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Business Times
03-06-2025
- Health
- Business Times
Working until 70 isn't so bad provided you feel 55
DENMARK'S recent move to increase the statutory retirement age to 70 for those born after 1970 – the highest in Europe – highlights an obvious and potentially troubling reality: Most of us are facing longer working lives, but that also means we need to remain healthier for longer. While linking the pensionable threshold to improving longevity is fair, up to a point, doing so risks exacerbating health inequalities because the poor become sick and die sooner than the rich. So the focus must be on extending healthy life expectancy for everyone. Closing the gap between lifespans and so-called healthspans can help build public support for later retirement, because fewer years are spent with serious illness or disability, leaving more quality time with grandchildren, on the golf course or at the bingo hall. It can also benefit government finances, by reducing pension expenses and costs associated with chronic disease and elderly care, while ensuring workers are able to keep working. When Otto von Bismarck's Germany became the first nation to offer old-age social security in 1889, the official retirement age was also 70; but at the time, his compatriots were fortunate if they lived past 45. Today, life expectancy for German men and women is around 78 and 83, respectively, meaning men receive a state pension for around 19 years, while for women it is about 22 years, or around 60 per cent longer than in 1980. The rate at which life expectancy improves has slowed in recent years, and not just because of the Covid-19 pandemic; 65-year-olds now gain nearer one additional year with each passing decade compared with around 1.5 years previously, according to the Organisation for Economic Co-operation and Development (OECD). A NEWSLETTER FOR YOU Friday, 2 pm Lifestyle Our picks of the latest dining, travel and leisure options to treat yourself. Sign Up Sign Up Nevertheless, most of us will live longer than our parents and grandparents. (The UK government's online calculator suggests your 42-year-old columnist will expire at 84, with a one-in-four chance I will reach 93. Fingers crossed.) While this is obviously good news, it will put even more pressure on pay-as-you-go social security systems, which face a growing imbalance between the number of retirees and employees. Germany's statutory retirement age is set to increase to 67 by 2031, but its new government has postponed a politically awkward decision on what happens after that. It should consider indexing the retirement age to longer lifespans, as Denmark does, to help avoid a political row about working longer. (Reforms to lift France's retirement age to 64 from 62 led to widespread protests in 2023.) Denmark introduced a quasi-automatic adjustment mechanism in 2006, and variants of this indexation system have been adopted by several European countries. For Danes, an extra year of life expectancy translates to a full year of additional working time, based on a principle that on average, workers should spend 14.5 years in retirement. This feels harsh when Portugal, Finland and elsewhere apply a two-thirds ratio, meaning employees leave the workforce eight months later for every year of extra life expectancy, thereby preventing a compression of the proportion of life spent in retirement. In theory, most of us should be able to work longer because in general, we are healthier than previous generations were at the same stage in life. Citing survey data from 41 advanced and emerging economies, the International Monetary Fund (IMF) argued in a report in April that, on average, the cognitive abilities of a 70-year old in 2022 are comparable to those of a 53-year old in 2000, while in terms of physical frailty, a 70-year old in 2022 is comparable to a 56-year old two decades ago. So there really is no justification for ageism in the workplace. But it is not all good news. There is evidence, for example, that recent cohorts have a higher prevalence of chronic diseases such as diabetes, and while we are living much longer, many of those years are spent in ill health. A study published in December in Jama Network Open found that during the past two decades, the gap between healthspans and total lifespan has widened to 9.6 years, compared with 8.5 years across 183 World Health Organization member countries. The US and UK had two of the largest gaps at 12.4 years and 11.3 years, respectively. Moreover, the affluent and more educated are ageing better those from more disadvantaged backgrounds. In 2022, the Health Foundation think tank found that 60-year-old women in England from the most deprived decile have roughly the same level of diagnosed morbidity as 76-year-old women from the wealthiest decile; meanwhile, men from the most deprived areas die around a decade earlier than the most affluent. Deteriorating health is a big reason why people exit the workforce early, potentially exposing them to poverty, and raising the statutory retirement age can be regressive because wealthier people end up drawing a pension for longer than the poor. Furthermore, telling a construction worker to stay on the scaffolding until 70 clearly is not the same as telling an office worker to keep driving a desk. Setting a pension age that accommodates this heterogeneity is not straightforward, though a combination of disability benefits and retraining can help. But why not index the retirement age to healthspan rather than lifespan, as the longevity author Andrew J Scott has suggested? 'If we set up a national target for healthy life expectancy, we would see much more focus on reducing inequality,' Scott, who is director of economics at the Ellison Institute of Technology in Oxford, told me via e-mail. 'We have a health system overly focused on disease, which is not the same as keeping people healthy.' Regrettably, just 1 to 6 per cent of OECD country health expenditures currently goes towards health promotion and prevention, according to the IMF. Public health campaigns to improve diets should be a priority – US Health and Human Services Secretary Robert F Kennedy Jr's focus on ultra-processed food is encouraging. And as an advocate for strength training – which slows muscle wastage and improves bone health in the elderly – I think governments should fund public gyms or subsidise access, as Singapore does. It should not be just a privileged few that live longer, healthier lives. While working longer looks unavoidable for many, how fast we age and how long we spend in ill health are adaptable, too. Longer lifespans are great, longer healthspans even better. BLOOMBERG
Daily Maverick
26-05-2025
- Business
- Daily Maverick
Adding life to years, not years to life – as of this week, 65 is the new 60
This week, the mandatory retirement age in South Africa officially goes up from age 60 to 65. On the surface, this is a policy shift driven by longer lifespans and economic realities – a global trend hitting home. On a deeper level, it will likely affect many people, especially those over or close to 60 who were perhaps looking forward to retiring. Many will be focusing on the practicalities: planning differently for a longer working life. For others, this change may be an opportunity for a much bigger, more vital conversation about how they plan to spend their precious leisure time in the years ahead. A global shift It is not just South Africa where retirement is moving out. In the US in the 1980s, there were about 2.5 million people who worked past age 65. That number is now 11 million – an increase of 400%. In that same time, the US population has only increased by 50%. The scales, it would seem, are tipping towards longer working lives. According to futurist Tracey Follows, retirement might not even exist in the Western world by 2040. The rising cost of living and lengthening life expectancies mean it may be necessary for people to continue working into their old age to support themselves. Indeed, a recent study by Sanlam Corporate found that most South Africans will now need to work until they are 80 to retire comfortably. Maybe this is not such a bad thing. For years, we've accepted the notion that, at a certain age, we should universally step away from purposeful contribution. But does that truly serve us? Is a fixed retirement age an outdated concept we've clung to? Perhaps the question needs to be not just about when we retire, but if the traditional concept of retirement – a relatively new idea in and of itself – is due for retirement. A brief history of a recent invention In the Stone Age, you worked till your death. Most people were dead by 20. This was the case for millions of years. Up until the 1800s, nowhere in the world had a life expectancy higher than 40 years. In the early 1900s, the average life expectancy was only 32. Retirement as we know it was only proposed in 1881 by Otto von Bismarck, ruler of Prussia. Von Bismarck suggested the government give pensions to the few German citizens who lived over 70. Life expectancy in Germany at the time was 39 years. The policy was passed. But the message was clear: most people will not retire as they wouldn't make it that far. That remained the message when retirement was introduced in the 1930s in the US for people over the age of 65. Life expectancy for American men was around 58 at the time. Globally, life expectancy is now over 70. As a result, some suggest that the retirement age should be pushed to 75. Governments are not opposed to raising the threshold – in the UK, the retirement age is set to increase to 67 in the next three years. In France, millions-strong protests ensued after the government raised the pension age from 62 to 64. The value of knowledge in an economy Leaving aside the issue of the financial necessity of working, there is broader value for keeping older people in the working world. Tertiary institutions across the world know the value of retaining skills beyond the age of 65. The US and Europe, for example, are teeming with professors above the retirement age. A total of 13% of US professors are over 65, compared with just 6% of other US workers. There are many reasons for this, including that professors possess invaluable expertise and knowledge. But it's not just them: people reach the peak of their expertise in their sixties. They do not stop adding value after 65. That is where the concept of phased retirement comes into its own. A staggered or phased retirement that sees retirees step back but still contribute could hold many benefits for organisations and workers alike: enabling skills transfer; more time to find and train new candidates; mentoring and coaching opportunities; and the retention of highly skilled workers at a reduced cost due to fewer hours worked. In South Africa, it could also create much-needed space in the workforce for unemployed young people. Additionally, a phased approach provides retirees a chance to buy more time for family, leisure, travel and taking care of their health, without having to dip into their retirement fund. The question then becomes, how might these phased retirees, with more time on their hands and no real financial pressure, spend their time? Stepping away from work, even partially, can result in a loss of identity and vitality for many, even if it feels like a deserved break. Perhaps they could be encouraged to volunteer as a way to add meaning to their life and that of others. For some, it might be to start a business. According to the Global Entrepreneurship Monitor, the number of entrepreneurs over 55 is on the rise. Are young people pointing the way? While we can't predict the future, observing current megatrends – long-term driving forces that are likely to have a growing global impact – can give us a good sense of where things might end up. Changing demographics is one such megatrend, and a key sign that traditional retirement could be on the way out is how younger generations already live and work. Thanks to the gig economy and remote-working options, many young people have embraced hybrid lives, integrating work with substantial leisure. For many millennials, the idea of a traditional retirement – one focused on leisure and relaxation – has evolved into a desire for greater work flexibility. The point is that those of us who have had the privilege to work – and who have the privilege to retire – also have the privilege to think imaginatively about what we want to do with our time, whether working or playing. If we are living longer, how can we add life to our years rather than just years to our life? Many South Africans do not have this opportunity – not just to retire, but to work in the first place. Our unemployment rate reached 41.9% in Q4 of 2024. Many will never be employed in the formal economy – they won't have retirement plans, phased or otherwise. It's a stark reminder that in our country, retirement and leisure are not universal rights, and we should not squander them. DM
The Guardian
04-05-2025
- Business
- The Guardian
The Guardian view on Labour's pension reforms: building on flawed foundations
When Otto von Bismarck introduced the world's first pension system in 1889, he could hardly have imagined the colossal wealth that people would one day save towards retirement. Britain's pension funds look after a collective £2tn, almost as much as the country's annual economic output. Rachel Reeves wants them to invest this money in regenerating decrepit infrastructure. The rationale for the chancellor's proposition is clear. So too are its flaws. Ms Reeves will announce the full details of her plans this week. Her austere fiscal rules have given them a new urgency. Investment in Britain lags behind other G7 countries, and the government has been attempting to use other people's money as a substitute for more generous public spending. She hopes that retirement savings could provide a source. She has praised Canada and Australia's pension funds, which plough money into infrastructure at home and abroad, and wants Britain's smaller, sleepier funds to emulate this model. Her instincts are understandable. Only 20% of the assets held in Britain's defined contribution pension funds are now invested in the UK. Many funds have instead gravitated towards the US market to take advantage of rising tech stocks. This is a missed opportunity. British pension funds should be investing in Britain for the simple reason that most of their beneficiaries live here. Doing so could also help protect people's retirement savings from currency fluctuations, and may become increasingly necessary if Donald Trump continues detonating the American stock market. Even so, Ms Reeves's plan for a more national pension system rests on flawed foundations. She hopes that funds will invest more money into private markets that are dominated by asset managers. Many of these specialise in infrastructure, but they also charge steep fees, and there is growing evidence that their performance doesn't justify their huge expense. Even the World Economic Forum – hardly known for its radicalism – has observed that the private capital industry is organised so fund managers capture most of the profits. Britain's pensions system is already highly unequal, and many people, particularly women and minorities, have very poor cover. Pressuring funds to invest with financial middlemen who transfer a growing share of pensioners' money to themselves would be a mistake. True, Ms Reeves has already proposed a partial solution: merge some funds so they're large enough to hire their own in-house professionals and skip these fees, as many Canadian and American funds already do. But there's still a bigger question about whether the Canadian approach is the right one to emulate. One only needs to witness the disastrous example of Thames Water, whose largest investor was the Ontario Municipal Employees' Retirement System, to see how this model of infrastructure investing can result in rent-seeking that degrades the public realm, even if some retirees benefit. A better option would be allowing Labour's national wealth fund to issue its own bonds. These would sate pension funds' existing appetite for gilts and give the government greater control over investment. Most pension funds are extremely risk averse, and many don't want to invest in infrastructure until it's already built. Where this is the case, the government should be borrowing to fund such projects itself. It is worth remembering, after all, that an aversion to public investment was to blame for the ailing state of Britain's infrastructure in the first place.
Globe and Mail
12-02-2025
- Business
- Globe and Mail
Tariffs a one-time price shock for U.S.
'Life is like being at the dentist. You always think the worst is still to come, and yet it is over already.' Otto von Bismarck's quip comes to mind as I think about the recent teeth-gnashing from investors amid a modest pickup in market volatility. Perhaps we had grown too accustomed to the benign market environment that emerged in 2024 as inflation waned and policy clarity improved. Not long ago, investors were anticipating that the U.S. Federal Reserve (Fed) would cut interest rates six times by the end of this year. 1 Fast forward to a few strong economic data releases and inflation remaining at the upper end of the Fed's perceived 'comfort zone,' 2 and all but one of those rate cuts have been priced out of the market. 3 The new presidential administration's tariff and immigration policies likely compounded the uncertainty. And as I've said before, market drawdowns and volatility are almost always the result of policy uncertainty. That brings me back to Bismarck. If the market has already priced out the rate cuts, wouldn't that suggest that the policy uncertainty and market volatility are over already and that the worst isn't to come? I suppose that could be false hope, and investors may need to brace themselves for additional volatility, but I suspect we know this drill (all puns intended, #dadjokes). It may be confirmation bias, but the inflation concerns are likely overdone. The December U.S. payroll report may have been a big surprise, but it provided further evidence that the labor market is not a significant source of inflation. 4 Wage growth for non-managerial employees came in at the lowest since 2021 and is below the 10-year average. 5 Remember the sticky shelter inflation? It should have come as no surprise that shelter inflation had been sticky. It's not as if rents reset daily. It was going to take time. The growth in owners' equivalent rent – what a homeowner would pay if they rented their home – has been trending lower and appears to be moving toward its long-term average. 6 Bond vigilantes: Are they back? Many investors sound like the little girl in Poltergeist II: 'They're back.' Admittedly, I never saw that sequel, so I can't tell you how it ends. Accidentally seeing the first one while still in grade school was distressing enough for me, but I digress. I find it hard to believe that the recent spike in the 10-year U.S. Treasury is a sign that the bond vigilantes are back to bully the fiscal policymakers. Rather, long-term Treasury rates appear to be following the lead of the Fed. Long rates plunged in the fall when the Fed pivoted from its tightening stance. 7 Long rates surged in the winter as strong U.S. nominal growth diminished rate cut expectations. 8 I expect the bond market to continue to reprice based on U.S. nominal growth and its impact on Fed expectations, not on the fiscal health of the country. A few weaker-than-expected economic data releases are likely all it would take for investors to forget about the bond vigilantes. Politics with mixed company I spent the last year telling investors that elections haven't historically mattered much for markets. It's been somewhat validating that the so-called 'Trump trade' dissipated quickly. The S&P 500 Index has been essentially flat since the election, as investors rightfully turned their attention away from politics to U.S. growth and the path of monetary policy. We're also getting a lot of questions about tariffs, so here are a few points to consider: I believe tariffs should be seen as a one-time price shock rather than the start of a new inflationary trend. In 2018, there was a noticeable price increase in tariff-affected categories, but the prices of other core goods remained unaffected. 9 Tariffs are expected to result in less optimal economic outcomes but are unlikely to drive the U.S. economy into a recession. A bigger risk to the economy is a prolonged period of uncertainty related to trade policy, which could hinder 'animal spirits' and result in declining activity. Risk assets were challenged during the prolonged trade war in 2018, only for the bull market to continue once greater clarity regarding the terms of trade emerged. 10 Brian Levitt is Global Market Strategist at Invesco and cohost of Invesco's ' Market Conversations ' podcast. Notes 1. Source: Bloomberg L.P. Based on Fed Funds implied rates in September 2024. 2. Source: US Bureau of Labor Statistics, 12/31/24. Based on the US Consumer Price Index. 3. Source: Bloomberg L.P., 1/16/25. Based on fed funds implied rates. 4. Source: US Bureau of Labor Statistics, 12/31/24. 5. Source: US Bureau of Labor Statistics, 12/31/24. 6. Source: US Bureau of Labor Statistics, 12/31/24. 7. Source: Bloomberg L.P. The 10-year US Treasury rate fell from 4.70% in April to a trough of 3.62% in September. 8. Source: Bloomberg L.P. The 10-year US Treasury rate climbed from a trough of 3.62% in September to a recent peak of 4.79% in the middle of January. 9. Source: US Bureau of Labor Statistics, 12/31/24. 10. Source: Bloomberg L.P., 12/31/24. Based on the returns of the S&P 500 Index in 2018 and 2019. Disclaimer © 2025 by Invesco Canada. Reprinted with permission. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. The opinions referenced above are those of the author as of Jan. 29, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations. Diversification does not guarantee a profit or eliminate the risk of loss. All investing involves risk, including the risk of loss. Diversification does not guarantee a profit or eliminate the risk of loss. All figures are in U.S. dollars. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. All investing involves risk, including the risk of loss. Past performance is not a guarantee of future results. In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the simplified prospectus before investing. Copies are available from your advisor or from Invesco Canada Ltd. Investment funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that any fund or security will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Image: Kalyniuk
Yahoo
29-01-2025
- Business
- Yahoo
The German public sector pensions row that serves as a warning to Britain
When Otto von Bismarck created the world's first state pension in 1889, few could have predicted the effect it would have. What started as a little security for Germans reaching 70 – who back then were unlikely to live long enough to significantly drain the public purse – was quickly adopted across the world. But over a century later, the Iron Chancellor's altruism is now strangling Germany's economy – and fuelling resentment among those expected to pay for it. Germany's annual budget now sits at around €480bn (£402bn), but approximately €120bn already flows out of the Exchequer and into state pensioners' pockets. At the same time, the country is facing an ageing problem as a result of a dramatic fall in its birth rate during the 1960s and 1970s. There are now just three workers per pensioner, down from six in 1950 – and the writing is on the wall. Marcel Thum, of economic researchers The ifo Institute, said: 'Without reforms, the costs of the pension system will rise very quickly in the years ahead. These costs have to be borne by the currently active population. 'If people live longer, we have to work longer or be satisfied with lower pensions. All other measures are just temporary fixes – many of them leading to even higher burdens later on.' However, there's an even more controversial commitment that's also draining the nation's finances – public sector pensions. The German government spends around €20bn a year on the final salary pensions of civil servants. Almost 600,000 are already in payment, with 200,000 more workers currently making their way towards retirement. Germany is also a federal system, meaning its 16 states and its smaller municipalities are responsible for paying pensions to their own retirees. They hand over another €49bn a year to over a million retired local government workers – prison officers, police, firefighters and teachers, among others. Almost two million more are steadily building up pension rights whilst in work. In the UK, public sector pensions are paid by the Government. They provide a guaranteed income for life and cost around £54bn a year, although they are paid using the pension contributions coming in from current public sector workers and their employers. With no money left to be invested to pay those workers when they retire, the UK has already built up a debt of £4.9 trillion in pension promises. Back in Germany, however, some contributions are at least invested for the future. But that hasn't stopped pensions becoming a 'serious threat' at a federal level, according to the Council of Economic Experts, a think tank. One of the group's experts, Martin Werding, said the unpopular system could not go on. 'In the 1970s and 1980s, the civil service increased a lot and these people are entering retirement. This creates a huge financial burden for the people who have to fund these. 'Typically, they're seen as unfair by people who aren't in the scheme. Most people are looking at civil servants with a lot of envy. 'Not implementing a major reform of public pension schemes, this is a serious threat at the federal level. We said 'this can't go on'. We have to discuss severe changes to our pension system due to demographic ageing. It's not sustainable.' At the crux of their unpopularity is that they are completely taxpayer-funded. Workers do not make any contributions to the pensions that will one day support them for life. The Council of Economic Experts, which was set up by law to advise on economics, is proposing closing the current scheme to new joiners. They would all be moved into Germany's national pension system, known as the GRV. Workers' salaries would stay the same and like private sector workers, they would build up both a state and a 'company' pension. However, their benefits would be lower than what they currently receive and, crucially, they would have to contribute themselves. Anyone who is 20 years or more from retiring would also be moved over, although the benefits they'd already built up would be protected. A change on this scale would dramatically increase the €120bn cost of the GRV, so the Council of Economic Experts is also proposing that the contributions coming in from those moved over should temporarily be used to pay pensions to existing retirees. This would also ease the overall cost of the system. Pressing home the case for reform, Mr Werding said that whilst many advanced countries would face this problem in 30 to 40 years, Germany had less than half that time to tackle it. However, he added that any change would prove difficult. He said: 'The problem in really taking this kind of reform is 16 levels of parliaments, and the Bundestag would have to approve this simultaneously. This is not very likely and is difficult to organise because the federal level has no specific lead in shaping the law for civil servants. 'I think this is a serious drawback, particularly for ambitions to go for the reform of the pension scheme.' There will be some changes to the German pension system if, as expected, the Christian Democrats win next month's general election. The party, known as the CDU/CSU, has pledged to allow retirees to work tax-free, set up pensions for children and rule out any pension cuts. It also won't interfere with existing legislation to increase the pension age to 67 by 2031. However, it has made no commitment to tackle the age-old problem of balancing the books amid decades of generous pension promises. And at a time where bold and radical action is needed the most, Otto von Bismarck is long gone. 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