The Ticking Age Time Bomb | BTalk

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Marc de Cure

(Episode 427; 19 minutes 15) This week Australian Treasurer Wayne Swan launched the 2010 Intergenerational Report, which some scary figures on the economy for 2050. The ratio of old people to those of working age will have doubled and the economy's growth will have slowed substantially.

Part of the answer we're told is in having older people working longer. The government has announced a $43 million training push for retirees, but it's a small measure for a big problem.

On today's BTalk I talk to Marc de Cure --- who chairs the Leaders' Forum at the Australian Institute for Population Ageing Research. He says it's a big issue that needs to be addressed by business, government and individuals.

But will we find the answer in time? Japan didn't. Europe is suffering the same fate. Will Australia be any different?

Do you have any answers? Add your thoughts in the Talkback section at the end of this post.

• Transcript

Phil Dobbie: Hello, Phil Dobbie here. Welcome to BTalk. Now we're all getting older. You've probably noticed it yourself in your choice of music and the type of car you drive. But too many of us getting too old is a crisis in the making. So what are we going to do about it?

Well, this week Australia's Treasurer Wayne Swan launched the 2010 Intergenerational Report. And it makes for sobering reading: by 2050 there will be 2.7 people of working age for every person over the age of 65. Right now the ratio is about half that. There are five people of working age to one over 65. Now last month of course the Prime Minister said that part of the answer is to have us all become more productive. But is that achievable? And what does business need to do to help plan for the future? Well Marc de Cure is the chair of the Leader's Forum at the Australian Institute for Population Aging Research. Now Marc, this isn't just an Australian phenomenon of course, but we've got the situation of fewer taxpayers, higher health costs, a lot of people without sufficient superannuation --- we've been hearing a lot about that lately ... I mean it all sounds like a ticking time bomb to me.
Marc de Cure: Yes, it's certainly an issue that, if it not addressed, will be a problem for Australia and will be a problem for many countries around the world. We already have evidence today of countries that have hit this issue earlier than others. I mean Japan is a good case in point where Japan's population started to age probably 10, 15 years ago. And it's caused you know a decline not just in their productivity but in growth because there are fewer people working --- there's less growth. It changed the risk profile of their investors because the older population were more conservative and wanted to invest in lower-risk types of investment. It had major ramifications for the Japanese Government budget. And this trend is starting to flow through into Europe as well. We're seeing that today.

Dobbie: There are only a few ways you can cope with the problem. Obviously one of them is to tax more heavily which I think you can almost say doesn't make sense. Another one is to increase immigration and try and balance out the population, and that brings its own problems. Or you get to the question of productivity, don't you. But how do you do that?

de Cure: Well I'm not entirely convinced that the answer lies with productivity. You know there's been a fair bit of comment in the media, Russ Gibbons has been talking about this at length. That one, can we actually increase productivity sufficiently to address the problem? And two, you know, is it really going to be the answer? I suspect it's probably part of the answer. I mean obviously it's part of the answer if we can increase our productivity, then the reducing number of units of labour can be offset by increasing output from each of those units. That's obviously a logical response.

Dobbie: But in a capitalistic economy, if we could have increased productivity, we would have done it presumably.

de Cure: We would certainly have done a lot in the last 10 to 15 years by freeing up labour markets --- by freeing up currency markets, by the whole internet revolution and the sharing of knowledge and the increased capacity created by technology. This all fed into the system and had a significant impact. I'm sure there'll be further enhancements and things can happen. But I'm not sure it's the entire answer. I think we have to do a little bit more than just say let's increase productivity.

Dobbie: Right. So what sort of things?

de Cure: Part of what AIPAR is about is determining what are the issues and where are the information gaps, what research do we need to do, what facts do we need to gather so we can actually answer that question in an informed way? And obviously we have ideas today, but I think the first comment I have to make is this shouldn't be a fact-free conversation. What we need to do is really get to understand what's going to go on in the economy and use that data properly to determine how we'll response rather than just like extruding comments here. But some of the obvious things that are being talked about and which are the basis of some of our research would be around extending the amount of time people spend in the workforce. So rather than people retiring in their 50s or maybe you know at the latest maybe 65, trying to extend the working age. That doesn't mean they have to you know keep working full time till they drop, but it might mean they continue to work past 50, past 55, past 65 on a part-time basis. And that requires you know a better understanding of what are the needs and issues of an older working person. What are the issues from an employer's perspective? What are the issues from the individual's perspective? What are the tax implications? All those things need to be understood and you know we need properly thought through policies and responses from government and business and individuals to deal with it. And that's one example.

Dobbie: Yeah.

de Cure: Another example may be trying to look at alleviating some of the cost pressures --- can we improve the efficiency or the effectiveness of health services so that we eliminate some of the diseases that are now inflicting older Australians? Can we cut them off through remote care at an earlier stage so we can take action, health responses at an earlier stage than is currently taking place so they're less chronic? And keep them out of the hospital system. There are all sorts of issues we can try to investigate to alleviate that health cost. And we can also encourage Australians to save more, so that they're actually more self-sufficient and less reliant on government. And that will require us to have a better understanding of investments, better understanding of what people's future needs are and the investment strategies. There's a lot of issues that need to be investigated and thought through there.

Dobbie: In that last one, I mean it's a big swing isn't it really, because we've been conditioned over the last 10 years to leverage heavily. You know, where we're doing the opposite of saving. And we've been putting money into our superannuation, but all the evidence is that a whole swag of the population are falling way short of meeting their pension requirements with the money that they're saving.

de Cure: Yes, the superannuation, in terms of use, is still building up its full potential you might say, because there are a number of people that are retiring now that for a good section of their working life didn't have it. So it's not until it fully works through that even the current levy will have its full impact. And there are some that aren't high enough --- the Haney Review which is reported to be saying that they think it is. But you know there's always a debate going on whether the current levies are enough or whether it needs to be higher. But I think you know obviously it's not just about what you save through super, it's how you save, how you spend through your life, you know how much have you been investing in your family home, what other investments have you got outside superannuation, what are you thinking about in terms of your future consumption patterns in a retired mode.

Dobbie: Yes, and I guess a lot of people are running the danger course as well where they are living on that fallacy that an investment in a home is a sound investment because we're not really seeing the price crashes that have been experienced overseas, which is a perhaps a different subject. But what should business be doing do you think? I mean, business obviously by nature tends to think more in the mid term than in the long term. But is there stuff that they could be doing to try and help plan and are there some opportunities as well?

de Cure: Yes, the answer is yes, yes and yes. There are fantastic opportunities and one of the things that actually for AIPAR, and what that is is a collection of business leaders, heads of federal government departments and other interested people, whether it's Heather Ridout or Jennifer Alexander who are Australian College physicians. But the whole point of that is to understand from a business and government perspective what are the issues for them? Where are the opportunities and what are the impediments? And what I'm currently in the course of doing is collecting the thoughts of all individual leaders and we're going to bring them all together in a forum on a fairly regular basis, probably annually, just to discuss these issues. But it's quite clear that most business leaders see great opportunities. But they also see great threats. It depends on the business you're in. As the population ages, and there's a greater proportion of people in that older category, consumption patterns will change. When consumption patterns change, then demand on business services will change. And some businesses will be naturally positioned to benefit from this. Others will be naturally positioned to actually lose from it and will have to face reductions in demand for their goods or their services purely because of the shift in population. Others will have the opportunity to get a growth in demand, but only if they can actually understand the true needs of their target market, what they want and if they can position themselves to provide that. I mean obvious examples are obviously healthcare, retirement homes, etc, will be in greater demand. Maybe child care and you know kindergartens will be in lesser demand. The nature of the shops you see in a shopping centre, in fact even the nature of the shopping centre themselves may well change. So older people may be less willing to go to a big Westfield complex and want to go to a smaller one because it's easy to park, less stressful. And if you look at the things they spend their money on, there may be fewer Katie's and Sussan's and maybe more of something else.

Dobbie: Yes.

de Cure: So there are massive shifts in demand that can flow from this, this aging population that need to be factored in.

Dobbie: It's fine seeing that shift in demand so long as the demand still exists which means we've got to make sure that we've got an aging population that's still got money, which gets back to your idea of keeping on working and saving in the meantime. Because the government said the growth rate could fall to 2.7 percent over the next four decades, which is clearly not enough. I mean, do you think there's a real danger here that we are going to see our standard of living compromised because of this aging population?

de Cure: It's a real danger. The government's assumptions around you know what growth will be like will depend very much on the level of immigration, you know the continuation of the birth rate. There's a lot that's unknown there. I mean the intergenerational pool is just being, based on a series of assumptions around immigration levels and also around population growth. And if any of those are wrong or they overestimated, then the population growth could be lower and the percentage of the population over retirement age could be much higher. And that would have a potential impact on growth.

Dobbie: Do you think that there's a problem in all of this? I mean you look at the situation with Japan. I mean they will have seen that they have an aging population coming, these things don't happen over night. And is it just because the way economy works? We're focused I think too much on the short term and you know and we don't want to make that sacrifice now.

de Cure: Yes. I'm seeing that all the time. It's one of the issues of going around talking to business leader. And a business leader hasn't got a time frame of 10 to 15 years. I mean they will be looking forward over that time frame, but they're often making immediate decisions now. They're dealing with the pressure of now, the need to deliver shareholder returns today, tomorrow, next quarter. So they're always going to have that bias towards now obviously in the future. So it's partly that. It's partly the, you know, businesses often focus on what they do. And they don't always focus on what they don't do. And so changes in demographic may not be noticed by some businesses who are just focused on their current customer base and not seeing the big picture. It seems silly that they wouldn't, but it's so easy to do. Just get absorbed in your own world, your own issues and not actually see the bigger picture.

Dobbie: Well and ...

de Cure: And that's part of what we're trying to do, just to raise awareness of the bigger picture so that people can actually not just say, yes, yes, I understand that, but actually really get behind it and understand what it really means for them.

Dobbie: Right, this is a big sell job, really, isn't it. And I guess it needs to be supported a lot by government policy surely, there needs to be an element of enforcement here as well doesn't there.

de Cure: Well, it's not just enforcement. It's also supported regulation and legislation. I mean, without getting into the specifics, but for all the leaders I speak to, they will have comments around the regulatory regime, the lack of cooperation or coordination between say federal, state and local governments that actually is an impediment to them trying to deal with the issues. You know the whole issue of land supply in Sydney is a good example, like getting developments for retirement living. There are lots of issues where businesses could say actually governments not only need to probably have regulation in place to facilitate as much as anything else, the solutions.

Dobbie: But then we hate having more regulation, don't we? That's part of the problem. I'm just wondering whether the notion of pure unfettered capitalism is going to take a bit of a knock here. Are we going to start to see that we need to swing a little bit more to a mixed economy approach and having more government influence than perhaps we like or certainly that we're used to.

de Cure: I think market forces will provide solutions to the shift. One of the issues is making sure not just saying regulation. I'm also saying a reduction regulation. So in some cases, the regulatory environment is actually inhibiting the solutions. So in some cases I will be arguing that there may be a need to reduce regulation. In other cases there may be the need for additional regulation. I don't think it's a matter of more or less. But I also think it's a matter of the government providing some sort of a framework and some sort of leadership around this issue, so that they encourage earlier adopters, they facilitate businesses to adjust. And if necessary they maybe even facilitate the revision of certain services that for whatever reason businesses can't or don't want to currently provide. You know whether that be, you know annuity products. Today in Australia it's very hard to get a risk-based annuity product where you can buy some sort of a pension product for the term of your natural life. People are very reluctant to provide that. Why? Because they can't get investments in the form of long-dated government bonds to back them. Because the regulatory capital required to provide such products is very high, making them very expensive. Because in truth they really don't think they're going to live long, they're worried about living not long enough rather than worrying they're living too long. There's a whole lot of reasons. And that's an example of where maybe the government needs to help and provide, somehow facilitate some of these issues so that the products can be provided, so that people do buy you know proper annuity products, where they have got some form of protection. And they're not going to run out of money when they're 85.

Dobbie: Yes, listen, we've got to get out of this cycle of the five-year thinking, haven't we? And that's probably the answer. Has any country actually got this nailed? We seem as though we're still fairly embryonic in terms of wondering how the hell we're going to cope with this crisis. Do we look overseas and say well here's a country that saw this coming and has got it nailed?

de Cure: Well, I'm not aware of one. Maybe there's part of the process in the research and as we go through we'll find one. But you'll see a lot of the European countries which, you know, I guess are ahead of us, but behind Japan. They're grappling with these issues and they're grappling with them now. And clearly they didn't learn from Japanese experience. It's just another example of both countries and individuals who live it failing to address the issues until the crisis was upon them. And really that's at the heart of what AIPAR is trying to do is trying to learn ways of winning this. The two get the research happening now so that we've got the facts, we know how to respond, we get the right mix hopefully of government and business responses. And to the extent the market forces can deal with it, let them. To the extent they can't, well let's make sure we've got you know responses in place that will. You know, it's quite clear that this is no surprise. It's quite clear that it's happened to countries already. Yet still people have been caught off guard.

Dobbie: Yes.

de Cure: So something's not working, you know. Whether it's the market forces, whether it's the fact that we elect governments every three years, whatever it is, people aren't looking far enough ahead at this issue, but we stand the fact that there's plenty of evidence.

Dobbie: Well, God! I hope you don't come up with the answer that we should keep a government in for 20 years or 30 years ...

de Cure: No. Maybe governments do need somehow to be a little bit more strategic around certain issues.

Dobbie: Yes.

de Cure: This is one where I think you know a strategic response in Australia and we're ahead of the curve a little bit since we've got more time than most. So we can actually get our act together and respond appropriately, that can give Australia a competitive advantage against our competitors who are going to get caught off guard. And the people who are going to get caught off guard are not just the Europeans and maybe the Americans, countries like China have got a major issue, and this is something that is often forgotten. That you know, China is the great savior from the north, but you know they've got an aging population. They've had this one child policy that's reasonably well enforced for some time and they're got a massive shift in the balance of their population coming down the track.

Dobbie: Well, maybe we can sell them the answer.

de Cure: Let's hope so. They're going to need an answer sooner than ours because they've gone from you know very large families to very small ones.

Dobbie: Yes, certainly. Well I think in terms of politics, it needs a bipartisan approach, doesn't it? And that said, maybe that's part of the issue. So we could talk all day about this, but it's very sobering thinking isn't it really? But Marc de Cure, thank you very much for your time today.

de Cure: Thank you.

Dobbie: It is a very difficult one to answer isn't it? If we do find the solution, maybe we should license it and sell it. But I think there's probably no one answer is there really? There's multiple answers, but just put those retirement plans on hold. Maybe until your next lifetime. It sounds like we're going to have to work a lot longer.