white papers

Investing in the demographic deficit

Investing in the demographic deficit
Henk Grootveld - Head of Trends Investing

Henk Grootveld

Head of Trends Investing
Pascal Menges - CLIC Equities, CIO Office

Pascal Menges

CLIC Equities, CIO Office

The post-WWII baby boom created a large surge in the working-age populations, known as the demographic dividend. This unprecedented economic tailwind has not only eased, it is beginning to reverse. A demographic deficit will have far-reaching consequences that also present a number of potential growth opportunities.

We estimate that the combined effect of baby boomers entering the workforce, more women participating in paid labour and the outsourcing effect to the opened-up economies in China and Eastern Europe have benefitted western economies with 10-20% annual growth in available workforce. This has provided western societies with a growing economy, underpinned by low inflation and relatively affordable pension and healthcare bills. That time is behind us. We have already passed the tipping point from which the workforce will no longer expand but will start to shrink, by an annual rate of 4-5%, according to our estimates.

The demographic deficit presents governments and societies a range of challenges that need to be dealt with, sooner rather than later. Without pension reform, the PAYG pensions provided by most governments will become unaffordable. The same is true for our healthcare system. Here, a digital upgrade and a greater focus on prevention would be beneficial. We also need to think about how to better accommodate older people in the workplace and fight ageism.

The situation presents threats but also some nice potential growth opportunities. On the one hand, we strongly believe that ageing has put inflation back on the agenda and central banks, governments, companies and investors need to adapt and prepare. On the other hand, the necessary expansion in primary, home, long term, and palliative care, as recommend by United Nations with their declaration of the decade of healthy ageing, requires substantial investment. This is a situation where investors can help build assets that both benefit society and potentially generate investment returns. The same can be said for companies that focus on healthcare technologies and devices that address the needs of today’s retiree community, ranging from affordable hearing aids, connected care, to invisible incontinence aides.

The almost unavoidable need for pension reform, away from the unfunded pay-as-you-go (PAYG) pensions provided by governments to funded defined benefit (DB) pensions will boost growth for private companies offering pension products, pension advice, investment solutions or life insurance. On top that, the inevitable postponement of the official retirement age will provide these companies with another boost to growth and potential de-risking. As we are still in the early days of the digitalisation of our healthcare system, lots of new ideas and technologies are popping up, left, right and centre that might be able to bring better care at a lower cost. As was the case with ecommerce at the end of the 1990s, no clear winners are within sight, making a trends-based investment approach very useful here.

Our Golden Age strategy invests in these long-term ageing trends. Golden Age invests in companies that stand to benefit from the necessary pension reforms and from the move to digital healthcare or in companies that invest into a society aiming at healthy ageing. This strategy is a part of our range of trends-based solutions that invest in companies positively aligned with major long-term trends: ageing societies, digitalisation, the rise of the middle class in Asia, and climate change.


Read our full white paper on the demographic dividend using the link above.


Click here for information on our Golden Age strategy.

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