1. Adapting to the challenges of demographic change
Richard Marshall FIA
15 October 2018
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2. So what? Demographic change is common knowledge, isn’t it?
What story are we trying to tell?
Ageing population in worsening health
Expanding savings gaps
Potential actions…
Tax younger generations or the wealthy more
Increasing demand for state pensions, NHS treatment and social care
Migration of wealthy
Run a wider fiscal deficit
Labour force decline impacts GDP growth and availability of workers in care sectors.
Unsustainable public service provision
Cut public service provision
Cost inflation deepens NHS and social care crisis
(Cost vs GDP)
Demand/Need for private solutions
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3. So what? Demographic change is common knowledge, isn’t it?
What story are we trying to tell?
Demand for / Need for private solutions
Technological innovations across a wide range of industries
Opportunities to partner with other industries to provide…
Social benefit & holistic support to members
Changing customer perceptions of value and modes of engagement
Mutual ethos:
‘Exist for the benefit of members’
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4. Population age structure and impact on demand for care
From 3.3 to 2.3 working-age persons per elderly dependent within 30 years
Increase in elderly population
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5. Population age structure and impact on demand for care
Prevalence of age-related diseases expected to grow significantly
If the prevalence of dementia in each age group remains constant, population changes imply an increase of 400,000 dementia patients in the U.K. by 2048.
Non-WTW projections predict from 400,000 to 1,000,000 more dementia sufferers by 2050.
Source: Quality Outcomes Framework (QOF) Recorded Dementia Diagnoses - December 2015
Only recorded diagnoses – some may not be recorded
Prevalence increases dramatically at ages 80+
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6. Population age structure and impact on demand for care
Demand-based budget projections for the NHS
Assuming no inflation of cost per patient over the period :
Annual cost of demand for NHS care increases by £25 billion.
This increase is entirely due to the increase in the population aged over 65 – a 55% increase in costs for this group.
Male
Female
If the cost of providing the same care increases by 2% p.a., then the increase in the demand-implied NHS budget is £138 billion.
That’s an increase of more than 2.5% per annum.
Whilst we can’t predict the exact increase in the cost of care, it’s clear that funding will not be able to match demand.
Rapid increase in cost per patient after age 65.
Average cost at age 85+ more than 4.5 times the average prior to age 65.
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7. Population age structure and state benefit provision
Cost of state pension provision balloons as population ages
Demographic changes contribute a 23% increase in annual pension payments.
Assuming 2% p.a. inflation, the real-terms increase in the best-possible ‘triple lock’ scenario is 1.2% per annum.
Demographic change contribution (23%)
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8. Demographic change induced stagnation/recession?
Impact of an ageing population on the labour force, productivity and GDP
GDP ∝
Size of labour force x
Productivity per worker
Increases in productivity over the past 10 years do not compare favourably with other periods in the past.
Automation could improve productivity, but may also reduce employment rates and hence the effective labour force.
Ageing of population leads to fall in labour force, unless replenished by significant net immigration (similar to the most recent observed levels).
Other than in low PPP inflation scenarios, real-terms GDP falls over time, even with migration, under central estimates of 0.5% productivity growth p.a. and cutting migration makes things much worse.
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9. Demographic change means the state can’t pay
Something has to give, implying growing demand for private solutions
The proportion of GDP required for NHS spending, social care funding and the payment of pensions may increase by two thirds.
The U.K. government collected just under £600 billion in taxes in 2017/ This means that the cost in (over £250 billion) is over 40% of tax revenues.
Even allowing for a modest increase in taxation, the position may be close to 70% of tax revenues.
This is not sustainable if other public services are also to be funded.
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10. Demographic change means the state can’t pay
Thoughts on social care from other sources…
BBC News Article
June 2018
Evening Express Article
August 2018
House of Commons
Health and Social Care/ Housing, Communities and Local Government Committees
(June 2018)
Sept. 2018
Adult social services budget increases insufficient
(Inflation + increased demand outstripping increases)
Half of councils increasing cost of social care.
Three quarters cutting care provision!
“… despite the additional funding, there will be a funding gap of £2.2–£2.5 billion in 2019–20”
“In its present state, the system is not fit to respond to the demographic trends of the future.”
Almost 3,000 care homes in UK judged less than good by CQC.
Poor ratings result in inability to get insurance and higher costs of capital from banks.
Leading to many closures.
A survey commissioned by ‘Which?’ found that only 12% were saving in case they needed to pay for care in later years.
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11. Savings gaps at retirement
Preparing for retirement not seen to be a priority
Credit culture
Cost inflation
(e.g., rent/mortgage)
Wage stagnation
Average non-mortgage debt of about £10,000 per household by end-2016 (PWC, 2014).
Additional high tuition fees for university students – can result in debts of £40,000 or more.
Cost of servicing debt, plus high property price/rent inflation, has reduced saving potential.
Pension auto-enrolment is improving provision at retirement. However:
Poor choice of ‘default’ funds/lack of asset life-styling can mean poor returns.
Automatic contributions are insufficient to build a pension pot sufficient for retirement.
Individuals do not see value in additional voluntary contributions, preferring ‘cash now’.
Repayment of debts at retirement will erode the value which has been built up.
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12. Drivers of demand for insurance protection
(As well as quality accumulation and decumulation products for pensions)
Growing ‘risk’ of the state not providing care to the same extent that we’re accustomed to
Growing risk of ‘burdening’ families with high debts on death, critical illness or incapacity
Savings gaps predicted at retirement
(Worse for younger generations with higher debts)
Increasing demand for long-term social care and healthcare services
Insurance against long-term care costs, e.g., in case of dementia?
Growing demand for cost-effective protection products in 30s/40s?
Life-styled funds and innovative asset solutions for pension accumulation?
Transport schemes for the less mobile elderly – perhaps tied to insurance for driverless cars?
Private health insurance – links to wearables and smart- home products?
Providing support to family members helping to care for elderly relatives?
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13. The advantages of mutuality
Benefit to members (unlike shareholders) does not have to be solely monetary
“The decline of the Welfare State today means that friendly societies have the opportunity to resume their traditional role in providing help in times of need.”
Anglo-Saxon Friendly Society Website
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14. Sustainable, socially responsible partnerships
Insurance companies and retirement service providers
Imagine if…
…mutuals provided long-term care insurance and partnered with sheltered accommodation providers or residential/nursing care home providers.
Increase in claims for care cost matched by…
…expected increase in revenues from care homes
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15. Sustainable, socially responsible partnerships
Insurance companies and technological innovators
Imagine if…
…mutuals part-funded robotic aids to reduce the rate of cognitive decline in long-term members diagnosed with dementia?
Shift from nursing to residential care
Improved outcomes at reduced long-term costs
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16. Sustainable, socially responsible partnerships
Insurance companies and the medical sector
Imagine if…
…mutuals promoted smart home products and wearables developed by medical technology firms to long-term members?
Earlier diagnosis and successful treatment  healthier people
Leads to reduced claims on mortality and CI products
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17. Key take-away items Demographic changes  Unpleasant social choices
Technological changes & Innovation 
Potential solutions
Challenge or opportunity?
Whatever we make of it!
Mutuals can help members to prepare for and prosper through these changes
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