My 98-year-old grandmother lives in palliative care in a private facility. Her accommodation, along with medicine and consultations with specialists and therapists, is financed by my father, who is recently retired and draws the funds from his superannuation. Yet, as my grandmother continues to age, the cost of her care increases exponentially while my father’s superannuation shrinks. If and when the day comes that he can no longer afford it, the responsibility of paying for my grandmother’s care will fall onto me. And if my father lives as long as my grandmother, I might have to meet the cost of his palliative care too, at the expense, potentially, of my children’s college funds.
It’s a pessimistic scenario. But it paints a human face on the massive financial burden many of us will have to face as a result of the rapidly ageing population. According to the UN economic division’s most recent ‘World Population Ageing’ report, the older generation is “poised to become one of the most significant social transformations of the twenty-first century, with implications for nearly all sectors of society, including labour and financial markets, the demand for goods and services, housing, transport and social protection.”
So how fast are we ageing? Between now and 2030, the number of people in the world aged 60 years or over will grow more than 50%, from 901 million to 1.4 billion. By 2050, the number will hit 2.1 billion. Latin America and the Caribbean will be worse hit, with a 71-per-cent increase in the population aged 60 years or over within the next 13 years. Europe will be least affected, with only a 23-per-cent increase. Oceania sits at the middle with a projected 47-per-cent increase.
In Australia, the number of people who are 65 and can qualify for the age pension has grown from 1 million people 50 years ago (about 8% of the population) to 3.6 million today (15% of the population). On the present trajectory, 1 in 4 Australians will be eligible to apply for the age pension in 2050.
Therefore the question begs: if the pool of taxpayers keeps on shrinking, who the hell is going to pay for all those pensions?
The older generation is “poised to become one of the most significant social transformation of the 21st century
Balancing the budget
Future generations — that’s who. But now they finally have some relief in sight. Over the past 12 months, Australia’s Department of Health announced the first in a series of painful but necessary cuts to aged care and health programs to mitigate “much higher than anticipated growth in funding claims,” and establish “a more sustainable” model. The controversial cuts amount to a sizeable $2.5 billion over the next 4 years — a decrease of 11% in spending per resident. UnitingCare Australia called the cuts “arbitrary”, saying they would have a “devastating impact” on the care of frail and older people in Australia. Another major aged care provider, Amana Living in Perth, warned that the cuts would simply “increase the burden on an already overstretched hospital system.”
Public-policy think tank the Grattan Institute believes there are less painful solutions the government could have tried first. In a report released in November 2016, it stated that $1 billion a year could be saved by winding back unduly generous tax breaks for older Australians. “The rise of the ‘taxed-nots’ is in part due to age-based tax breaks,” the report said, pointing out that “age tax breaks for seniors are a relatively new invention — not provided to previous generations.”
An even simpler solution yet is to increase the size of the taxpayer pool relative to the number of pensioners. But to do that, we need to forgo the economic assumption held since the end of WWII that we can retire on a government pension at age 65 as a fair reward for all the tax we’ve paid over the years. The thing is, when that assumption was made, the average life expectancy in Australia was around 60 and few people were expected to live long enough to draw the pension. Today, life expectancy in Australia is 80 plus and 1 in 3 Australians born in 2017 will live past 100.
In its wisdom, the coalition plans to raise the minimum age of retirement from 65 to 67 by 2023. But according to former editor-in-chief of The Economist Bill Emmott, it’s not enough. Seventy, he says, would be a better number, or better yet, index the pensionable age to life expectancy. So far only one country, Denmark, has taken that dive. “In the meantime,” Bill warns on his website, “Western welfare states will remain financially unviable, economically sickly, and politically strained.”
The grey dollar
The metaphor of the silver tsunami is rich with apocalyptic imagery. Yet it’s also flush with cash. Take my grandmother, for example. Whenever I visit her, I go in an Uber. I often stop off at the ice creamery around the corner and buy my grandmother her favourite coffee ice cream. And I’m not the only one in the family who indulges her. Trips with Uber and sales of ice cream to family and friends who visit my grandmother are the tip of the iceberg of the grey dollar — a raft of everyday economic opportunities and untapped markets underpinned by the new demographics of an ageing population.
The healthcare, insurance and pharmaceutical sectors are obvious beneficiaries, though financial services and property are where the real silver dollars lie. According to the Grattan Institute, over 55s control 58% of the total wealth in Australia — wealth that came from housing, or, more specifically, from the huge increase in the price of property in the country, the latter having grown in real terms by a whopping 121% over the past 20 years.
And contrary to stereotypes, older people are more spendthrift with their money too. Australia’s ‘grey nomads’ cough up to $160,000 for top-of-the-range Winnebago RVs, plus boats, kayaks, camping equipment and bicycles before heading out on self-drive holidays across the country for months and years at a time. As a result, they’re keeping hundreds of towns in parts of regional and remote Australia afloat. “Aged care, hip and knee replacement, and succession-planning would be good businesses to be in, and travel such as Rhine River cruises,” says Bernard Salt, a futurist who uses demographics to interpret how business might change. “Any business attached to servicing those surging demographics must do well in business.”
The power of New Zealand’s grey dollar should not be underestimated. Baby boomers earn 35% of total earnings and control around 45% of national wealth. And just like Australia, they’re the driving force behind NZ’s housing boom. Grey nomads and their RVs also drive the country’s tourism sector and NZ is the only developed country other than the US where drugmakers can advertise directly to consumers. But the country is not immune to the downside of an ageing population. According to a Human Rights Commission report, the number of citizens qualifying for national super has grown by 450 a week since 2011, while the number of people old enough to enter the workforce has grown by only 200 a week. Treasury recently warned that unless the government makes changes, NZ’s net deficit will rise from the 25% to 200% by 2060. How will the government react? We think by reviewing the tax system, austerity measures and raising the retirement age to 67. Indeed, in an ironic twist of fate, Prime Minister John Key, who pledged to resign rather than raise the age of retirement, will retire from politics.
Baby boomers in the UK who bought property when they were young have struck gold — $1.5 billion worth, according to over-50s magazine Saga. Coupled with new laws that allow over 55s to draw from their retirement funds, it’s created one of the richest grey markets in the world. This grey market also likes to travel. According to the Association of British Travel Agents, they are the only age group in the UK to have increased the average number of holidays they take every year. The fitness industry is another winner, as are motorbike manufacturers (retirees account for nearly a third of spending on motorbikes) and cinemas — older folk are the most avid cinema-goers in the UK. A recent study by Bowling Green State University found people aged 60-plus are the fastest-growing users of online dating.
Singapore has one of the fastest-ageing populations globally. 1 in 5 Singaporeans will be aged 65-plus by 2030 — a demographic that will bring with it profound economic change. Fears of an increased financial burden on the state and future generations are valid, however, Singapore is making important changes to stymie the rot. First, it is introducing MediShield Life, a universal healthcare insurance to help cover large hospital bills for life. Second, they’re investing in infrastructure that keeps the elderly mobile, happy and independent – things like public transport, public housing and parks. And third, there are plans to raise the minimum retirement age to 67. “By doing this we can minimise the burden of ageing and maximise the contributions that old people can make and make sure they feel an inclusive part of society,” said Singapore Prime Minister Lee Hsien Loong at the APEC Economic Leaders Meeting in Lima in November.