Silver Economy in Europe according to Merrill Lynch report: The enormous economic clout of the 'Mad Men' generation

30/09/2014

On 23 September the European Commission held a conference titled "Growing the Silver Economy in Europe". One of the key scene-setter speakers was Mrs Beijia Ma from Merrill Lynch who presented a selection from their eye-opening overview of silver-economy related developments 'The Silver Dollar Longevity Revolution Primer'. She was happy to answer some questions and started by explaining that 'the longevity market(s)' and the ' silver economy' are one and the same thing(s).

What would be the highlights of your report, seen from the perspective of a European Union with member states struggling to recover economically, looking for growth and jobs?
As a continent, Europe is by far the oldest in the world. It is being impacted by low fertility and high life expectancies (70 for men and 78 for women). In addition to Japan, Germany and Italy have the highest median ages in the world. By 2050E, Bosnia and Herzegovina, Germany, Malta, Portugal, Serbia and Spain are all projected to have median ages of 50+.
One of the side effects of this is huge pension headwinds. The EU faces some of the most significant challenges globally with an ageing population and workforce, financing pensions and healthcare, and maintaining a growing economy. The working-age population is expected to fall 16% between 2010 and 2050E while the 65+ population will rise by 77%. These demographic changes will have profound repercussions for growth and savings for Europe with age-related spending projected to increase 3-4% of GDP between 2004 and 2050E, which would be an equivalent of 10% increase in size of the government sector.
However, opportunities will present themselves to institutions and companies that enable a healthier and sustainable aging process such as those involved in the healthcare and pharmaceuticals, insurance and wealth management, as well as consumer products.

Which findings in the report did really surprise you, and why?
According to the CDC, 25% of all US adults aged 60 years and older have lost all of their teeth. That is a scary statistic!

What sets the ' Silver economy markets' apart from other markets?
There is a qualitative difference between those entering the 50+ category today and those that have occupied this space in the past. Contrary to certain stereotypes, boomers are marketing and media-friendly, having grown up in the Mad Men era of modern marketing and electronic media. This increases their attractiveness as a consumer target group.
At the same time, the 50+ population has more accumulated wealth than their predecessors. Their economic clout is enormous. The US 50+ population for example:

  • controls almost 80% of US aggregate net worth;
  • has an average household wealth of c.US$765,000 (vs. US$225,000 for those headed by 25-50-year-olds);
  • contributes US$3.0tn to consumer spending (ex-healthcare) or US$28,200 per capita in expenditure, representing c.51% of spending by all 25+ consumers. This is expected to grow to 58% of spending by 25+ or US$4.6tn by 2032.

The combination of the 60Y+'s unprecedented spending power and their desire to spend makes it a huge market. In 2020 we expect a 15 trillion dollar longevity economy.

During your research did you come across significant aspects of the European market and population that offer barriers or opportunities for benefitting from the silver economy?
Over the years, defined benefit pension schemes have been looking to de-risk their balance sheets by transferring responsibility for paying final-salary pensions to a third party. As a result the longevity risk transfer (LRT) market has shown growth. The market encompasses risk transfer instruments such as pension buy-ins, buy-outs, longevity insurance, longevity swaps, and longevity bonds.
The UK has been the centre of this LRT activity. In fact, nearly all LRT activity is happening in the UK, with the exception of three large transactions in the Netherlands and the United States in 2012. This is because the defined benefit pension market in the UK is highly developed, and disclosure of pension liabilities is transparent and is on a mark-to-market basis. This encourages corporates to de-risk' pension schemes as far as possible. De-risking pension risk is vital as global annuity and pension-related exposure is estimated to be as high as US$15-25tn.

If you were to give advice to companies operating in the European market, what would be your number one recommendation?
According to Nielsen, there is a presumption that as people age into their late 50s, they cross some imaginary line into a realm of entirely new, age-driven issues and needs . As a result companies prioritise or deprioritise consumer-categories. In reality however, the vast majority of boomers are not diminished or disabled by age and are still consuming goods and services in line with their traditional patterns. For example, US boomers dominate 94% of consumer packaged goods categories. They spend close to 50% of all CPG dollars, yet it is estimated that less than 5% of advertising dollars are targeted at adults 35-64. It is important for retailers and other consumer-focused industries to pay ever more attention to the demands of this age group over the coming years.

Do you think there are issues at stake in the European Silver Economy (or even: the Silver Economy at large) that require political attention or policy action on behalf of the European Commission?
Thomas Piketty's magnum opus, the controversial, surprise bestseller, Capital in the Twenty-First Century reminds us that understanding plutonomies is critical for investors as they grapple with today's complex markets. He projects the global private wealth to national income ratio to rise from 440% in 2010 to record highs of 500% by 2030. These levels were last seen in 1910. That is an impressive figure, which may well hide a growing inequality. It is important to counterbalance our analysis and the media focus on boomer wealth and spending with the reality that many older people are living on low incomes. Globally, Aegon's Retirement Readiness Survey 2014 of 16,000 respondents in 15 countries found that only 19% are very confident that they will be able to fully retire with a comfortable lifestyle. There is a real danger that politicians and policymakers focus on baby boomers, while older people such as conservative consumers and those burdened by bills are forgotten.

Tags: 
Access to markets
Related action groups: 
D4 Age friendly environments
Relevance to partnership: 
Horizontal issues and framework conditions