by Andrea Beltratti – Chairman, EFG Gamma Foundation
We are living longer these days, which is a positive development provided that we also enjoy a healthy and comfortable old age. Financial security is a key consideration for people as they plan for a potentially long retirement. This has clear implications for private banks and asset managers: by developing financial offerings that address longevity-related needs and challenges, the industry can act as a kind of “financial doctor”. This is just one of the key takeaways from a recent conference about longevity organised by the EFG Gamma Foundation. Held against the stunning backdrop of the Istituto Svizzero in Rome, the event was moderated by Class CNBC Managing Director Andrea Cabrini and featured an impressive line-up of speakers, including: Professor Annamaria Lusardi (Economist and Senior Fellow, Stanford Institute for Economic Policy Research – SIEPR), Moz Afzal (Global CIO of EFG international), Guido Cornettone (CEO & Co-Founder of SoLongevity), Evgenia Goti (Global Head of Wealth Planning of EFG International) and Professor Andrea Sironi (Chairman, Assicurazioni Generali and President, Bocconi University).
The Chairman of the EFG Gamma Foundation, Andrea Beltratti, opened the conference by defining the concept of longevity – describing it as the extension of the “time horizon” of an individual. He referred to research findings showing that the “discount rate” may decrease as the time horizon increases and he pointed out that increasing longevity may make individual investors become more patient, with positive implications for portfolio structuring, market volatility and the financing of the real economy.
Professor Annamaria Lusardi – Building resilient economies: The importance of financial education
In a keynote speech, Professor Annamaria Lusardi shared findings from her own research, highlighting the importance of financial literacy in the longevity era. She explained that people with higher levels of financial literacy are usually better able to plan effectively for their retirement – which will potentially be longer than in the past – to ensure their own financial resilience. According to Professor Lusardi, people need to be more proactive when it comes to planning for their retirement in order to enjoy a good, long and healthy life. In this context, she pointed out that sound financial knowledge is vital to make sound decisions about our future. Importantly, she believes that people need to “reimagine the future” because conventional retirement planning is no longer appropriate, given the longevity “revolution” we are facing. She concluded her keynote with the observation: “Longevity is a gift that brings with it a lot of opportunities: Opportunities for the financial industry to offer products and financial expertise that are better suited for a new roadmap for life; opportunities for employers and financial advisors to help employees prepare for a longer and healthier life; opportunities for the public sector to inform citizens about the benefits available to them; and even opportunities for the education system to prepare the younger generation to navigate a very different world. With this in mind, Professor Lusardi pointed out that retirement planning is very much also a matter for young people to consider – adding that it is critical for the private and the public sectors to work together even more closely to help people live longer and healthier lives, as the public sector alone will be incapable of meeting the additional needs driven by increased longevity.
Moz Afzal – The Impact of the demographic transition on economies and markets
In an interview with Andrea Cabrini, Moz Afzal discussed the impact of ageing and longevity on economies and markets, explaining that from an economic perspective, longevity is essentially all about being more productive for longer. In Afzal’s view, the world is facing two deflationary trends and challenges: First, population growth is expected to peak in the next few years and to then go into sharp decline over the course of the next 50, 60 or 70 years. This will impact the real estate sector, as populations tend to migrate towards larger cities where healthcare provision is better than in rural areas.
Another point is that people are faced with demographic challenges due to an ageing population, with these issues being particularly pronounced in Korea and Japan but also in Italy and Germany. This trend places a burden on society, particularly with regard to social security and healthcare spending, which are already unaffordable in many countries. Consequently, governments have a huge part to play, especially in encouraging people who are living for longer to also work for longer. According to Moz Afzal, policymakers should seek to increase the working age population and create incentives for people to retire later. As governments work towards this goal, AI will likely play a key role by helping older people to perform tasks and jobs that they were probably unable to do two or three decades ago.
Turning to markets, Moz Afzal identified certain sectors that are likely to benefit from the longevity era – from travel and leisure to robotics and AI. He shared his view that the use of technologies and robotics in nursing and in surgery, as well as in preventative medicine, is the key to delivering healthcare to an ageing population as this will lower the related costs. In parallel, improved access to healthcare and better health outcomes will allow people to work for longer, boosting economic output – which is essential given the unsustainable levels of debt in many countries today.
Guido Cornettone – The longevity market: A healthcare perspective
The next speaker, Guido Cornettone, explored the longevity topic from a healthcare perspective, emphasizing that preventative medicine and longevity medicine are not the same, even if they are often treated as synonyms. According to Cornettone, longevity medicine begins at a much earlier stage and is wider in scope, with preventative medicine actually falling under the umbrella of longevity medicine. Interestingly, Cornettone pointed out that the preventative medicine does not seek to increase an individual’s health span, whereas biological age management and empowerment are key factors contributing to longevity. He added that technology plays a crucial role in this context, as it supports research into human biology that combines fields such as genetics, epigenetics or metabolomics – providing a clear picture of what is going on inside the body before physiological conditions arise that affect an individual’s wellbeing or trigger disease. According to Cornettone, this does not mean that everyone will live to the age of 120 but it could allow people to stay healthy and reach the age of 95 or 100. AI is also playing a key role in areas such as longevity diagnostics, as it allows vast quantities of data to be converted into actionable diagnostic and therapeutic programmes.
Evgenia Goti – The importance of financial planning in the longevity era
Moving from an economic and business perspective to a more financial view, Evgenia Goti spoke to Andrea Cabrini about the importance of financial and wealth planning in the longevity era – explaining that wealth planning revolves around human needs and priorities. This means that as life expectancy increases, wealth planning will have to adapt to the subsequent changes in human needs. When it comes to wealth planning and its implications, Evgenia Goti pointed out that the way longevity will impact wealth planning depends to a large degree on the client segment concerned: Looking first at the affluent or entry-level high-net-worth individual (HNWI) population (with total wealth of up to CHF 5 million – CHF 7 million), its wealth planning focus is on financial planning around life goals as well as retirement planning. If we turn our attention to the core HNWI population or ultra-high-net-worth individuals (UHNWIs) with total wealth of up to CHF 50 million, wealth planning becomes more about wealth preservation and legacy, as individuals within this segment already have more than enough financial resources to cover their financial retirement planning and the needs of the Next Generation. In this context, family cohesion is very important because in an UHNW family, there are likely to be more family members from different generations, each with their own specific priorities, investment profiles, values and perspectives – not to mention the fact that they may live in different countries.
Amid this increased complexity, two factors are key: First, it is important to ensure sufficiently sophisticated structuring to accommodate the investment priorities of different branches of the family. And second, the need for family governance is much higher in this context. This creates the need to transform succession planning from a traditional inheritance concept to more a collaborative and interactive form of engagement with the Next Generation. Turning to tax planning, Evgenia Goti highlighted the fact that in countries with high rates of inheritance tax, there is traditionally a higher level of both awareness and planning. Nevertheless, she pointed to several factors that are crucial in terms of tax optimisation: First and foremost, it is about understanding asset exposures and their implications. The second point relates to exploring the available options using structures such as holding entities, trusts, insurance or donations to mitigate inheritance tax exposure. Global mobility is also an important aspect in this analysis because more and more countries today offer attractive tax regimes, possibly encouraging wealthy individuals to relocate there. Evgenia Goti concluded the discussion by speaking about differences in financial planning behaviour in different countries, explaining that cultural aspects are very important and can impact wealth planning and longevity planning.
Professor Andrea Sironi – The changing role of insurance in supporting longevity
After looking at the topics of local demographics and transformation, Professor Andrea Sironi turned the spotlight on the evolution of the insurance sector from a pure life insurance provider to a hybrid model and highlighted the importance of collaboration – between private companies on the one hand, and between the private and public sectors on the other. He explained how the cost of caring for an ageing population (pensions, healthcare, long-term care) is affecting public spending across different countries. According to Professor Sironi, this spending is set to increase by 1.2% in the EU, while countries such as Italy, France and Portugal are seeing public spending decrease, mainly due to constraints on the public finances. In other countries like Germany, Poland and Austria, spending is expected to rise. In addition, he pointed to significant spending gaps that will need to be closed in the next future. The first is the global pension gap, i.e. the difference between the income needed for a reasonable standard of living and the actual amount that has been saved for retirement, which is now estimated at over EUR 1 trillion in Europe. The mortality gap, which is the shortfall in financial resources available to support dependants if a primary wage earner dies, is estimated at EUR 120 billion. And finally, the health protection gap, i.e. the shortfall between actual healthcare costs incurred by individuals or households, and the amount that they can afford to pay towards those costs, totals around EUR 190 billion. According to Professor Sironi, one positive is that there is now more awareness of these needs, leading to a growing demand for funding to cover the costs of pensions and healthcare.
Taking a closer look at Italy, Professor Sironi noted that it is an under-insured country, with only one-third of the working population contributing to a complementary pension scheme. In his view, collaboration between private companies that offer hybrid products is often a good solution. As an example, he cited the case history of the joint venture between Generali Assicurazioni and the Gruppo San Donato to expand the reach of their services through a strategic partnership that basically combines the best available services in the Italian market – bringing together the health and insurance knowhow of these two “national champions”. Professor Sironi concluded his discussion by highlighting the fact that partnerships between the public and private sectors are key to address the major challenges posed by an ageing society in the longevity era.
Andrea Beltratti – Closing remarks
Andrea Beltratti closed the conference with three key remarks. The first focused on public policy: He stated that governments around the world have both a duty and an interest in helping societies to save and manage their wealth in the best possible way through sound public budgeting (remembering the virtuous example of Norway, which created one of the world’s largest sovereign wealth funds in a matter of decades) and public intervention in education. The second remark focused on the role of AI, with Beltratti observing that while it is a source of significant advances in computational efficiency and data analysis, it also brings with it ethical issues, such as the human-in-the-loop question, that need to be addressed before we increase its usage in financial planning. The third conclusion was also a provocation: Beltratti pointed out that living better, and not only living longer, requires happiness. Here, he asked if this is a new frontier that financial players should consider to create value for society? In other words: Should we move from a model where banks aim to maximise shareholder value to banks pursuing stakeholder value maximization to banks searching for shareholder welfare maximization?
