FT943-808 _AN-EI0DNAGMFT 940927 FT 27 SEP 94 / Survey of Business Locations in Europe (3): Later retirement with smaller pensions - Eva Kaluzynska examines the implications of an ageing population By EVA KALUZYNSKA Europe's workforce is ageing - 15 per cent of the population is already aged 65 or over, compared with an average of 6 per cent in the rest of the world. 'We're moving towards the low 20s (%) at the turn of the century,' said Dr David Coleman, a demographer at Oxford University, specialising in trends affecting Europe. There are relatively minor variations in birth and death rates among the 17 countries in the European Economic Area (EEA), but the picture is very clear. Any company considering relocation will obviously factor in current levels of social costs, lowest in Portugal, Greece, Spain and the UK; highest in Germany, Denmark and Belgium. But employers must tune into demographic trends now if they want to get a sustainable, long-term personnel policy off the ground. 'Companies may be thinking of moving now to a country where costs are low, but they must plan now to keep them low,' said employee-benefits specialist David Formosa, of Sedgwick Noble Lowndes. The baby boom after the war was followed by what demographers at Eurostat, in Luxembourg, call a 'baby bust' in the 1970s. A marked decline in natural population growth throughout the EEA is continuing, while the death rate remains stable. In 1993, the birth rate was 11.2 per thousand, down from 11.5 per thousand in 1992; while the death rate stayed at 10.1 per thousand. Women, currently 51.2 per cent of the population in the European Union (EU), are having fewer children, and they are having them later if at all. Only in Ireland (and Poland, in central Europe) are women still having two or more children each. In 1993, there were 4.19m births in the 17 countries of the EEA - 110,000 fewer than the previous year. Demographers are ringing alarm bells about the need to adjust policies now, both at company and government level. 'Germany is the forerunner,' said Harri Cruijsen, team leader at Eurostat's project on demography. 'In the next five to 10 years it is going to have the most acute problems in adjusting to an ageing workforce.' Italy and Spain lag by about five to 10 years. The situation is less serious in France, which has had a policy of financial incentives for would-be mothers. The UK could also buck the trend up to a point, due to what Cruijsen calls an abnormally high rate of teenage pregnancies not seen elsewhere in Europe. The overall implications are stark. Employers who stay on the continent, rather than move nearer to markets in Asia, must make the most of the existing pool of potential labour, given the lack of youngsters. Experts agree on the need for two significant shifts in policy and attitude: postponing the age of retirement, and recruiting more women into the labour force. 'Seniors will stay on, females will come on,' as Cruijsen puts it. Many employees able to do so have retired early over the past decade, and many still expect to do so. 'This will stop,' said Cruijsen bluntly. Italy and Japan are already planning to raise the statutory age of retirement, and other countries will follow suit, experts say. 'The notion of early retirement has overshot its usefulness,' said Coleman. 'Active, employable life is getting longer. The notion that a person is old and past it at 65 is increasingly obsolete.' The idea of older people giving up their places in the workforce to youngsters gathered favour during the recession, though without any significant effect in reducing unemployment. Employers encouraged the trend, rejuvenating their workforces in the belief that younger people adapted better to new technologies. But Formosa urges managers to be innovative in adapting to new realities: 'Employers will have to start thinking differently.' Replacing key staff who have specialised knowledge and experience will become far more difficult, and flexible solutions, such as part-time schemes for key older employees could be part of the answer. He would recommend phased retirement: 'Maybe people will still be doing one or two days a week when they're aged 70.' Employers casting round for reserves in the labour force will have to make better use of women, experts say. Women currently make up about 40 per cent of the labour force in the EU. Denmark has the highest rate of female participation, at 46.6 per cent, followed by France (44.3), Portugal (43.2) and the UK(43.2). Ireland has the lowest rate, at 34.1 per cent. 'All projections for modest growth in the labour force at the turn of the century come from increased levels of female participation,' says Coleman. Formosa thinks employers will come round to offering women with caring responsibilities for children or older people more flexible working arrangements, as they realise the value of doing so. 'I believe employers will make more of an effort to keep women, as there is more difficulty in finding replacements.' Coleman estimates that, if all EU countries matched Denmark's rate of female participation in the labour force, the recruits would more than make up for any shortfall. 'There is a hidden labour force of at least 30m, which will be mobilised as married women increasingly take up work or return to work.' Europe's ageing workforce can expect lower statutory pensions, with higher retirement ages as the ratio of taxpayers to recipients descends from the current 2.4:1 to under two. Incentives to retire early will go, and the prospect of lower incomes will oblige seniors to work on. Employers are likely to become involved in improving pension provisions, partly through helping employees to set up appropriate schemes to which they are the main contributors, partly through incentives for later retirement. Formosa says there is still time to avoid scenarios in which pensions systems collapse under the burden of payments due. Later retirement will cut the cost of pensions by reducing the duration of payments. Some experts have suggested migration as a potential solution to the imbalance in western Europe's age structure. Coleman is adamant that this is no quick fix. The EEA countries cannot absorb significant numbers of legal migrants, other than those with specific skills for specific periods, he says: 'It seems eccentric to propose immigration for low-grade labour, especially since future demand emphasises high skills.' Importing cheap young labour would exacerbate one of Europe's biggest problems, its low productivity. Coleman argues that western Europe must deal with the impending crisis through making the best use of its own resources. It should, he says, retrain to reduce unemployment and invest in more capital-intensive processes to improve productivity. And it should mobilise more of its potential working population by making it easier for women to work, as well as by recruiting those beyond current retirement age. Canny employers can start planning now. Countries:- XGZ Europe. Industries:- P9441 Administration of Social and Manpower Programs. Types:- CMMT Comment & Analysis. The Financial Times London Page II