Living longer brings enormous opportunities to reshape how we spend our time. But in the first of a two-part interview, Andrew Scott from London Business School explains how advances in longevity and technology have not been matched by innovation in social structures or our approach to financial planning.
7 minute read
The possibility of living longer is changing life as we know it. Andrew Scott, currently professor of economics at London Business School, has spent years as an academic and trusted advisor to policymakers at the UK Financial Services Authority, Bank of England, HM Treasury and the Office for Budget Responsibility, among others. His views on longevity carry weight.
We last spoke to Scott back in 2018 about his award-winning book The 100-Year Life, where he explored what the gift of extra years might mean. His latest book, again co-authored with colleague Lynda Gratton, The New Long Life: A Framework for Flourishing in a Changing World, looks deeper into the theme.
In the first part of our discussion below, he touches on the social and financial implications of longevity, before moving to policy and corporate implications in the second part.
How does your new book The New Long Life differ from your previous one, The 100-Year Life?
The 100-Year Life highlighted how people may need to work for longer. Then people said, “Where are the jobs going to come from? Tech is going to take all the jobs away”. It was interesting to see the negativity around an aging society, and the negativity around technology.
We wanted to address both themes and show how the trends are going to reinforce each other in different ways. The New Long Life is a deeper dive; it looks at how technology and robotics will change the workplace.
So much of how we live our lives now goes back to the industrial revolution
If we step back and look at the bigger picture, so much of how we live our lives now goes back to the industrial revolution. The separation of work and home, definitions of work and leisure, the challenge of work-life balance, the three-stage career of education, work and retirement, the introduction of pensions, and so on.
But if you think about where we are now, living longer and the disruption technology brings, the model just won’t work. We need a fundamental redesign. The 100 Year Life focused on one aspect of that – longevity – but the intersection with technology is very important too.
How will COVID-19 affect the trends you have identified?
We wrote an optimistic book about the long run; then COVID-19 arrived, and everyone became negative about the short run!
COVID-19 has delivered a huge, multi-dimensional shock, which has highlighted and accelerated two trends. Firstly, how can we work most effectively using technology? The other issue is how we keep a healthy economy and population when we have an aging society. Both themes have been thoroughly stress-tested. I think we are going to see an acceleration of those trends; some of that acceleration is good, some is bad.
Firms will focus on automating and getting rid of jobs because machines are cheaper, rather than augmenting and making things better
Around aging, for instance, we have seen a push towards preventative health. With COVID-19, the idea has been to keep older people out of hospital, because once they get in, they are likely to get stuck there. We need to shift the health system, so it does not focus on treating illnesses but on keeping people well. More people are using devices, apps and virtual sessions with the GP as ways of monitoring health, which is good.
Unfortunately, it is going to have a big impact on people’s careers, as the financial impact will mean people have to work for longer. But they are going to find it harder to do so, because unemployment will be high and there is still a lot of age discrimination. People may wish to work for longer but find that they are not able to.
In the aftermath of this crisis, we are likely to move ahead quite fast with artificial intelligence (AI) and robotics, because employers are looking to reduce costs. I worry about that because some of this technology is good, but some is not. Firms will focus on automating and getting rid of jobs because machines are cheaper, rather than augmenting and making things better. In that sense, we could be stuck with a bad use of technology.
Will the growing importance of technology exacerbate inequality?
The key thing here is that longevity and technology are not destiny. We must shape them as we see fit, but if we don’t do anything about it, we may well see inequality increase.
COVID-19 has an even more disproportionate effect on those at the bottom
We have already seen longer lives becoming a reality for those at the top end of the income scale, not the bottom end. In the UK, men in the top ten per cent of the income distribution live ten years longer than men in the bottom ten per cent, and that gap has been widening. If you look at the impact of COVID-19, it has an even more disproportionate effect on those at the bottom – we need to focus on that.
What is interesting about COVID-19 is how as a society we said: “It is ok to have the worst recession for more than 300 years because we are trying to save lives?” That is a big reveal to me. If you hold those values, then there is a lot more we can do. That’s not just about COVID-19, it is also about tackling those inequalities.
As we have seen with technology, those who have been able to work from home tend to be those with high-income jobs. Those who can’t are not. We are seeing that gap widen. These are important things to worry about.
One of the things The New Long Life tries to do is be optimistic; not because there aren’t things to worry about, but we can overdo the worry! We talk about the Frankenstein syndrome: how do we deal with this aging society? How do we deal with technology? But if we are smart enough, there is a way to make it work for us. Right now, we are not. It is important to recognise that neither technology nor demography are destiny. We can shape how they affect us.
If machines are becoming more machine-like, we can become more human-like
One of the things The New Long Life tries to ask is: “What do we want from all of this?” For me, there is great potential. We might have a longer life and smarter technology. And if machines are becoming more machine-like, we can become more human-like. That is what we need to grasp.
If the skills of the future are going to be more human, about empathy and caring, that’s a different skillset to the ones we focus on now. We focus on analytical and educational skills. Understanding humans may become a much greater skill in the future.
The good news is that in this regard it could be a force for equality, rather than inequality. This new focus could be a positive.
What about the practical implications of longevity for investors?
This focus on insurance is key. There is life insurance, which was important when many people died in middle age. It answered the question about how to take control of a financial outcome in that situation. As we are living longer and longer, the best form of health insurance is investing in your health.
But longevity insurance, designed to address how you avoid outliving your assets, skills and sense of purpose, is a big shift in thinking. It should underpin people’s financial planning. It is going to influence when you retire, what you do in your 50s, whether you carry on working after fifty. That has big implications for the investment industry.
There is a whole set of new industries to invest in that will seize the opportunities from supporting longer lives
There is a whole set of new industries to invest in that will seize the opportunities from supporting longer lives. In ed-tech, in biotech, in employment agencies set up to give opportunities to older people and so on. There is a lot to be done, but by and large the big companies do not do it well.
In general, the response from the investment industry has been that people should just save more. But if I work until I am 70, I will want to invest in different assets than if I retire at 55. There are a lot of co-variances that change. And there could also be a lot of changes in people’s risk profiles.
In a world where we have very low interest rates and very long lifespans, drawdown is a nightmare issue. People will be looking at their portfolios in very different ways. With current interest rates and the length of life you might be living, the old expectations about how much of your assets you might be able to draw down each year (which used to be around four per cent) will just not be sustainable. You might have to be much more active in managing your portfolio.
The question of annuities is interesting. As an economist, if I think about longevity insurance, some kind of deferred income annuity might be an important part of a portfolio, in my view.
I do wonder if there is scope for a product that combines life and longevity insurance. Imagine you could measure your biological age; at one point you are paying a premium targeted towards life insurance rather than longevity insurance, but as you improve your biological age, the life insurance element diminishes and the focus moves to longevity insurance, designed to pay out when you are much older. That combination of thinking is what’s needed.
On average, we are living longer and are healthier for longer
With longer lives, a whole raft of new risks emerges. I stress they are risks, and as a society we tend to focus on the negatives of aging, missing the fact that on average, we are living longer and are healthier for longer. Most of the years we have gained we are in good health. We keep forgetting that.
But we do have risks around outliving our assets or being incapacitated, where we need healthcare but will still be alive. There are whole new markets to arrange. The 20th century broadly saw the creation of the life insurance market and a pensions industry. These two big new risks require a whole new set of financial products.
Social care in later life is costly – should saving for it be compulsory?
I can see some form of tax. For some people, social care is a huge expense, and there must be some form of insurance. So, who provides the insurance and who provides the service?
But I would like to go back a stage further. With social care, the problem has always been funding. We are seeing something different now. Do we have the right model to deliver care in later life? We need to be broader minded about how we think about that period. A lot of people will be thinking about housing elderly parents with them, rather than put them in a care home. To just focus on how to finance it is to misunderstand the problem. We need to make sure fewer people go into homes, as well as make them safer and more rewarding places to be.
You have addressed some of the issues around tangible assets. What about intangibles, like friendships and social connection? How has your thinking evolved here?
What is interesting at a meta-level is how so much of politics now is about identity issues; who I am, what I represent. This multi-stage life challenges people’s identity.
In the three-stage life of education, work and retirement, you tend to spend the ‘work’ part employed by a few firms for your whole career. Your identity is immersed in that job. In a longer career with disruption through technology, sometimes you will be working in a paid, secure job; at other times you could be a gig-economy or flexible worker, working for a charity or self-employed. You will go through a lot of transitions. The question then is, “How do I get my identity?”, if the concept of work is going to change significantly.
With the Industrial Revolution, work became about the time spent getting paid by my employer. In the new world, life is going to be about things I do with my time. That boundary between work and life is going to get incredibly blurred.
This longer life involves asking: Who am I as a person?
So how do we shape our identity? Through our values and through our relationships; through our intangible assets, our sense of which community we belong to and what we stand for. Ultimately, I think that is where we become as human as we can. This longer life involves asking, “Who am I as a person?”, as opposed to, “I am a professor, I am a steel worker”, or whatever it might be. That’s a big change, as at the moment our jobs are a major determinant of many people’s identity.
Relationships become key as they are the true thing that define you. Just think about how many friendships are formed at work. If you are going to have lots of different jobs, that may not be the case. COVID-19 has meant people are not going to the shops or to work as much and the local community has become much more important as an identity definer. With a different working structure, local relationships become more important again.
You can read more of Professor Andrew Scott’s views in the second part of our interview.