Assessing the impact of the wealthy nevertiree

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Attitudes toward the later stages of life have already started to change, as we grow used to greater life expectancy and better health, and will change further in the years to come. There are some very positive outcomes to be enjoyed from having a greater proportion of wealthy older people continuing to work, run businesses and create jobs.

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There is, perhaps, a preconception amongst some that the older generation is a less valuable resource than the young, particularly in Western countries. However, there is a growing understanding that the older generation can be of great economic value, and according to John Llewellyn of Llewellyn Consulting, "that realisation has further to go."

In his recent paper "Conditions for Growth," John Llewellyn argues that increasing the statutory retirement age, and encouraging higher participation rates in the labour force in the years leading up to retirement, will lead to higher rates of GDP growth.

The older generation as a driver of economic growth

Mr. Llewellyn points out that the number of older men in the UK labour force has in fact fallen sharply in the last 50 years. In 1960, around 90% of men aged between 60 and 64 worked. By 2000, that share had fallen to 50% (due to early retirement policies and the perverse effect of final salary pension schemes). The proportion of men aged 60–64 working has increased only slightly to 60% since then: "This is a trend in the right direction but it could usefully go further." The case for women is rather different: The proportion of women aged 55-59 working was around 46% in the mid 1960s, but had increased to 65% in 2008. "This trend will almost certainly continue" says Mr. Llewellyn.

Allowing both male and female participation rates in the job market to increase to 75%, combined with raising the UK's statutory retirement by five years by 2018 would, Mr. Llewellyn reckons, boost the labour force by around 0.5% each year and - perhaps - GDP by a similar amount. Mr. Llewellyn insists "allowing" is the right concept, because in many cases people would be keen to work longer. "The concept of a blessed retirement used to be relevant, when the body was exhausted from physical labour. But it is not the case anymore for many people; not everyone wants to be told they have to leave work and play golf." He adds, "Also, there is evidence that people who work longer live longer. Trade unions say it is not fair to force people to retire after 65, but I would reply to them 'what right do you have to shorten my life?'"

Raising older workers' participation rate may cause some stresses, however. Younger workers, particularly in a time of high unemployment, may feel that this is depriving them of jobs, or the opportunity of moving up the career ladder. Mr. Llewellyn thinks it is bad thinking on several levels. First, he says, young people should be pleased to see older people working because they are continuing to pay taxes and are not drawing from their pensions. Secondly, the idea that older workers would deprive younger workers of jobs is a fallacy according to Mr. Llewellyn, except in the very short term: "Supply creates its own demand. If it weren't true, then all the countries that have had a growing population would have seen unemployment rise continually." But many people think they should focus instead on the point that no-one is riding on the back of others. "I think we will get back to the concept of retirement and productivity" says US Author, Columnist and Actuary Steve Vernon, "where you are working, productive and contributing to society in some way, shape or form as long as you can." On older workers' productivity, John Llewellyn says that it is often assumed that productivity declines with age: "There are two reasons to question this. First, whilst some cognitive abilities do decline with age, others improve with experience. Secondly, the cognitive consequences of ageing can apparently be offset in significant part by appropriate training or re-training."

I think we will get back to the concept of retirement and productivity where you are working, productive and contributing to society in some way, shape or form as long as you can.

Corporate gains but risks too

Quantifying the impact of wealthy older workers on GDP is probably impossible. But they will have a visible, if immeasurable, impact on the corporate scene.

Corporate attitudes toward ageing are complex, and will continue to evolve over time. There are gains to be had here - in terms of a greater active pool of board members, and the ability to retain a 'corporate memory' of how to deal with events such as recessions. But there are risks too in remaining within a corporate structure - if the de facto age for stepping down from board appointments becomes 75 or even 80, then many will not be able to stay the course. These tensions may become particularly difficult to handle in private, family-run firms. So even if automatic retirement ends, the need for an exit strategy for senior older workers remains. As entrepreneur Gordon Gibb puts it, "I think the hardest demon to wrestle with, if you are a key person in a business, is accepting when it’s the right time for you to go."


The hardest demon to wrestle accepting when it's the right time for you to go.

Succession issues become more complex

If wealthy individuals work longer, then, in overall financial terms, their families should gain. But continued work is by no means a panacea for the problems associated with wealth transfer within families.

It is possible to argue that, if an individual is confident that they will be able to work during their 70s and 80s, then they will not feel obliged to accumulate so much during the 'core period' of their working life. But, in practice, an individual's worries about their health, together with financial and other uncertainties, means the rate of accumulation is unlikely to be scaled back.

But it is likely that attitudes toward transferring wealth - rather than simply accumulating wealth - will be changed by individuals working longer and later. One obvious question is whether there will be an increasing move away from transferring the bulk of your wealth at death. A simple example suggests why this is so. If you die at 70, the average age of the next generation might be perhaps 40 - a time in their lives when they are likely to have pressing spending needs, but not necessarily the resources to meet them. In other words, they might be seen as a worthy target for inheritance. But, if an individual dies at 90, then the average age of the next generation might be perhaps 60 - a time when they are likely to be financially more secure and, perhaps, have lower expenditures.

This may, perhaps, encourage the use of family trusts or similar arrangements amongst more segments of the wealthy population. But it may also encourage more profound thinking about what exactly inheritance is for.


Government: a wolf in the wings?

Government attitudes toward the working wealthy are worth keeping under review.

On the one hand, governments will benefit directly from increased taxes from the wealthy, if they continue to work, and there will also be some indirect benefits to the economy from their extended presence in the labour force, as outlined earlier.

On the other hand, with many governments facing large budget deficits in the coming years, the pressure to find additional sources of revenue may become intense. With less well-off sections of the population particularly impacted by government spending cuts, governments are likely to come under pressure to target wealthier sections of the population too. Tax relief may be an early casualty of this - note the quick recent reversal of the new UK government's plans to reduce inheritance tax thresholds.

"Gulliver's Travels" - a cautionary tale

A well-known 18th century piece of fiction provides a good example of older people being seen as a liability (or, at best, a source of funds) rather than as a resource.

After cutting himself free of the Lilliputians, Jonathan Swift's Gulliver then travelled on to other strange lands. He was particularly struck by the fate of the Struldbrugs, who lived forever. To his surprise, they were not to be envied. At 40, they were already difficult creatures, with their envy directed "at the vices of the younger sort and the deaths of the old." At the age of 80, they were looked on as "dead-in-law" and were stripped of all wealth, with their heirs succeeding their estates. They then became dependent on a small handout from the state.

Readers of the work have tended to focus on the miserable - and indefinite - mental state of the Struldbrugs. But Swift also repeatedly makes an economic point: The long-lived, if permitted to accumulate wealth indefinitely, could become "proprietors of the whole nation" and this "must end in the ruin of the public" - hence, the desire to deprive the Struldbrugs of all wealth.

We, unlike the Struldbrugs, will not live forever, so any extra accumulation of wealth will be limited. But it may be noticeable, particularly since the accumulators are more likely to be in the public eye than previously; to be working rather than on the golf course. So all of this begs the question whether they will become targets of those concerned with a continuing concentration of wealth - pursued either by their families, or by governments seeking sources of additional revenue?