Report Summary

A silver opportunity? Rising longevity and its implications for business is an Economist Intelligence Unit report, sponsored by AXA. It looks at the risks and opportunities faced by businesses as they start to grapple with changing demographics, both in terms of their internal workforces and the changing nature of consumer demand. This report focuses on the trend in developed countries.

A striking demographic change is taking place worldwide, as people live longer than ever before and fertility rates fall in many regions. Globally, the number of those aged 65 and over is growing at around twice the rate of the overall population. This age cohort is now the fastest-growing primary segment of the world’s population, and its growth rate is outstripped only by that of an even older subgroup: those aged 80 and above.

The combination of greater longevity and falling birth rates poses many challenges, for individuals approaching retirement, for societies and governments dealing with the rising pension and healthcare costs and for companies. And while much is known about the impact of the demographic change on public finances, relatively little is known about the effect on business.

This effect occurs mainly in two spheres: that of companies as employers of older workers and that of companies as marketers of goods and services to older consumers. In both spheres, the coming demographic changes will require companies to “shift gears and adapt”, in the words of Jan Willem Kuenen, a partner at Boston Consulting Group. “Everyone knows of the [likelihood of an] impact, but not of the magnitude of the impact,” he adds.

To examine those impacts and the degree of corporate preparedness for them, the Economist Intelligence Unit undertook this study of the business impact of longevity. Below are the key findings of this research.

Opportunity versus risk

Business is largely optimistic about longevity. Executives overwhelmingly view increased longevity as an opportunity, rather than a risk: 71% see it as an opportunity, compared with 43% who consider it a risk. Nearly four times as many see it as wholly an opportunity (39%) than wholly a risk (11%), with one in three (32%) seeing it as delivering both risks and opportunities in equal measure. Relatively few firms (13%) claim to have not considered the implications of rising longevity. Overall, most consider it a “middling” opportunity, although a substantial minority (35%) see it as a major opportunity. Far fewer view it as a major risk.

New markets and opportunities

Healthcare and pharmaceuticals, leisure and tourism and financial services are seen as some of the key sectors likely to benefit. They will not be alone: consumer goods, food and beverages, retail and technology companies are also expected to find new opportunities. Sectors in which companies are able to help older consumers achieve more independent lifestyles should benefit especially. Of course, only those who successfully adapt will benefit. While many experts emphasize the need for life-long learning, only a small minority perceives the education sector to be a potential beneficiary.

For some specialised companies, longevity already offers significant growth opportunities. Companies that already sell primarily to older consumers, such as healthcare and medical device manufacturers, see a bonanza coming. One example is Smith & Nephew, which sells replacement hip and knee joints, largely to an older population, and lists ageing populations as one of its key drivers of growth.

Longevity also offers long-term business opportunities to other companies that do not specialise in serving the aged. Our survey shows that almost all firms expect to sell more to older consumers in the years ahead, but only a few see this as a rapidly evolving market. Just 5% think sales to this group will increase by 25% or more in the coming five years. Nevertheless, one-third of respondents expect sales to this group to increase by at least 10% in that timeframe, and another one third expect to see at least some revenue growth (1-10%) from this age cohort over the next five years.

Many firms are starting to consider how to develop products for this demographic and how best to market them. But much more effort will be needed to consider the needs of older persons, as a new generation—with hopes and expectations that are radically different from those of their parents—plans to retire. A growing number of companies are conducting research and development (R&D) into the needs of this group. Intel, General Electric, Danone and Philips are just some of the firms interviewed for this report that have set up dedicated research efforts better to understand older consumers, from nutritional needs to retirement plans. Interestingly, smaller businesses (with an annual revenue of US$500m or less) seem more responsive than their larger peers (those with an annual revenue of US$1bn or more) in terms of creating wholly new products and services. However, bigger firms with greater resources are better able to market to specific niches, and train their sales teams appropriately. Many, however, still consider longevity an issue for the distant future, rather than a pressing concern.

Changes in the workforce

Firms face several looming demographic risks to their workforces, prompting nearly half to consider the potential impact. Nearly one in three (31%) firms expects to have a “significantly higher proportion” of older workers (65+) within the next five years. Companies will not only be hit by rising numbers of retiring older workers—with an associated loss of skills—but also a decline in the availability of younger workers, and a decline in average productivity as the average age of workers rises. As a result, the labour force challenge is the highest-profile issue for businesses surveyed. Some 45% have considered the impact of workforce changes on their human resources requirements, well ahead of the 31% who have considered the impact on their sales and marketing, for example. However, 14% say their firms have not taken longevity into account in any way.

Companies worry about rising pension and healthcare costs. Increased longevity is often considered in terms of its impact on firms’ liabilities—and accordingly this is the biggest worry on executives’ minds. This is followed by the challenges of both a loss of skills, and also a lack of understanding within businesses about the needs of older consumers. North American firms are most concerned about rising financial liabilities, such as for healthcare, followed by the loss of skills as their baby boomer generation gets set to retire. European firms, by contrast, also worry most about liabilities, largely for pensions, but then about the lack of understanding of the needs of older consumers.

Outdated human resources policies are the weakest link for many firms. Executives highlight some striking weaknesses within firms. Nearly one in three (29%) says their firms are not at all effective at adapting human resources (HR) strategies to older workers. One in four (26%) say the same about their ability to transfer knowledge from retiring staff to younger staff. Respondents agree strongly that older workers are an asset for the business and that they are especially well suited to certain aspects of the business, such as mentoring. Nonetheless, fewer than one in five (18%) say that their firms have a policy in place to deal with the rising number of older workers. Here again, the contrast between large and small firms is sharp: bigger companies have done more on the policy side, but a greater proportion of smaller businesses are actively seeking to retain, and recruit, older workers. Many interviewees flag the need for radically new thinking within HR functions, including new career paths and compensation structures.

Executives are overwhelmingly interested in working as long as they can, provided their work is flexible. Around eight out of ten (79%) of executives polled are willing to do so, suggesting a striking appetite for appropriate policies. Firms such as the UK-based hardware retail chain, B&Q, are already tapping into such wishes in terms of how they recruit for their stores. Just 19% of respondents have no desire to work past their official retirement age. However, respondents are cautious about demanding a legal extension to the average working life, with only 43% advocating a higher official retirement age. And the need to earn money is not the main reason for this, despite the recent recession: only one-third of those polled (all of whom hold management-level roles) worry about supporting their retirement financially.