Most of us are living longer and longevity is rising at an ever-increasing rate. Extrapolate the current trends and it’s easy to believe that immortality is just around the corner! Closely linked to improved mortality is the growing trend for people to remain in employment beyond retirement age. In this article I would like to take a look at these demographic changes and their likely impact on companies and the benefits they provide for their employees.
Employee benefit consultants Lane Clark Peacock have recently released their 2014 Global Benefits Update, which highlights that life expectancy increases in the first ten years of the millennium outstripped the increases in the preceding 20 years. Meanwhile, Towers Watson have published a report commissioned from The Economist Intelligence Unit entitled Is 75 the new 65? The Intelligence Unit surveyed 480 senior executives at companies across Europe and 71% of these expect the proportion of their workforce aged over 60 to increase in this decade, with 22% saying this change would be significant. Interestingly, the survey suggests that employers are positive about the prospect of employing an ageing workforce and they are already looking at ways to adapt working patterns to suit older workers.
The different effects of an ageing workforce
The ageing of the workforce is happening across the developed economies of Europe, the US, Australia and Japan but less so in the emerging economies of India, Mexico, Brazil and Indonesia and this disparity between regions may provide an indication of likely future trends in global mobility. It’s also worth noting that certain countries and sectors of the workforce are faced with a more acute problem than others, for example Germany, with its traditionally strong engineering sector. Faced with a decline in relevant skills amongst the younger generation, German industry is embracing older, skilled employees and is identifying appropriate incentives to retain them. It’s a similar story in the oil and gas industry, where a skills shortage amongst younger employees has arisen as a result of the contraction of that industry in the 1980s.
Having looked at some of the changes that nations and industries face, let’s now consider some of the problems that this demographic shift poses for global businesses and their employee benefits. The LCP Global Benefits Update 2014 raises the spectre of very significant balance sheet surprises for global firms operating defined benefit plans. It highlights the different assumptions being used in different countries with regard to longevity and points out, for example, that if Germany, the US and Japan adopted the same mortality assumptions as France their funding liabilities would increase by 10%, adding tens of billions to liabilities on balance sheets. A more global perspective on longevity, the report concludes, is increasingly needed.
It’s not just about pensions
It’s not just pensions that are of concern to employers. Whilst longevity is increasing, chronic illness is not declining at the same rate. Yes, fewer people are dying from chronic ailments such as heart attack, but more and more people are living with these conditions and the incidence of chronic illness increases significantly with age. This has serious financial implications for the cost of health care and risk benefits for employers. The Towers Watson report Is 75 the new 65? points out that 43% of the senior executives surveyed expect the demand for employee benefits in later life to grow and 55% expected cost increases to fall upon employers. At Zurich we’re increasingly seeing requests from employers to continue to provide life and income protection benefits for employees well into their 70s and the cost of providing cover for this age group escalates rapidly. In some cases, perhaps due to existing chronic conditions, obtaining cover at any price may not be possible.
Globally mobile employees will be more acutely affected by these demographic changes. Already finding it difficult to maintain a meaningful record within any one country’s state system, these people are likely to be more dependent upon employer sponsored benefits. Providing private healthcare and meaningful retirement savings for this group is increasingly important and it’s often the industries facing skills shortages amongst younger employees, such as energy and engineering, who have a large expatriate and mobile population.
So the future challenge for employers is to design benefits and to adapt working patterns to meet the needs of older, skilled employees, whilst finding ways to contain costs. There will be increasing demand for more flexible benefits and working conditions, as the needs of the workforce change with the changing demographic. The cost of health, disability and life benefits will inevitably rise and employers may need to look at ways to manage this cost, perhaps through changing benefit design or by sharing this cost with their employees. Immortality may be the stuff of science fiction, but improving longevity and the greying of the workforce is happening right now and it raises both challenges and opportunity for employers and employees alike.
How does the ageing workforce issue affect your company?
To have your say on the ageing population and how this affects employee benefits within your organisation, complete the short survey by clicking on the link below.
Feedback from this survey will be presented at the Expatriate Management and Global Mobility conference in July. By completing the survey you will also be rewarded with a 20% discount from the price of the conference. For more details please click here