Working Late

I’m going to start this article with some numbers, but stick with me on this – I think you’ll find potentially riveting – especially if you are working in the field of retirement.

According to the United Nations, a couple of weeks ago, on October 31 at 11 am to be precise, the world reached a population of 7 billion souls.

What’s interesting about this isn’t that the world population grows at about 2 people every second, or that that we will likely pass through a target of 8 billion in 2025, but that in Western nations the fertility is actually falling.

Take a minute to think about that. In the nations which, at least for us characterise the way of the world, countries like America, England, Australia and Western Europe – the number of babies being born isn’t matching the number of people who are dying.

That means, according to the good people at The Economist Intelligence Unit and the Australian Bureau of Statistics – by 2015, the population pyramid in Australia will invert as the effects of the baby boom and low birth rate move through the system.

It seems that the fastest growing segment of Westerners isn’t the young but the 80 year olds and the second fastest is the 65 year olds.

This is really bad news for a few areas of the world, like the youth travel market, the sale of soft drinks and the people who are in the business of selling nappies – but it’s really good news for people who sell things that older people need, like health care, like retirement services and banking.

Let’s be clear – this really is an issue for Australia. If, as predicted, the resources boom lasts another 50 years; we will have to be a net importer of workers; unless agriculture undergoes some sort of technical revolution, we will need to be a net importer of workers; and unless we suddenly find a new source of smart finance people, you guessed it – we will have to find a new source of workers.

What this means for financial services isn’t perfectly clear and we will discuss that more later – but what is perfectly clear is that there will not be a shortage of demand for financial services providers.

Why this is slightly confusing is that the early signs are that the nature of retirement will change – not so much because people will want to change it, but the demands of lifestyle and industry will change it for people.

Right now the average Australian retires at 57, however in the main this isn’t something that they will choose to do; they retire because of ill health or because they lose their job.

There is little doubt that retiring from ill health will slow as medical technology improves – but the drive for getting rid of people because they are old, will change.

The solution to this, according to the politicians, is a more flexible retirement. With the idea of being able to earn a wage and draw a part pension, we will have unleashed an army of people aged between 60 – 70 working two or three days a week.

But the research flies in the face of this. Most of the people that we talk to at CoreData who are putting off retirement aren’t doing it because they are in love with work, they are doing it because they can’t fund the retirement that they want – so for employees the concept of a portfolio career is a moot one.

What is also tough about this is that retiring people because they are old isn’t really why people are shuffled off, according to the EIU research which interviewed several hundred CEO’s, they are shuffled off because they are expensive, unproductive and out of fresh ideas.

So it seems that businesses, if they are to make this true, will need a whole new deal in employing this army of older workers.

What does this mean to financial planning? Two critical things; the first is that just to keep up with the net number of people retiring in Australia your book needs to grow in number at or about 9% a year and the second is that there will be a whole new set of products, legislation and changes to retirement that need to be dealt with.

The issue with this is that very few of the retirement service providers are actively embracing the change in demographics and many of the product sets, sales channels and distribution networks aren’t set up to cope with the change.

For example – businesses will have to move from customer acquisition mode to customer management mode as the net number of newly created customers for the market shrinks.

Market share growth will come from churn or poaching customers – not from new product offers – and being good at this will predicate the success of your business.

The skills you need will change; you will need to be great at capital preservation and de-accumulation (known in the real world as spending) and you will have to get used to working with old people.