Companies across Europe will need to make better use of older workers, meaning an end to fixed retirement ages, better retraining opportunities and more flexible working environments, according to research.
Unless those challenges are met, along with shifts in government policy and individual attitudes to work and saving, Europe faces the prospect of economic decline.
The study into Europe’s ageing population, conducted by information analysts at the Economist Intelligence Unit (EIU) and consultancy Towers Perrin, is based on three lines of research that provide a fresh insight into different aspects of demographic change.
The EIU survey of more than 170 senior European executives sheds light on the strategies companies are using to address pension deficits and remain competitive as European labour markets shrink.
The authors also conducted interviews with economists, business leaders and pensions experts. Data on demographic and pension trends was also compiled and analysed to look at the key challenges facing 20 different countries in Europe.
From this, the EIU has produced a ‘barometer’ for demographic risk in Europe.
Italy, with a sluggish pace of reform and huge demographic pressures, stands out as the country with the gloomiest prospects. Its rapidly ageing population and slowness of change in social welfare systems means Italy faces the biggest threat of decline over the next 45 years.
The report described the country’s prospects as dismal unless “effective and sustained” action is taken.
“The precipitous decline in the birth rate, combined with exceptionally high life expectancy, creates a demographic squeeze that could impede economic growth for decades to come,” said the report.
The country’s workforce is set to deteriorate to the point where there will be just 1.5 active workers for each retired person by 2050.
Other countries exposed to demographic risk include Spain, Greece, Austria and the Czech Republic. These countries all have low fertility rates and room for improvement in their labour force participation rates.
According to the report, the outlook is “fair” in the UK, Ireland, The Netherlands and in the Nordic countries. But it warned that there was a risk that future reforms will be too faint-hearted in politically sensitive areas like pension provision, healthcare and immigration.
The report puts forward pro-immigration policies as the answer to filling future skills gaps. Just under a third of executives said that making it easier to employ immigrants would be one of the most useful things that governments could do.
Companies were also warned that to remain competitive they need to invest as much energy into the recruitment and retention of talented staff as they now do for customers. New benefits strategies, with more choice for the employee, are recommended as vital.
For individual workers, the outlook is just as bleak.
The report said the idea of a “permanent holiday” that begins at 65 is unlikely to survive. Many will have to continue to work well into their 70s, the report predicts, although they will do fewer hours.
It suggests that many European workers “live in the hope that everything will turn out for the best” and that individuals need to take greater responsibility for retirement planning.
However, the report said that none of these outcomes was set in stone, and added that concerted action in key areas would enable some countries to improve their prospects significantly.