Member Article

How could later retirement change the Welsh economy?

19% of Britons expect to work until they are at least 70 years old, signalling a major change to the character of the British workforce. What might the ramifications be?

The first thing to ask is why people are retiring later. According to UK Pensions Minister Steve Webb around seven million people are currently not saving enough to meet their retirement aspirations. Hardly surprising, when some estimates say you need a pension pot of around £400,000 for a basic standard of living, and the average pot is currently around £40,000.

That’s bound to have an enormous effect on the Welsh economy in particular, where more people are over retirement age than anywhere else in the UK. So far, Wales has led the way in tackling the ageing population, being the first to appoint an Older People’s Commissioner, but there are worries that the level of public spending required to sustain a decent level of care and social housing for retirees will become unsustainable before long.

In that context, the largest effect on the wider economy of people retiring later is to cushion the drain on the public purse. The later people can work, the longer they’re paying for themselves, and hopefully contributing to their pension – meaning they need less help from the state once they do retire.

But working beyond 70 is a significant historical shift. There is a line of thinking that suggests the current crisis in youth unemployment is partially down to older workers staying on for longer, blocking young people from moving up the ladder, keeping them in low-level jobs and preventing their successors from entering the labour market.

Although this makes intuitive sense, and plays well with the ‘baby boomers ruined it for Generation Y’ narrative, it doesn’t bear scrutiny. Employment is not a zero-sum, one-in-one-out system. In theory at least, people in work are adding value to their organisation, generating revenue and creating more work – meaning more jobs. Older people in the workplace should be seen as an asset to the wider job market.

It’s true that older workers may block younger colleagues from progressing within a particular organisation, but not in the sector as a whole. The consequence may be an increase in movement between employers for the sake of career progression, but this is already commonplace in the modern workforce.

The second major area an older workforce could affect the wider economy is in consumer demand. Older people in work generally have more money than their retired counterparts, so it would follow that a rise in older workers could result in a boom in products designed for the older person.

And some people are seizing on the ageing population as a business opportunity, particularly older workers themselves, attuned to the needs of a traditionally under-served demographic. There’s certainly a growing market there, and one willing to pay for things. There is already a marked shift in marketing away from teenagers (little disposable income, not used to paying for things) to adults (used to paying for things, more disposable income). The grey pound is undoubtedly a growing concern.

Of course, the grey pound’s influence is determined by how much is disposable. Older people tend to be more responsible with their money, and such a boom would be to ignore the reason why people are working beyond retirement: because they can’t afford to retire. The extra income from employment is more likely to go into feeding the pension fund a few years longer than be frittered away on luxuries. Although there will be more economically active older people in the future, the best business bet will still be selling iPhones to 30-year-olds.

Instead, the growth area is likely to be in training for older people, either re-training for entirely new careers, or updating skills – I.T. training in particular, as well, perhaps, as computer accessibility products. Conversely, initiatives are already starting to take advantage of the experience of older workers to teach their younger counterparts. Although this will likely take place internally, it’s not hard to imagine an inter-generational training industry developing.

The one area an ageing workforce will undoubtedly impact is childcare. Grandparents have long been an under-appreciated source of care, and with commercial costs inexorably on the rise – with it being more expensive for both parents to work than one to stay at home in some cases – grandparents can be essential to keeping younger workers in the office.

But as pressure on pensions continues to increase, this will become untenable, potentially driving parents out of the workforce to stay home and look after the children, with a knock-on effect on the pensions savings of mothers, or fathers, who have had an extended period of unemployment.

Childcare is the big sticking point in the economic effect of working grandparents. Otherwise, the effect will be moderate – chiefly a softening of the blow to the Treasury of an ageing population. But replacing grandparent care must be a priority in planning for an ageing workforce.

This was posted in Bdaily's Members' News section by Alan Cairns .