Retiring at 65 Makes No Sense

0:00Why should people living till 100 retire at 65? That means they only work 40 years of the 100-year lifespan. Who's going to pay for it? This is the aging time bomb. Amlam Roy is an expert in demographics. And he says the way our global population is changing is at the heart of all of the big issues that we're facing today. They affect GDP growth. They affect inflation. They affect asset prices. They affect inequality. Let's say 20 years is my fixed retirement age. Please go and ask every pension guru in the world, how much pension money do I need for 20 years retirement? I've asked 23 Nobel laureates, no answers.

0:35I want to start by asking, why should someone saving for retirement care about demographics?

0:45Demographics has been misunderstood by pensions leaders and those leading common thoughts, influencers, etc. Because like many journalists and press people, they jump on a single hype. I'll give you a couple of instances. and this will show it. People just thrive on talking about China's one-child policy in the Western world. Yet China's fertility rate was 1.65 children per woman until 2019 pre-COVID. Why don't the journalists and the Western world and rest of the press get after Germany, Spain, Italy and other countries where the fertility rates are much lower? So it is important to understand that demographics is not about age alone.

1:31So one of my major contributions is following on the footsteps of, I would say, a granddaddy of management theory and practice called Peter Drucker. He's also called the great-great-grandfather of pensions because he's the only guy in 1973 who got himself kicked out of GM and Chrysler boardrooms for saying pensions promises made by GM and Chrysler were doomed to fail because there were big promises that corporates will not be able to fail. So here's Peter Drucker, management guru of 20th century, according to Harvard Business School deans and even more eminent management strategists that you and I might talk about, saying in his book, Management Challenges for 21st Century, demographics is the single most important factor that we do not pay attention to.

2:21Yet when we do pay attention, we miss the point. So to argue the point, I would argue 99.99999 % of people in UK, including the so-called thought leaders, journalists, pension influencers have missed the point because they think demographics is only about age. My contribution over the last 25 years following on Peter Drucker's coattails has been, where does the word demographics come from? Demos is people, graphos is characteristics. So what are the people characteristics? Is it only age which defines all of us? So if we assume everyone in this room is the same age, do we consume, work, live all just like robots and automations all homogeneously?

3:03Definitely not. I'll give you two anecdotes. My wife and I, we are both the same age. We have five university degrees, reaching up to PhDs. Yet we are very, very different. My wife grew up in one city, Delhi, before she got married, and London is her second city. I grew up in India in 13 schools, one undergrad, one business school across 14 different cities. That makes me very different, although we are the same age. Gender makes me also very different. Similarly, if you were to compare to make this very UK-centric, a person who grew up all his life in Ormskirk, very different than a person who grew up in W1 or W9 in London because they're exposed to very different things.

3:44So thinking about people characteristics, I decided I'll focus on two characteristics, which apply to the whole population of the world. 8.2 billion people in this world are consumers. The baby born in Great Ormond Street Hospital, as well as the oldest woman in Okinawa, Japan, aged 117 years. They're consuming different things. They're both consuming diapers, probably. But on top of it, the baby is consuming injections and other kinds of precautionary things, including mother's milk, etc. whereas the older woman has different sets of things. But we are all consumers. So if anyone told you you're the same age and I picked up somebody else, same age within this one mile and 200 of us, they may not be dressed like you.

4:28They may not follow the same football clubs. They may not go to the same theater. They may not like the same music. Your and my behavior, what he's consuming today, look at the iPad he's consuming, the coffee you're consuming, etc. is affecting inflation today, is affecting GDP today, is affecting equity prices today and real estate. So we need to understand that it's multifaceted, it's more complex, and you need to understand it better, i.e. demographics in my broader sense equals consumers and workers who are changing in such a way that they affect GDP growth, they affect inflation, they affect asset prices, they affect inequality, they also affect governance.

5:06You shouted out Ormskirk in the middle there. That was unexpected. Well, I live in Southport, so Ormskirk's right down the road. I don't think I've ever heard anyone mention Ormskirk before. He started out W9 and that's where I grew up. And then you start saying your iPhone, your Samsung. And I'm Samsung and his iPhone. I'm like, how much info do you know about us? So T, tell me the riskiest thing you've ever done. Mate, the cameras are rolling. I can't do that. You're trying to get me cancelled. I mean, most of my risky things were probably my teenage years. But one thing I could say about finance risks, definitely invested in stocks with zero research just because my friend told me to, his research was, trust me, it didn't go well.

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6:21You can get started at vanta.com forward slash making money. There's a link in the description and a QR code on screen for you. So do you think then specifically with the retirement thing that age is not what we should be looking at? So like I look at things like the dependency ratio of, you know, the amount of people in work. You mentioned it. Are these not useful measures or are we thinking about this? They are useful, but not as useful. So if there's one paper I used to be very ashamed of that I wrote in the year 2000, it's called the Demographic Manifesto. And why is it called the Demographic Manifesto?

6:56Because it was very radical. And the theme was, what can aging populations do where you're getting a faster rise of old population to be supported by a shrinking mass of young people? How do we solve that problem? How do we get rid of this kind of mental concept which says, oh, this is the aging time bomb? How do you deal with that time bomb? And I came up with four policy prescriptions with my colleagues. Number one, flexible, enabled retirement. And I've spoken to three Japanese prime ministers. It's underway in Japan, which means that beyond 65, if people are in good health and Japan, Sweden, et cetera, in good health, they work part time, part year, part week.

7:40There's no fixed mandatory retirement age. Why should people living till 100 retire at 65? Today, you're going to find your generation is going to live till 100. it. Why should they not start, typically not start working till 25, retire 65? That means they only work 40 years of the 100-year lifespan. Who's going to pay for it? Either they save a lot or else somebody else supports them. And that's where we come to this point that I believe that retirement ages should not be mandated. There should be a recommended retirement age which moves along with change in life expectancy. So if you went to Niger and Malawi, where the median age is only 15 to 16 years, versus comparing them with Japan, where the median age is 50, you can't have retirement age of 65 in all those kind of countries.

8:31You need to change it according to life expectancy and conditional life expectancy. Today, I will remark that four of the longest-lived countries in the world are in Asia. And lucky that they are smaller. So look at Taiwan, Korea, Japan, and Singapore. And in Singapore, conditional life expectancy, which is another concept, you don't want to look at life expectancy at birth. You want to look at life expectancy at 65, 75, 85. That change is also very different. So the biggest thing that countries need to look at is how to deal with aging population. And the second biggest question is, who will pay?

9:13So the first one I talked about, flexible, leanable retirement. What happens with state pension there? Sorry, just before we move on to the others. So if you have a state pension system, but it's flexible, how do people, when do they get that? They get it based on a mandate, not the mandatory retirement system, but based on the recommended retirement system. It becomes very hard. If you go on a fixed retirement system, actuarially people say, oh, we need to pay you so much. You say, no, I still want to go and work. They start taking away the benefits and then systems try to find out what's actuarially neutral or not.

9:47So Japan, Singapore, as well as Switzerland I've spoken to, companies are bringing back old-aged workers. They're working part-year, part-time, part-week. They're working roughly 25 hours, let's say, in a week, which is half of what the Japanese are typically used to. And instead of getting 50%, they're happy to get 25%. They feel they're giving to society. Second, they're passing on knowledge to the youngsters. Third, they're keeping Alzheimer's away. And fourth, most of all, they don't always want to be at home being kind of told by their wives or spouses, we've never seen you that much in 40 years, you're getting on our nerves.

10:32I don't like you. And then some of them get told, please go on the golf course or make yourself useful in some other place. So it's good for mental health. It's good for society. and I show in another paper which Greenspan demanded that US did better than Europe and Japan in the 80s and 90s because they made full use of older workers as well as young workers something I call the experience ratio. Let's get to the second biggest thing UK keeps talking about growth forget about pensions you can solve the pension problems in a whiff if you get the elephant in the room which all of us are in denial about from presidents prime ministers etc because in a macho, male-dominated society, we do not care to stare at the biggest, easily solvable issue.

11:18In Europe, women are better educated than men from the year 2001. In UK and Europe, roughly about 17.8 % is the gap between male-female labor force participation. That means if 100 men and women want to work, let's say male labor force participation rates are 76, then it is 17, 18 % lower than that for women. First, we don't give them, despite being better educated, we don't give them the same opportunities. Secondly, if they do the same job, on average, they get paid 91 % relative to the males. The third thing is selective migration. I became infamous for telling many in the UK and US government that I would give them a C or a D on their migration policies.

12:10That shocked them. Why did I say that? Immigration is a good tool if used properly, but if not used properly, it can be pretty bad. Just because you're very, very open and welcoming to immigrants today does not mean you will be so all the time. I'll give you an example. The fast the biggest country taking in immigrants in the 90s was Sweden. And over the last 5-10 years, the trend has changed. When you're growing, you want to share with your neighbors. Tell them, come and have pizza at my house. I'm doing so well. Let's go and celebrate a football game or a basketball game together and open the beers.

12:53The moment when growth goes down, and growth is going down in nearly every country in the developed world. Today, I was presenting to a client from Botswana and I showed them that, yes, it's still emerging markets, which is growing at 3%, 4%, 5%, which is keeping the world afloat. Because in developed Europe, growth is going down. So the two policies which I talked about, female labor force participation, as well as selective migration, are very important because every country needs to take in immigrants who fill up the skills gap. not just willy-nilly take in immigrants. You can do a little bit of asylum immigration, but only countries which did it well in the 90s and 2000 were Australia and Canada, which asked, what type of immigrants do we need?

13:42What skills? For how long? You don't always need, if you're short of nurses, allow nurses in for five, six years, then build your own institutions. You don't need to give long-term citizenship to people. You could tell people, we are giving you this, and then you go back and transport your skills. So every country I claim, whether it's India or China or Germany or Italy, should do different immigration. And I have charts in my chart books and even in my book where I show that Germany, were it not for immigration, started shrinking its population in the 70s. A question not a single German was able to answer to me correctly.

14:19But I'm a data geek and I show that births minus deaths, That went negative in Germany in 1973-74, whereas immigration minus immigration was positive and offset that decline in population. So you really need to, so I show the case of Germany versus U.S. to make the point that in U.S. or in U.K., both births minus deaths were positive and immigration was positive. In Germany, births minus deaths, natural change was negative, but it was offset. So different countries have different immigration patterns. And a lot of the countries where populations are declining in Europe are still very much not as open as UK and US and Sweden.

15:04They do not want immigrants. A lot of very smaller European countries. And I challenged them in 2014 and 15, saying France and Germany are taking well. Oh, we are small. We are fine. We don't need any immigrants. We will not allow any immigrants. If you're running a business or you're self-employed, normally your focus is just on getting more money in your business bank account, not on what you do with it once it's there. But that's a missed opportunity, and it's why we're really happy to be working with Tide. I use their Instant Saver account to earn interest on the money in my business account that I don't need day to day, and the money that I allocate towards my tax bill each year.

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16:14And you're just, but there'll be no one left in 50 years if you don't is that what you would say to them basically because your natural your domestic population is declining because the birth rate's not high yeah and in all those countries that was true and i highlighted that but some people would say that give women opportunities to have more than two children or about two children so the fertility rate which is required to replace populations is 2.1 which all brings me to a very crucial question that most people haven't asked. So in a conference in the U.S. organized by the 200 largest foundations, I opened the conference answering only one question I was asked to tackle.

16:53As you can see in my book, it's a tome. I can talk about lots of things. But the one question they asked me to answer is, why are birth rates going down all over the world? Whether it's Afghanistan or it's Sierra Leone or it's Colombia or it's Switzerland or UK or France or Japan, everywhere birth rates are going down. And this is what was called part of the demographic dividend explanation for the Asian tigers, which is Singapore, Korea, Malaysia, Philippines, Thailand. Why did they grow so fast in the 80s, 90s, and early part of 2000s? These countries industrialized move from agrarian society or agricultural occupations towards industrial occupations.

17:38On the farmland, the more the number of workers, the better it is. So you have more kids. And when you move to industrial places, it's expensive to live in major cities. You know that your kids are nearly all likely to survive rather than in a village in Nigeria or in Ghana or in India or in Bhutan. Not all may survive if they are in the rural areas. So you have fewer children, you educate them better. Fewer children educated better lead to greater GDP growth and ultimately GDP per capita growth because you divide them by fewer number of people so that was part of the demographic dividend now in afghanistan which had the highest fertility rate in uh places like malawi which also had five uh children for women fertility rates have come down closer to three in india it's well below two is it the death rate of the kids no no no fertility rates is number of children for no but i mean like you're talking afghanistan malawi these are places where people die young right well her child mortality must have been pretty high so if we've improved but they improved it quite a lot even by 2005 2010 and they were still having five because of yeah they were still having because they were agrarian based but once women get better educated it's women who decide and they get given the freedom to decide not in places where there may be a gun held to your head and say do this do that but when when women have freedom of choice even in the poorest of countries they want to give their one child the best opportunities but what would you say is more of a risk um someone having five everyone having five children or people just having one or less too many or too many or too few because if everyone has five children we're going to like especially in london we're going to run out of houses but if everyone only has one child then we've got the problem of who's going to pay for the pensions later down the line so i mean they both don't sound good is it a problem that we're having less children no but five kids happen only in very agrarian societies.

19:36Nowhere in the developed world do you see people on average having fertility rates above 1.4, 1.5, 1.6. And through governmental policies, Nordics, French, French give incentives for women to have the third child. So I believe that if you have anywhere between 1.7 to 2.3, you're good enough because you can bring in temporary immigrants, you can use technology and things like that. So I do think different countries, again, this is the point I make about demographics. It's a real shame and a myth to classify in terms of rich countries, poor countries, more children, fewer children. If a country is growing and is at a different stage of its demographic transition, so poor, richer countries like Germany, Italy, and Sweden, they are in a state of population kind of declines.

20:27And when you have population declines, yes your GDP per capita will go up but is it temporary because somebody has to pay the bill for all those things so who will pay becomes a very important question and therefore I claim that benefits for older people should be conditional on their income and wealth and should be means tested definitely no matter what it costs because if I can and people like me in middle class can pay for kids to go to good grammar schools and private schools, why are universities free? Universities should be free for the poorest kid in inner city in southeast of London or the worst school in Newcastle in terms of crime.

21:15It should be free for those people, not for people who are like paying already in people from Eton, etc. should be told you come into Oxford, Cambridge, LSE, okay, you're not paying 45 ,000, you'll pay X out of that. If somebody is already putting their kids into Eton or here into Westminster, you take that money and use it for better causes for women, for children, for future society. So we should not be giving away freebies. Second thing is you can't have people like me retiring at 65 if people in Japan are working into their mid-70s and still contributing and giving. So people say, oh, Old people are taking away young people's jobs.

21:54Can a 25-year-old do my job? My daughter's 26. She's very clever. She sees clients all over the world. But all that wealth of experience that we've gathered in seeing clients, etc., hopefully makes us wiser in some way or the other. Many people have worked on the trading flow of Credit Suisse. Many people have not seen a rate hike. All the traders, they weren't experienced in that. So if you've not seen things which have happened, you cannot relate to them. You need experienced players on the pitch to guide the younger, pace-ier players, right? Yeah, sometimes. I would say as long as they're not too old.

22:30But Ronaldo claimed he was kind of guiding the players on the pitch. But I'd much rather have a Luka Modric type player who scored his last goal yesterday. What about Henderson? Did you bring him back? Yeah, Hendo was good. But I think he played till he couldn't run much more. Take a Milner, just a solid 7 out of 10 all the time. Someone like that, James Wilder. Yeah, Kevin De Bruyne, Milner, and who was that other guy who left Fabregas, etc. Many of them can, but I think the pace at which footballers are coming at age 14, 15, 16, and the likes of Bellingham's younger brother, that after 15 years, it's hard to be in that role.

23:11Yeah, I want to come back to the pensions point, especially the means testing, because I think, you know, an important part of the UK system is the perceived social contract. And how do you think about, you know, if you mean test systems like state pension, how do you think about the incentives around paying into that system? So let me go back and criticize all the progress we've made in the last 20 years a bit. I was part of what Adair Turner called the first pension commission. It's been resurrected right now. And I would like all the policymakers, including all the so-called pensions gurus, to go in and look at what Adair Turner talked about.

23:45He said we need to reform pensions because when somebody retires at age 65, UK had one of the lowest replacement rates, somewhere in the 30s. That means if I retire with£100 ,000, then I will get£32 ,000 or£33 ,000 every year. And that was around the low end of OECD. We've not improved from there at all. So ways you can improve on those things is find better ways of using the pensions money. So UK used to be a very high pension to GDP ratio. We made lots of promises, but have the investments gone into the right places? So we seem to be modelling on the Australian model, the superannuation. And we are seeing like attempts to consolidate our pensions, the master trusts.

24:29And I know people like Nest are doing offshore wind and things like this, aren't they? But they do seem to struggle to, I don't know. I hear what you're saying. I want investment in the UK, but I don't want mandation where it's forced, because then you're forcing the pension companies to just buy things that might not be a good investment. True, but we are one of the lowest in the world, so not just me. So I'm going to say what a Chinese-educated investor running one of the biggest bio-infatic parks in Cambridge said. He says, when I go to Netherlands, the amount invested in countries' infrastructure and PE is in double digits.

25:07It's when I go to Sweden, it's so. When I go to Australia, it's so. When I go to Canada, it's so. How come in England it's only 5 % or 6 %? A Greek proverb of the Aristotelian times said, a society grows wise when old men plant trees knowing that they will not benefit from the shade of the trees. Where is a society whereby old people, the richest generation age group today in US, UK, France, Germany, Italy, is the 65 to 74-year-old generation. And yet we are going to give them pensions. Whereas the current two generations which are being born, for the first time we are seeing the generation after the baby boomers, the Gen Xers are going to be poorer than the earlier generation.

25:54So my generation is a lazy, selfish, and I claim a greedy generation of baby boomers where we've lucked out with higher equity returns, higher bond returns, higher real estate, as well as good growth. And we need to be passing all that on. So we need to have a social awakening whereby who will pay issue gets solved. Because if the younger generations think that they are part of a good generation, intergenerational contract, then they will also have more kids because no one wants to bring kids into the world if they think they're bringing them into a dark world when they themselves are struggling.

26:29So we need to invest a lot more in the younger generations. Point number one. Yes, please. And point number two, we need to grow our GDP. To grow our GDP, we need more women working, more young people working. So I did call out one of my calls. I make very few calls. I'll tell you. One of my calls was, I don't say buy or sell anything. One of my calls was telling European Commission and European Union in 2005 on videotape that Greece will go bankrupt because Greece promised three times more on pensions compared to UK or US. No one was looking at their data except for a geek like me. The second big call was the Arab Spring.

27:06Very lucky. One of my students was the head of the Egyptian Stock Exchange study, was a student of mine in Queen Mary College. And I was talking to him and I said, how's it going out there? He said, jobs. I said, big problem. Because in poorer countries, you educate people, but unless you can provide them jobs, there will be a revolt. And people will revolt because they're the first generation who worked hard, sacrificed a lot, and you don't give them jobs. Why? Because it's still very nepotistic that I'm hugging onto my chair. And in younger countries, you can't kind of hug onto your chair because the younger people's labor productivity growth is high.

27:44Their ambitions are different. So you need to create an ecosystem which is fair both for the young people as well as old people. So that's where the Arab Spring came from. And I did show that other countries will face it too. I was in India recently and I did say that one main reason why Prime Minister Modi in the last election didn't get as many votes was younger people saying we didn't have so many jobs. Do you have any calls for today, for us today? What about the retirement one, the ageing population one? Have you got any calls around that? Yes, I believe that the biggest question I'm going to ask you is the question whose answer I'm searching for for the last 25 years.