Amlan Roy’s contention in his new book Demographics Unravelled is that a wider and more holistic approach to demographics is necessary. An academic by background and a long-standing former head of global demographics and pensions research at Credit Suisse, Roy’s choice of focus in his book underlines his views. One of his key foundations rests on broadening the demographics lens to people as “consumers and workers” challenging the perspective that age is a sufficient summary of demographic characteristics. He highlights that demographics have short-term, medium-term and long-term effects, not just long-term on economics, investments and policy.

Demographics Unravelled

Demographics Unravelled
Amlan Roy
Wiley, 2022

For instance, a chapter dedicated to health and longevity reflects his understanding of the importance of healthy life expectancy and quality of life – including in dimensions such as mental and occupational health. All these things are becoming more apparent with the advent of new health challenges, such as the phenomenon of Long COVID and remote working.

A chapter covering quality of life, gender, governance and sustainability underpins Roy’s central view that qualitative indicators are needed if the world’s sustainability goals, including the UN Sustainable Development Goals, are to be met.

In a chapter on demographics and asset prices, Roy surveys a wide body of academic literature. Drawing on his own demographic research in the same chapter, he counters some long-standing assumptions about the relationship between population structure and stock prices. He argues that age-based statistics are not complete or significant explanations for asset price variations. He writes: “Globalisation and changes in the knowledge and information sets of consumers make them different today than people two decades ago”

Looking at a wider data set than just the US, Roy finds that differences in market participation, the size of the post-war Baby Boomer cohort, as well as differences in pension provision and risk aversion all affect asset allocation. In other words: “A 30-year-old consumer investor today is not the same as in the 1980s and 1990s, and neither is a 65 or 70-year-old; their opportunities, income, wealth and preferences are different.”

Roy underlines his long-standing views on key economic sectors, which will be of interest to investors looking to take a sectoral approach. He is bullish on health services and pharmaceuticals; financial services – where he thinks innovation will cater to older generations; leisure – assuming healthier retirees return to travel and tourism; retirement real estate – where healthier people will surely want different living patterns to previous generations; as well as emerging markets and infrastructure.

On China, contrary to some conventional wisdom that the country is weakened by poor demographics, Roy asserts that it is relatively well placed, given its higher fertility rates than countries like Singapore, particularly since the one-child policy has been abandoned.

On pensions, Roy deftly surveys the most significant literature of the past two decades. This chapter should be compulsory reading for all policy-makers in the sphere of retirement and pensions.

Starting with Peter Drucker’s 1976 The Unseen Revolution, which highlighted the growing importance of retirement asset pools, Roy’s survey takes in Theo Kocken’s 2006 Curious Contracts – which reflects Roy’s own views on the efficiency, design and enforceability of traditional pension arrangements – and Keith Ambachtsheer’s work on the need for integrative thinking to provide new solutions to changing retirement savings needs.

Roy’s call is for greater individual, household, corporate and government attention to ensure adequate post-retirement living standards. He highlights the role that research by Thaler and Benartzi has played in showing that assumptions about individuals’ rational behaviour are not borne out in practice – emphasising the need for well-defined savings systems with good-quality default investment options.

This then begs the question of how much responsibility, if any, should be placed on the shoulders of individuals if nudges and good systems can support appropriate long-term outcomes.

Baby Boomers continue to enjoy a comfortable retirement on index-linked DB pensions (in the UK and some other countries at least) as younger cohorts are starting to pay greater attention to their probably inadequate equity-heavy DC savings.

Collective DC retirement models which remove the burden from the individual are only likely to gain in general appeal, particularly as higher asset class volatility and inflation look set to increase.