Golden years at work are the hidden treasure of the old

Governments and employers are coming to recognise the value of keeping people in jobs longer

Camilla Cavendish

© Jonathan McHugh 2021

Once upon a time, the route to happiness was supposedly to retire in your early sixties with a decent pension, get out the golf clubs and start, er, swinging. 

That was the vision of the “golden years”, sold to us by American marketers since the 1970s. 

But a Spanish plan to pay workers to postpone retirement is a harbinger of a future in which persuading oldies to keep slogging away could prove as important as trying to woo younger ones with heartfelt mission statements.

I sometimes give talks about the future of work, and the challenge of managing a workforce which will soon span five generations. 

Most of the questions I get are about the young: how to recruit Generation Z and retain footloose millennials. 

There is far less interest in the over-fifties and how to keep them happy. 

But if people live to 100, and remain productive into their seventies and eighties, that is a question employers should start asking.

In offering to pay people up to €12,000 to work beyond the pension age of about 66, the Spanish government hopes to reduce the deficit in its social security budget and to placate the EU, which is demanding reforms in return for coronavirus aid. 

Spain is not alone in worrying that its pensions may be unaffordable. 

But the better news for older workers is that their talents may be needed as labour pools shrink.

I know this goes against the grain of arguments about the Fourth Industrial Revolution sweeping jobs away. 

But although the robots are coming, Japan and other rich countries with low birth rates are running out of humans with the right skills. 

The prosaic reality, as the baby boomers retire, is one of shortages which technology can’t yet fill.

Already people who were once considered over the hill are being asked to stay on. 

To head off a recruitment crisis, the British government has just raised the retirement age for judges and magistrates from 70 to 75. 

The NHS has been trying for years to dissuade nurses from leaving their jobs. 

There were about 40,000 nurse vacancies before the pandemic, not just due to Brexit but because so many had left. In 2012, a third of NHS staff were over 50.

The US has a similar problem. 

Two thirds of nurses in 1990 were baby boomers and, as that group steps back, it has been said that the US healthcare system is suffering “a significant loss of expertise”. 

There are ways to entice older nurses to stay on — but they involve being adaptable and creative about their needs.

This is not just a public sector issue. In 2018, when the UK came closer to full employment than at any time since the early 1970s, there were skills shortages in IT, construction, leisure and hospitality. 

Yet many companies I speak to still think about staff over 50 as a separate category: on their way out, rather than a part of the future.

Not every 75-year-old judge is a genius, of course, nor is every 60-year-old nurse tough enough to carry on. 

Lee Iacocca, who became Chrysler chairman at 53, famously quipped that “I had people at Chrysler who were 40 but acted 80, and I had 80-year-olds who could do everything a 40-year-old can”. 

Lumping people together by age makes little sense in a world where some people are what the Japanese call “young-old”: healthy and energetic into their seventies and eighties.

Economists are out of date when they calculate dependency ratios on the assumption that the working population is aged between 16 and 64. 

This leads to gloomy predictions about the growing burden of the retired, but ignores the fact that at least one in four adults in the US and UK have been “unretiring” and going back to work, sometimes years after they enjoyed the official office send-off. 

Some do this for financial reasons, others because they are bored and have more to give.

A big question is whether keeping older people on for longer will block the talented young from climbing the ladder. 

When Oxford academics challenged the university’s policy of forced retirement before the age of 69, they argued that it cut off some world-leading thinkers in their prime. 

However, this drew the retort that they were blighting the chances of doctoral students and postdoctoral scholars.

Economists often dismiss the idea that there is a finite amount of work as the “lump-of-labour fallacy”, because a growing economy creates more opportunities for everyone. 

Retaining Professor Past-It may deny promotion to Miss Super-Brain at one university. But she can apply elsewhere. 

The fear is that technology will lead to jobless growth. Daniel Susskind, in his book A World Without Work, warns that we may commit a “lump of labour fallacy” if we ignore the risk that automation will increase demand, but for artificial intelligence and computers rather than for humans.

While we wait to see who is right, the growing burden of state pensions makes it imperative to utilise older people if we can. 

Educated professionals have a reasonably bright future: research suggests that people who found tech businesses in their fifties, for example, have higher success rates than those in their mid-twenties. 

The challenge will be in convincing more people to stick with thorny personnel and legal issues than enjoy the garden.

I have been shocked to meet executives in big consulting and accounting firms who want to plan their exit before they get pushed out at 60. 

Most are in their early fifties, at the peak of their earning power, yet mentally they have already left.

Employers may want to rethink the “golden years” as ones where their staff stay on the books.

The writer is author of ‘Extra Time: Ten Lessons for An Ageing World’


The appeal of emerging-market dollar bonds

For a start, the alternatives are hardly compelling

The hunt for bonds that pay more interest to retirees and others requiring a fixed income has taken institutional investors to some exotic places in recent years. 

Last month they alighted on Ghana, which issued $3bn-worth of Eurobonds, as dollar bonds issued outside America are known. 

Ghana may be exotic but it is also risky. 

Its government debt-to-gdp ratio was a hefty 78% in 2020. 

With such risks come rewards: the yields on Ghana’s new Eurobonds were roughly 8-9%.

The alternatives are hardly compelling. 

The spread, or additional yield, over Treasury bonds offered by American corporate bonds is close to its pre-pandemic low and not far from its all-time low. 

For a given credit rating, an investor can usually get a wider spread over Treasuries (and thus a higher expected return) by buying the dollar bonds issued by an emerging-market sovereign, says Yacov Arnopolin of pimco, a big bond-fund manager.

There are reasons for the discrepancy. 

Investors feel more comfortable owning corporate bonds, because the Federal Reserve has, in effect, provided a liquidity backstop for the market since last March. 

American companies stand to benefit from President Joe Biden’s $1.9trn fiscal-stimulus package. 

A rapid vaccine roll-out means America’s economy will get back to normal far sooner than most emerging markets. 

On top of this lies another factor. 

The risk of corporate default is something that can be calculated in a spreadsheet model. 

But working out the chances of a sovereign default is a more complex business.

Start with the things you can put in a spreadsheet, such as debt loads. 

The imf divides poorer countries into two categories, middle- and low-income. 

The first group saw public-debt burdens rise by around ten percentage points, to 64% of gdp in 2020. 

Those for the second, which includes Ghana, rose by around five percentage points, to 49.5%. 

Ghana’s debt burden is thus well above that of its peer group. 

Like some other poor countries, it had a lot of lumpy dollar debts coming due in 2022-24. 

That is why it used some of the proceeds of its recent sale to retire a Eurobond maturing in 2023.

The debt burden and maturity profile only get you so far. 

There are three other influences that investors might usefully bear in mind. 

The first is commodity prices. 

The collapse in crude prices last year left a few oil-producing countries short of hard-currency earnings. 

It played a part in the troubles of Ecuador, one of six countries to default on its bonds last year. 

For a while it seemed likely that Angola, a highly indebted oil exporter, would follow suit. 

Support from China and the imf saved it, along with a marked pickup in the oil price late last year. 

Rising metals prices are also helpful to many indebted countries. 

The copper price is important for Chile, Peru and Zambia; the price of gold to Ghana and South Africa.

The second factor is exposure to tourism. 

The hit to the industry from the pandemic played a part in the default of Belize and in stresses elsewhere, says Stuart Culverhouse of Tellimer, an emerging-market research firm. 

It might take years for tourism to recover fully. 

The imf recently sharply downgraded its forecasts for the Caribbean economies. 

Sri Lanka has been dogged by fears of default, in part because it has heavy debts, but also because of lost income from tourists. 

For Kenya, an energy-importer with a hefty debt burden, a hit to tourism and a higher oil price is an unfortunate combination.

A third influence is the imf. 

Understanding its ways is an essential part of investing in emerging-market bonds. 

The fund has lent a total of $110bn, supporting 86 countries, since the pandemic struck. 

Some of this has been in the form of debt relief; some in rapid-fire lending and credit lines; some of it is programme lending with strings attached. 

The imf is readying a $650bn issue of special drawing rights (sdrs)—essentially an overdraft facility at a negligible interest rate—for its members. 

The sdr gift will make a big difference to smaller countries, in some cases doubling their foreign-exchange reserves, says Yvette Babb of William Blair, an asset manager.

A frosty relationship with the fund is probably unwise. 

The kinder, gentler imf has kept sovereign defaults in check much as central-bank action and fiscal stimulus have kept corporate defaults in check in the rich world. 

There may well be further setbacks to some sovereign Eurobond issuers. 

But a lot more yield-starved investors may soon be dusting off their atlases.

JPMorgan Sees ‘a Bad Omen’ for Chinese Stocks. Here’s Why.

By Jack Denton

Are Chinese stocks headed for another crash, like in 2015 or 2018? / (Photo by Greg Baker/AFP via Getty Images)

Trends in capital flows, the depreciation of the yuan against the dollar, and the underperformance of Chinese equities paint a picture of caution ahead for the Chinese financial market, according to investment bank JPMorgan.

After a prolonged period of inflows into Chinese bonds and equities, there have been recent signs of a slowdown, said analysts led by Nikolaos Panigirtzoglou on Wednesday. 

This prompts questions about whether Chinese stocks are on track for a crash like the ones seen in 2015 and 2018.

Net inflows into onshore bonds turned modestly negative in March, the analysts said, reversing the trend of strong inflows in January and February. 

Meanwhile, currency depreciation remains relatively modest, with the yuan down around 0.75% against the dollar over the last three months.

However, this relative stability in the currency could actually “pose some vulnerability to de-risking,” the analysts said, particularly if the slowdown in inflows continues in combination with persistent outflows.

This has all happened against the backdrop of a serious underperformance by Chinese equities. 

The MSCI China index, which captures more than 700 large- and midcap Chinese companies, has underperformed the broader MSCI Emerging Markets index by 9% since mid-February. 

The benchmark Shanghai Composite Index is down more than 2% since the beginning of 2021.

The underperformance in Chinese stocks is even starker when set against the broader global landscape: the MSCI China index is down 17% since mid-February against the MSCI ACWI index, which measures more than 3,000 large- and midcap constituents across 23 developed and 27 emerging markets. 

This current weakness in Chinese equities appears to be driven more by speculative investors, the analysts said, which is similar to the 2018 period. 

In that year, the Shanghai Composite Index dropped nearly 25% lower over 12 months.

Ultimately, major declines in the Chinese financial market in 2015, 2018, as well as 2020 were all accompanied by a broader correction in global risk markets, which justified options investors’ fears at the beginning of each year, according to the analysts.

Equity volatility has been trending lower recently, with the Cboe Volatility Index, or VIX, falling below 17% in the last week compared with around 25% at the beginning of the year. 

However, “the decline in volatility and the induced buildup of equity positions is creating fear among some investors that risk markets are becoming too vulnerable to a future shock or volatility episode,” wrote the JPMorgan analysts.

A key method of gauging that fear among institutional investors, they said, is looking at the demand for hedges. 

This is reflected in the put to call open interest ratio for S&P 500 index options—the world’s most liquid equity index option market.

The analysts noted that this ratio started the year at elevated levels, echoing the patterns from downturns in 2015, 2018, and 2020.

“The fact that this year has also started with option investors fearing an equity correction,” the JPMorgan analysts said, “is thus a bad omen.”