International Comparisons
Why America Should Be Concerned About Global Aging
Speech
June 2004
William D. Novelli
AARP CEO
National Press Club Newsmaker Series
Washington, DC
Good morning. It’s my pleasure to be with you this morning. I want to thank the National Press Club for the invitation to be here, and David Anderson for his kind introduction.
AARP, in working on behalf of older Americans, creates social change and member value through information, service and advocacy. We have long had an interest in international affairs. But that interest has recently been made more strategic. It has become increasingly clear to us that our work to improve the quality of life for people 50+ needs to be expanded. Aging is a global phenomenon.
The whole world is getting older. In 1950, life expectancy worldwide was just 47 years. Today life expectancy throughout the world has increased to 66 years. In the U.S. it is 77 at birth, and people turning 65 can expect to live another 18 years. This "longevity bonus" - the result of improved health care, diet and standards of living - is now occurring in most parts of the world.
The World Bank says 16 percent of the world’s population - more than one billion people - will be 60 years old or over by 2030. And as birth rates are dropping worldwide, by 2050, the number of elderly aged 65 to 84 is projected to grow threefold, and older people will outnumber children for the first time in history. This demographic seismic shift is known as global aging.
- Twenty -four of the world’s 25 “oldest” countries are in Europe. Japan - at number three - is the 25th. The U.S. ranks 28th. Italy, with 24.1 percent of the population 60 or over, is the world’s “oldest” country.
- Between 2000 and 2050, the working age populations aged 25-64, of Europe and Japan will decline by 28 percent and 34 percent, respectively.
- In the United States, working-age populations will grow by an average of less than 0.3 percent a year between 2010 and 2040, as old-age dependency ratios double.
As the world ages, this puts pressure on current public retirement and health and long-term care systems, which becomes more acute as the massive baby boomer generation begins to retire. According to projections by the European Commission and the OECD, public spending on public pensions and health benefits for the elderly in the typical developed country will grow from 11 to 18% of GDP over the next fifty years.
Western European countries tend to have more generous Social Security and health systems than we do in the United States, but with major differences among countries. France, Germany and Norway have wage replacement rates between 50 and 75 percent, while Portugal and Spain have rates exceeding 75 percent, and Austria and Italy are close to 90 percent. In the U.S., Social Security replaces about 40 percent of the average wage-earners salary.
These obligations present some sobering realities, and countries are hard at work figuring out how to meet them. At the same time, all is not doom and gloom. Longevity is a great accomplishment. We have much to gain from older societies. Older people are mentors, and provide volunteer power, caregiving and wisdom to society. And as people live longer and healthier, we have the opportunity to tap the purchasing and creative power of millions of trainable employees and eager consumers. In the U.S. people 50+ control 75% of the nation’s disposable income and own 77% of all personal financial assets.
Over the past year, my colleagues and I have made fact-finding trips to Europe to find out how these countries, many of whom are farther ahead on the aging curve than we are, are contending with and even benefiting from their aging societies. We have been to the UK, Germany, France, Belgium to discuss the EU, and a few weeks ago we were in Italy and the Netherlands.
We need to understand their experiences, because we in the U.S. will be facing similar situations with respect to public pensions, health, and long-term care systems. And the international debate is influencing policy decisions here at home.
In addition, we have some things we can share with our friends in Europe, such as learning on older workers, a phenomenon that is happening here more than in Europe at this point. The age of retirement in the U.S. is beginning to inch upwards, and we have increasing numbers of older workers in our workforce. This is going to happen, this must happen, it would appear, in European countries as well, although it doesn’t seem to have begun.
In Italy and the Netherlands, where we visited most recently, the statutory retirement age is 65, except for Italian women, for whom it is 60. But people retire earlier. There are not many older workers, for example, in the German workforce. All the countries we visited have strong traditions of early retirement, backed by trade unions and personal preferences.
Even so, we found agreement by government and some business leaders that continued employment for older workers will be needed to address both the impending labor shortages and reduce demands on pension systems.
We believe that the trend toward older workers in the U.S. will accelerate - in fact, we are working to make that happen. Those who want to or must work into their so-called retirement years should not be prevented from doing so. Policymakers and government planners recognize that utilizing older workers can ease pressure on public pension and other systems and grow the tax base, as well as give older people meaning and purpose.
In our discussions, we described AARP’s partnership with The Home Depot, in which we train older people to become employees in Home Depot stores. This elicited a great deal of interest.
Looking at global aging from other countries’ perspectives gives you a real sense of the interconnectedness of our world. As the French and Germans and Italians and others debate their public pension systems and related issues, the outcome of those debates can affect our situation at home. These are major U.S. trading partners and business competitors, after all.
In January at the World Economic Forum in Davos, I participated in sessions on pension readiness. It was interesting to have some of the European experts tell the Americans on hand that our U.S. Social Security system isn’t broken, isn’t as badly off as theirs, and can be fixed if we get after it sooner, rather than later. This is a comforting perspective to hear.
Economics aside, we constantly saw in Europe, as in the U.S., a common yearning for humane answers. For example, there was a consensus in each country we visited that as people are living longer and healthier, the retirement age - or work life - should be extended. But how can this be done without undoing the social fabric? Europeans seem to think the U.S. is a far harsher place than their own societies, with less of a safety net, less time off for workers and less time for the good life.
The Netherlands is grappling with a new law that prohibits age discrimination in the workplace, something that has been illegal in the U.S. since 1967. This Dutch law went into effect only one week before we visited media, government and NGO officials there. It signals an important shift, an acknowledgement not only of the rights of older people in society, but also the contributions older people can be making in the workforce. The law still needs to be tested in the Netherlands, and we will be keeping an eye on it.
An EU directive mandates that all member states implement this law by 2006. In addition to the Dutch, so far only Ireland, and to some extent Belgium and Finland, have introduced age discrimination legislation. Again, it still remains to be seen whether they will satisfy the directive. The UK is currently reviewing opinions on the government proposals and the British newspapers are covering the debate as to whether they should abolish a mandatory retirement age. AARP has considerable expertise in this area, and we are providing resources and information to these countries as they address age discrimination head on.
For example, we talked with Confindustria, a major Italian business association, about their interest in how AARP might advise their corporate members on anti-age discrimination strategies. Their organization is trying to provide training opportunities for older workers and those who wish to re-enter the workforce.
As I said earlier, we believe there needs to be a new consensus on increasing employment opportunities for older people. It is not a matter of compelling people to keep working beyond retirement age, but of giving those who would like to work the opportunity to do so. It’s about having choices. The anti-age discrimination legislation is a key piece of this effort.
There is a labor crunch coming, although it is not yet all that apparent. We were asked by several officials in Italy and Netherlands, and Germany before that, if AARP might help spark broad conversations on the retirement age, perhaps through a conference. We see this as an idea worth following up, and so we are hosting a major multi-country conference in London this fall called “reinventing retirement” that will address this and other provocative issues.
Aging has not been on the world agenda for all that long. But the debate on aging and its implications is clearly underway. This debate must challenge public expectations about entitlements as well as assumptions about the role of older people in society. In Europe, they look at the U.S. as a place where individuals take more responsibility for their own retirement security.
At AARP, we think about four pillars of retirement security: Social Security, pensions and savings combined, earnings from work, and health care insurance. The Europeans are very interested in our systems, and conditions, as we should be in theirs.
Pension reform is the universal third rail of politics - touch it and you die. Yet interestingly, recent reform votes in Italy come right before regional elections and EU elections this month. Perhaps there will be repercussions at the polls, and/or perhaps there will be recognition that something needs to be done.
An official at INPS, Italy's equivalent of our Social Security Administration, told us that in Italy, if the retirement age of women (60) were raised to equal that of men (65), Italy's pension problems would be essentially resolved. However, he also said it will never happen, because it is culturally unacceptable - a third rail of another order.
In general, policy-makers now need to find better ways to exchange ideas, best practices, and research on a transnational basis. There is much we can learn from one another. Just as we can help the Dutch with age discrimination, they can teach us about long-term care, an area where the U.S. lags behind.
Our system is skewed too much toward institutional care at the expense of home and community-based care. Most European countries are thinking about this and the Dutch have introduced reforms to expand consumer-directed, in-home care.
Most officials we met with shared a concern about the need to more greatly emphasize prevention as a tool to reduce health costs later in life. The Dutch are moving more resources from curative and acute care to health promotion and disease prevention. Obesity is an emerging issue in most developed countries, with the U.S. far out in front…literally. We can tackle these problems together.
We had a charming, fashionable translator in Rome. She smoked, didn’t use her seat belt and took the elevator even to go up one floor. Any one of these risk factors can be a cure for aging.
We need consultation across countries and also within countries. Consultation between a broad range of business, labor, media, environmental, educational, health care, and the general public is crucial in creating a society for all ages.
These forces will vary, depending on the country. In Italy, union membership averages more than 50% retirees. Thus the unions tend to represent the interests of retirees. In the U.S., retirees cannot be members of labor unions. They have separate membership rules.
One frequent question we are asked is whether all this can lead to intergenerational strife. I don’t think anyone in this room would say they see this now in the U.S. But it has popped up in Germany. In the Netherlands, we were part of an interesting conversation between two journalists - one a younger woman and the other an older man. It was about young workers having to support retirees…and what was fair…and what must change.
A similar conversation could easily occur in any office in Washington or Wisconsin. We must all think about generational fairness. And at AARP we are.
This may be wishful or biased thinking, but it seems to me that the U.S. has more flexibility in adjusting to an aging society. We have less dependence on government, more older workers, a higher birth rate and more immigration, more of a tradition of volunteerism, and fewer powerful forces, such as the European trade unions, blocking change. But time will tell.
In any case, the issues of global aging must be addressed. As we say at AARP, 2011 is coming. This is the landmark year when the first of the American boomers will turn 65 and become eligible for full Social Security benefits and Medicare. It marks the beginning of a deluge.
Either our countries will make decisions about our aging societies, or these decisions will be made for us by the sheer force of the confluence of demographics and economics. It’s far better to approach these problems cooperatively, with all the issues on the table, earlier than later.
The challenges aging poses to the world can be met, fairly and equitably, ensuring that older people everywhere can lead longer, healthier, financially secure and more productive lives…to the benefit of economies and societies everywhere.
Thank you.