Getting out gracefully
New Zealand’s ageing population poses important questions for business owners – and the country. How do we make sure the experience, contacts and successful businesses are not lost as the baby boomers move into retirement? It’s no longer a simple matter of holding on until you’re ready to sell.
Story by Nina Fowler
Illustration by Rebecca Walthall
Lifting the superannuation age wasn’t an election winner last year but the fact it was even suggested is a sign of the times. Like it or not, New Zealand’s population is ageing, and it could affect everything from taxes to business succession.
The impact of the baby boomers (those born between 1946 and 1964) reaching superannuation age will be as diverse as the group they represent. We do know it’s going to be big. By 2031, the number of New Zealanders aged 65 and over will top 1 million, almost double what it is now. In 2006, there were five New Zealanders aged between 15 and 64 to every pensioner (65 plus). By 2030, that ratio will be three to one.
Demand for aged care and the cost of paying out pensions are relatively easy to predict. The impact an ageing population will have on labour markets is less clear.
As leader of the National Institute of Demographic and Economic Analysis (NIDEA) at Waikato University, Natalie Jackson says we have to think about it regionally.
She says that last year 42 per cent of territorial authorities already had more people at labour market exit age (55-64) than entry age (15-24). “How do you take an excess labour supply of young people from Auckland down to Gore each day? You can’t.”
We’re not alone in facing these kinds of issues. Most OECD countries are ageing. New Zealanders are among the most fertile in the OECD, which is helpful. We lose a relatively high proportion of our population to migration, particularly to Australia, which is not.
Jackson argues more investment in today’s young is needed to increase pathways into work and help keep young workers at home. “We’re going to need absolutely every kid working in the labour market in the next five, 10, 15 years.”
We also need to make the most of older workers. Many of those currently nearing super age have no plans to retire and have a wealth of skills and experience to offer.
A 2011 Ministry of Social Development report, The Business of Ageing, points out that New Zealand already has one of the OECD’s highest labour participation rates for those aged 65–69. Lifting the labour participation of older people from 16 per cent in 2010 to over 26 per cent by 2030 could offset a projected shortfall in funding New Zealand Superannuation over that period.
“Not all baby boomers may want to remain in paid work,” the report reads, “but flexibility and changing attitudes will be key to harnessing the potential of those who do.”
For baby boomer business owners who are ready to retire and need to successfully exit their businesses to do so, the current economic slump is not good news.
“The recession’s almost put up a dam to stop these people retiring,” Auckland business broker David Newport says. Business advisers are telling clients they’ll get better prices if they wait and “sell on the other side”, despite the availability of willing buyers. But, he asks, once that dam is removed, “what happens if everyone tries to hit the market at the same time”? Prices will drop and would-be retirees may find themselves worse off.
There’s another potential problem on the buyers’ side of the equation. “A lot of Generation X and obviously Generation Y generally live up to their means,” Newport says, which means they might not be able to raise enough funds to buy the baby boomers’ businesses.
For now, this isn’t an issue. Older boomers can sell to their slightly younger peers (those in their late 40s or early 50s) or to peers who’ve found retirement too boring for their liking.
Eventually, though, the boomers might need to find alternative exit strategies. “I don’t think people are going to be able to sell 100 per cent of their businesses,” Newport says. “People are going to have to leave money in. They’re going to have to have vendor loans. They’re going to have to have different ways of exiting.”
On the plus side, if the boomers leave money in their businesses, they’re more likely to stay involved and pass their experience and contacts on to the next generation.
There are other upsides to New Zealand’s ageing population. There’ll be a growing “silver market” of consumers, which will fuel growth in certain sectors. Retired baby boomers could prove an invaluable addition to the volunteer sector, including as business mentors.
What’s certain is that the ageing of the boomers won’t be business as usual. Expect to hear a lot more about it in another three years.
Originally published in IN-Business March/April 2012