Asian firms spell out ways to cope with the threat of an ageing workforce

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Published on January 1, 2008
BusinessWorld Wealth Manager Section

The United Nations has identified global ageing as one of the top three socio-economic issues facing Planet Earth in the 21st century along with global warming and global terrorism. As falling fertility reduces the number of the young and rising longevity increases the relative number of the old, challenges and threats are bound to arise. These include: rising healthcare costs, increased expectations from employees regarding retirement provisions and increasing shortage of talent to meet consumer needs.

In a study of of 2,332 employers in the Asia Pacific conducted mostly in 2006, Watson Wyatt focused on changing demographics and the outlook for healthcare and retirement benefits. Entitled ‘The Ageing Workforce’, the study uncovers a number of key insights.

Employers point out that the greatest HR challenge of the coming decades will be to enhance workforce productivity as the availability of skilled workers declines. Those in Asia Pacific’s most developed countries believe the urgency of enhanced training and development, together with later retirement. In India, which suffers from large-scale unemployment and underemployment, employers believe that increasing the workforce participation rate is the top issue. In China, which is ageing more rapidly than other developing countries and of course has a huge manufacturing sector, employers believe that greater use of technology will be the primary defense against a shortage of skilled workers.

Although the whole of the Asia Pacific is ageing, it is developed Asia (Japan, South Korea, Australia, Hong Kong, Singapore) that will most immediately experience workforce shortages, unless these economies can become more flexible in keeping their productive older workers in employment. Conversely India, Indonesia, Malaysia and the Philippines will have a demographic advantage over other countries in the region. Offshoring will continue to gain momentum, with the focus shifting from seeking cost savings towards finding talent that is just not available at home.

Most of us would like to retire early but, are we sure we can afford to do so? Life expectancy in most of Asia Pacific is well into the 80s and continues to increase. We are all going to have to start thinking differently about the way that we plan our lives – accumulating sufficient assets by age 60 to enjoy a comfortable retirement for 30 or more years will be very challenging. Smaller families and changing social trends mean that a generation that has supported its own elderly parents may not be able to rely on the financial support of the following generation. The only alternative will be to work longer, interspersed with periods of mid-life education and retraining to maintain employability.

‘The Ageing Workforce’ study shows very clearly that employers believe retirement benefits will become more important in the future. Salaries and other cash compensation will clearly remain very important in attracting the workers of the future just as they do today. The study found that 66% of employers believe that the employees’ appreciation of retirement benefits will increase.

According to the Watson Wyatt study, employers have singled out healthcare as the benefit to which their employees currently attach the greatest importance. However, employers (with the notable exception of South Korea and Singapore) are highly pessimistic about the sustainability of existing publicly financed healthcare systems. It seems unlikely that their employees are going to accept reductions in healthcare benefits and so employers will ultimately have to pick up the bill if they are to attract and retain the workers they need.

Employers will have to pay more as scarcity of skilled talent will lead to the enhancement of reward packages to attract, retain and motivate key performers. The problem is compounded by the fact that healthcare costs in Asia Pacific are growing well in excess of consumer price inflation (15% year-on-year increases on average across the region since 2002). The OECD projects that the proportion of GDP represented by healthcare spending will nearly double in the world’s developed nations from 6.7% of GDP today to 12.8% by 2050. Public healthcare systems will not be able finance such increases and so it seems inescapable that healthcare will become a major element of total employment cost in Asia Pacific in future, as it is in the US now.

As Asia Pacific grows older, the need for expanding retirement and health care provisions will become all too evident. The Ageing Workforce study shows that employers are highly aware of this and the cost pressures that it will bring. Employers do not generally believe that they have a moral obligation to assume full responsibility for their employees: across Asia Pacific only 35% of employers believe they have such an obligation. The primary concern has to be the impact of an ageing workforce on the bottom line – what will motivate older workers most effectively?

Watson Wyatt’s principal conclusion from ‘The Ageing Workforce’ is that the driver for increasing employer retirement and healthcare provision will be the changing priorities of their employees. Most people in Asia Pacific have insufficient retirement savings and everyone wants the best healthcare that money can buy for their families. As we get older, our focus on these financial realities gets sharper.

Economies that have favorable demographics; that can transition to a greyer world; and that can manage their retirement/healthcare costs will be ahead. Employers that can attract and retain the right workers; that can anticipate changing consumption patterns; that can manage their retirement/health care costs; that can optimize the productivity of the available talent pool will be the winners.