Andrew Scott is co-author of the best-selling book 'The 100-Year Life'. In this interview he considers the implications of increasing life expectancy for individuals, companies and policymakers.
As a professor of economics at London Business School and co-author of the best-selling book 'The 100-Year Life', Andrew Scott is passionate about ensuring the gift of extra years becomes just that, and not a curse.
In addition to his academic work, Scott has for many years been a trusted adviser to policymakers; including the UK Financial Services Authority, House of Commons Treasury Select Committee, Bank of England, HM Treasury and the Office for Budget Responsibility. As such, his views on longevity carry weight.
In this interview, Scott discusses the disintegration of the three-stage life and lays out a case for the shift towards a more fluid, multi-stage life.
Which demographic is feeling the greatest impact from the shift to a multi-stage life?
Increasing longevity is already disrupting the life-cycle model that emerged in the twentieth century. The three-stage life of education, work and retirement – which was based on a life expectancy of around 70 – is unlikely to be able to cope with the real possibility that the next generation will live to between 95 and 100.
The people who will be most affected by longer lives are in their sixties. Many enjoy a level of health and fitness that is, on average, much higher than what was expected when the idea of a three-stage life was born. In their desire to carry on working, it is almost as if they have set aside the notion of retirement. The idea there is a single age at which everyone comes to a hard stop is already outdated.
Retirement is almost coming into three stages now: one where people are still working; one where they are fit and healthy and travel and have some fun; and one that looks more like a traditional end-of-life stage, where they are more fragile and stay at home.
We are also seeing people in their twenties acting very differently. They are getting married later, buying a house later and having children later. A woman is more likely to have a child in her forties than when she is under 20, which I think is an extraordinary statistic. Some of this is a consequence of negative factors, notably student debt and high house prices.
But lifestyle choices also play a role, with many people adopting the full range of adult responsibilities in their early thirties rather than their early twenties.
How should companies respond to the demographic shift?
They should embrace it.
One thing I tell businesses is that a 65-year-old today is very different from a 65-year-old in the past. They are fitter, healthier, more productive and work for longer. In 1922, a 65-year-old British male had a mortality risk, or chance of dying, of 4.3 per cent. Today that is down to 1.3 per cent. The question is who in 1922 had a 1.3 per cent mortality risk? The answer is 52 year olds: 65 year olds today are the equivalent of 52 year olds in 1922.
Companies need to do more work in the formalisation of their relationships with employees reaching retirement age. Options need to be set out five or six years ahead of time so that they can make choices. And with the mass of the baby-boomer generation now moving into retirement, firms have to be more systematic and less discretionary in their policies: they could risk litigation if they are seen to treat individual employees differently.
Will education have a role to play?
I believe we are going to see a greater need for education of 40 and 50 year olds. Technology will play an increasingly important role in that process as I do not see universities being able to cater for all that extra demand.
I expect to see new products and new providers, with digital being the best way of delivering them.
We also need to bear in mind that education should be about more than just upgrading skills. It also has to be transformational. All the evidence on transformational education is that it is about being part of the community, being opened up to new ideas and being isolated from your other life.
While I think that is one of the big roles of education for 18 to 21 year olds, it will also be important for those in their forties and fifties because they are likely to have had 20 years working in just one role. That is their skill set and their identity. They probably do not even know what they really want to do.
You can sign up for a course to do web design or something and that is great. You can learn to be a very good web designer - but it is not going to be totally transformative in your outlook and your skills.
How should financial planning adapt to a multi-stage life?
If we are right that we are going to have a multi-stage life, we need to question the whole concept of a pension because of our need for assets at different time of our lives. I might, for example, accumulate a lot of money at my financial stage in order to fund a couple of years of retraining. Alternatively, I may opt to get a job where I do not touch my assets but only earn enough to 'wash my face' financially, which we see a lot of by people in their sixties.
There is a whole covariance of assets we now need to look at: health, relationships, education as well as work. This means we need to think differently about when we shuffle money from one period to another. That is also going to be much more individualistic.
A three-stage life can only be arranged in one way: I get educated, have a job and retire. You can arrange a multi-stage life in lots of ways.
Again, different people have different needs. The best financial advisers will ask their clients what they really want and are able to help them achieve that.
How should corporate pension schemes respond?
Most companies are pulling out of defined benefit pensions given their high cost and significant longevity risk. Few firms are still admitting members and overall membership has declined dramatically. That said, while the defined benefit scheme in its current form is no longer viable, there is a version of it that could work well for the 100-year life.
If you think of your assets as not just financial, then the company could say to its employees: “We will give you auto-enrolment or some small-scale defined contribution up to a certain level but after five years we will give you a six-month sabbatical. After ten years, we will give you a one-year sabbatical. We will pay for you to go and get retrained and, if you agree, we will move you into a different part of the team.”
A more holistic approach to thinking about corporate pensions could also help reinstate the original advantage of offering a defined benefit scheme: we can hire someone today for less than we might do otherwise and use it as a retention tool.
What do individuals, companies and governments need to do to meet the challenge of the multi-stage 100-year life?
For individuals, I worry most about 40 to 50 year olds. They are following a model that worked for their parents but will not work for them. They cannot retire at 65 but their education and skills will not sustain them beyond that. That is a really big challenge.
For individuals in general, it is important they recognise the need to think about their future self today, but also acknowledge their future self will go through several changes. They need to be open to those changes.
Companies and governments also need to move away from thinking in terms of a three-stage life, which so hardwires our actions, and realise we are going to see a lot more diversity and a lot more of a lifetime approach to things.
As for companies individually, they will miss an opportunity if they do not accommodate with appropriate options the very large and highly experienced baby-boomer cohort currently approaching retirement. I find it slightly strange how obsessed companies are with millennials. While they might be great in number, there is an even bigger cohort about to walk out the door who seem to be fit, healthy and laden with expertise.
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