27th September, 2019
The world of financial planning is fascinating. We are privileged to be directly involved with client’s objectives, hopes, and fears. However, as the world we live in continues to evolve, we must remain open to new ideas. We see change not just across institutions and cultures, but also through improving health and wellbeing, and the relentless progression of technology. Specifically, one of the biggest areas of change in recent years has been social change, and this has profound implications for our role in our clients’ journey.
This week I picked up some notable facts from an article written by the accountancy firm Deloitte, and much of the data that follows is courtesy of them. The points raised probably won’t be a total surprise to many, but are nonetheless representative of some of the momentum we see in today’s society. Arguably the most profound trend in job markets in recent years has been the rising number of over-55s who carry on working (though describing over-55s as ‘older workers’ is, of course, an arbitrary and subjective benchmark). Since 2012, a large portion of the growth in employment in the West has been driven by older workers, the majority of which have been women. In the UK specifically, the proportion of 55 to 64-year-olds who work has risen from 58% in 2008 to over 65% today; a trend that is also replicated in other advanced economies.
Money is, of course, one key motivation. The shift from generous guaranteed employer sponsored pensions to non-guaranteed arrangements is starting to be felt among those aged over 50. Worries about social care costs, asset returns, and helping children onto the housing ladder, have created new uncertainties. Some parents stay on at work to help their children cover the rising cost of university and housing. Others, with irregular earnings or little savings, have no choice but to carry on working. A further reason many want to stay in work longer is to remain active, enjoying the sense of purpose that a job can bring. Weirdly, people who work later tend to be healthier than those who don’t, though the causation here is a little murky. Whatever the basis, all of these are new reasons to plan!
Another significant change has been the move away from retiring at set ages, like 60 or 65, which was standard practice a few decades ago. Those were the rules, or that’s how it felt at least. Back then, people that had planned for retirement used to talk of getting a lump sum when they retired to do something special. Today, having a fixed retirement age is outdated in a world where people are living longer and healthier lives. The decline of physical labour, and the growth of ‘people focussed’ and cognitive work, has lowered one barrier to later working. Meanwhile, growth in flexible and part-time work and in self-employment makes it easier for older people to combine work with other interests and responsibilities. Academic studies disagree on whether productivity declines with age. A recent UK government report found “no consistent evidence that older workers are generally less productive than younger ones” noting that, “knowledge and experience…compensate for age-related declines” in many aspects of performance. I for one am delighted to hear this news… I hope our graduates are reading.
Despite recent increases in workforce participation, older workers remain an underexploited resource. For instance, rising UK employment rates for 55 to 64-year-olds to the levels displayed in Sweden or New Zealand for example, would increase the UK workforce by over 3%, an increase of 1 million people. This would require a greater focus on training and education for older workers, and the structure of work also needs to evolve. In Germany for example, Porsche is re-designing factories to enable older people to continue working. Moreover, the pharmacy chain CVS allows its older workers in northern states to move and work in branches in warmer southern states in the winter months.
Now only time will tell whether this trend is actually a quiet revolution in the workforce. However, to me it is clear that ageing populations mean longer working lives, and that the era of multi-decade retirement is drawing to a close. Businesses, governments and individuals all need to prepare for it, and our financial planners are ready to help our clients embrace it.
Ironically, just as I am writing this Jeremy Corbyn has declared that he would like to introduce a 4-day working week…. that would mean less money and more free time to spend it. Now there’s a planning challenge!