbers have jumped from 36% to 50% and 23% to 33% in the last 10 years. This is a massively growing trend.

According to some authors this is driven by individual need. The ageing population is putting the pension budgets under huge pressures. Governments cannot afford to fund the life styles of an ever growing older population. Many Japanese cannot afford to stop work. The Japanese Financial Services Agency confirmed this. They estimated that a couple living until the age of 95 will need 20M yen more than provided by the state pension scheme. To put that in to context, the average household income is 5.5 M yen.

Riots and the Desire to Work

There are massive cultural differences between countries when it comes to work and retirement. There have been riots in France over the proposed increase in retirement age from 62 to 64. Only 9% of French people 65-69 and 3% 70-74 are working. A small fraction of the Japanese numbers.

The underlying economic pressures are however the same in France and Japan. It was in 1981 that Francois Mitterrand reduced the retirement age from 65 to 60. In the year before this change, there were 30.4mn people in the working-age population of France (20 to 64). There were 7.4mn pensioners over 65. Today there are 31.7mn people between the ages of 20 and 60. There are now 17.7mn people over the retirement age. That is 10mn more “pensioners”. (Retirement was raised to 62 in 2010).

The French working-age population peaked earlier this century. It is forecast, by the UN, to decline forever. It will be down to 31.2mn by 2031. The number of pensioners to be supported from their tax revenue will increase to 19.7mn. Commonly made arguements for no change do not stand up to scrutiny. No matter the debt capacity of France, no matter its ranking in terms of demographic decline, it is difficult to imagine how this is sustainable.

Changing the pension age is not simple. It requires a transition plan to avoid gross distortions. The current French plan is for any transition to start in 2027 and not reach 64 until the end of the decade. Along with many other governments, with these kinds of changes, the French government is running out of time. Health and social care costs are also growing and increasing the budget pressure.

Japan has one of the highest life expectancies in the world. It has a rising group of “healthy ageing” people. They do not want to stop working. Japan has the highest number of over 65’s that still “wish to work” at 40%. There is still a strong tradition of “jobs for life”. The same employment contract that provided financial security and secure emplyment demanded long hours. According to some this means that few retirees have the hobbies and networks to stimulate them in later life. They want to work.

There are however structural issues in Japan that make working past retirement uniquely difficult. After a lifetime in one company, workers then find themselves with no transferrable skills at the age of 65. The Government is legislating to force companies to offer employment until 75. Those that do not “stay on” can end up in menial jobs such as security and building janitors. Nearly three quarters of over 65’s hired go into such jobs.

A Global Issue

The numbers for Korea are the same as Japan. In the US nearly a third of 65-69 year olds are working and 17% of the 70-74 year olds. Europe is the fastest ageing population apart from Japan. The level of people working is no where near as high. Across the whole of the EU27 only 16% of the 65-69 year olds work and 6% of the 70-74 year olds. France and Spain have the lowest levels, The employment trend is however upwards.

In the UK there was major concern post COVID about older people not returning to employment. In a world of declining working age populations this is a major issue. To sustain economic growth governments need a working population. They have limited choices. They can increase the level of immigration to bring in workers. They can increase participation levels. A lot of recent economic growth was generated by the increasing number of women who work. There is still more to go but that can become a vicious cycle. It could reduce the fertility rates even further.

After that, all that is left is to have a greater proportion of “retirees” work. Or achieve the same thing by extending the pensionable age.