Time to start worrying the implications of an ageing workforce in the netherlands

2 © The Economist Intelligence Unit Limited 2014Executive summary A tide of demographic change is about to break over the Netherlands and its executives need to prepare Historically low

The implications of an ageing workforce in The Netherlands

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TIME TO START WORRYING?

Contents

2 © The Economist Intelligence Unit Limited 2014

Executive summary

A tide of demographic change is about to break over the

Netherlands and its executives need to prepare

Historically low birth rates and increasing life expectancy

mean that Europe’s working population is ageing fast In 2012,

the continent reached an inevitable demographic tipping

point The percentage of the population at working age fell

for the fi rst time in 40 years It is now forecast to fall every

year until 2060 This inescapable trend will have profound

implications for governments, citizens and companies across

Europe

The demographic makeup of the Netherlands means the

country has less time to adjust than the continent’s other large

economies, according to European Commission forecasts

Under the Commission’s bleakest forecast, population ageing

could create labour supply bottlenecks for the Dutch economy

as soon as next year

To explore some of the issues that senior executives will have

to address as they seek to adapt their organisations to this new

world, The Economist Intelligence Unit, on behalf of Towers

Watson, surveyed 480 senior executives at companies across

Europe, with 42 in the Netherlands Some 83% of those in the

Netherlands expect the number of their employees aged 60+

to increase by 2020, including 33% who expect it to increase

signifi cantly – those are among the highest results in Europe

Key fi ndings include:

Workforce ageing and skills shortages move up the agenda

As demographic change is likely to hurt the Netherlands sooner than most other countries, almost one in six see ageing as a priority human resource issue for their business today, and one in three expect it to be an issue by 2020 Similarly, Dutch executives are among the most concerned (21%) in Europe about the threat of skills shortages

Cash is king As the brightening of Europe’s economic outlook

pushes talent management up the agenda across the continent, executives in most countries plan to offer staff a wider mix of non-fi nancial benefi ts The Dutch are different – they are more than twice as likely (43% compared to 20% overall) to give workers cash Perhaps this is why a signifi cant minority (21%) think the cost of benefi ts as a percentage of salary will actually decrease in the years to 2020

Responsibility lies with the individual, not the employer

Dutch executives are the least likely (24% compared to 42% overall) to agree that it is better for employees to get certain benefi ts, such as healthcare, through work than to buy them themselves They also are much more likely to believe that the individual should be the one primarily responsible for providing and/or funding healthcare provision (36% compared to 19% overall)

When it comes to saving for retirement, Dutch employees are Europe’s big worriers Some 41% of executives say this is their

staff’s greatest concern No other country ranks it anywhere near that high – just 20% of European executives overall rank this as a top-three concern

The economic and business implications of

Europe’s ageing workforce are huge, and the

Netherlands has less time to adjust than any of

the EU’s other large economies

In the decade to 2012, the ratio of people aged

under 15 and over 65 to the population at

working age increased from 45.4% to 50.5% –

one of the biggest increases in Europe Under

the European Commission’s most pessimistic

scenario, the Netherlands could experience

labour bottlenecks as soon as 2015 – much earlier

than the UK, for example, which is unlikely to feel

the pain until the early 2020s

If the country can achieve what the Commission

calls “an exceptionally favourable economic

outlook allowing for an extremely high

mobilisation of human resources”, it could stave

off those shortages for eight years or so A recent

report from ABN Amro offered an even more

optimistic outlook, pointing to overall population

growth and the increased proportion of those

aged 65 to 68 remaining in work

If holding onto older workers is the way that the working, so that employees can care for older

Brace for impact 1

Which of the following do you think is most likely to happen as a result of an ageing workforce?

(% of respondents)

Chart 1

Netherlands Europe

Source: The Economist Intelligence Unit Increased

43 43

24

29

4 © The Economist Intelligence Unit Limited 2014

outlook improves across Europe, executives in many countries expect talent management to become a far more signifi cant issue in the years ahead But very few Dutch executives see much change here Only 21% say talent management

is a top-two business priority today; that climbs to just 26% in 2020 The increase is the joint smallest in Europe, along with France By contrast, the proportion among Germans citing talent management as a top two priority leaps by 237% over the same period

Does this suggest Dutch executives are complacent about the potential impact of demographic change? The European Commission data suggest that a lack of ready labour could be imminent for the Netherlands, and the survey shows Dutch executives are among Europe’s most concerned about skills shortages (21%) Yet by

2020, when the Commission believes the Dutch are very likely to be feeling the pinch, that level

of concern does not rise at all Perhaps the survey respondents believe the more optimistic ABN Amro report, which states a shrinking workforce will not happen until 2027, or even 2032

In a similar vein, Dutch executives are among the least likely in Europe to be planning any changes

that would prepare their organisations for an older workforce From allowing employees to select from a wider range of benefi ts to offering more fl exible work hours, they score below the European average across a range of measures In some cases they are only marginally behind, but the pattern seems clear enough

Many companies in the Netherlands are doing less in response to workforce ageing than their peers across Europe, but there are some examples

of good practice Faced with making a signifi cant number of staff redundant, Achmea, the

country’s largest insurance provider, launched a program called Silver Pool

The company offers temporary, fl exible contracts

to staff over 57.5 years who have knowledge and experience it might otherwise lose When employed under these contracts, staff receive 100% of their salary while working and they still receive 75% of their pay even when there is no work And whenever Achmea has a temporary, third-party or contractor position to fi ll, Silver Pool members have priority The company thus retains the knowledge and expertise of older staff, and cuts its costs

Europe in 2020 Netherlands in 2020 Germany in 2020 Germany now

Netherlands now Europe now

63 50 57

23 24

39 32

38 36

42 45 38

29 29 34

49 55 43

24 21 14

48 42 26

11

21 14 11 12 14

Source: The Economist Intelligence Unit.

Risk control and management

Talent management (HR) Innovation

Expansion Cost control

Restructuring

Talent management might not be climbing up the agenda

for many Dutch businesses, but it defi nitely is at PostNL, the

Dutch mail and parcels business, says HR director Roger Muys

The decline in traditional letter mail and an increase in

parcels business means that the company wants to create

a more fl exible workforce; the ageing trend is causing it to

pay more attention to the physical and mental fi tness of all

employees and how it engages its most talented people, says

Mr Muys

“Every organisation faces more or less the same HR

challenges,” he believes “In practice, fl exible labour means

less emphasis on full-time contracts – 37 hours or more – and

more space for part-timers, including students, pensioners

and returners, who would like some extra money.”

The days of lifetime employment with one company are over,

he says Ambitious, talented people are not willing to stick in one place all their career “The fi nancial crisis has dampened that trend a little, but once the global economy recovers, and with it the labour market, employers will need to think again about how they try to hold on to their high-potential people,”

he believes

Mr Muys says it is no longer wise to limit career development programs such as coaching and personal development to “top potentials”; talent management investment should extend

to all employees “It’s not only because people are the most important asset for any organisation, but also because it means we can fi ll sudden gaps in the workforce quickly and properly,” he says

Case study: PostNL

6 © The Economist Intelligence Unit Limited 2014

A brightening economic outlook across Europe

is likely to affect the concerns of employees, too The survey shows that in most countries, employers think employees will begin to worry less about whether or not they have a job and more about how and how much they work

But the story is somewhat different in the Netherlands

Today, the country has – almost – the lowest percentage of companies focused on cost control in Europe No wonder, then, that Dutch employees are much less concerned about

fi nancial or job security than workers across Europe – although this is still their main concern

More cash, please 2

The big areas where Dutch executives think their staff concerns will grow are the impact and pace of technological change (which they expect to increase fi ve-fold) and the desire for employment fl exibility, in the form of job sharing, portfolio careers, part-time working and phased retirement (this will double) That growing demand for different ways of working is

a common theme across Europe, but nowhere is it

as pronounced as in the Netherlands

How companies plan to deliver that fl exibility varies by country For Europe as a whole, the most common response is to offer more adaptable working hours and the chance to work

What do you believe to be the issues your employees see as most important today?

(% of respondents)

Chart 3

Netherlands in 2020 Europe in 2020

Netherlands now Europe now

29 31 20

41 31 26 23

19 19

14 15 17 17 14

42 38 45 36

14 5

25 33 20 10

33 29 24 19

25 21

3 0

8 5

Source: The Economist Intelligence Unit.

Caring for dependents (children and elderly)

Skill development

Employment flexibility (job sharing, portfolio careers, part-time working, phased retirement)

New technology /pace of change

Work-life balance

Healthcare provision

Stress and wellbeing

Saving for retirement

Job security Financial

security

The Dutch also look to the individual when it comes to healthcare Over two-thirds 68% of Dutch survey respondents believe the state will play a reduced role in providing healthcare – the highest in Europe This likely refl ects reforms introduced to the Dutch healthcare system over the last decade; all citizens are now legally required to purchase at least a basic level of insurance.

from home; just over half (52%) of the Dutch

executives in the survey are considering this

Whereas companies in other countries – notably

the UK – also expect to make big changes to their

wider benefi t programs, Dutch executives see this

as less of an issue

The survey data suggest an explanation for this

A third of Dutch executives – slightly more than

the European average – believe the benefi ts they

offer today will still be fi t for purpose by 2020 On

the same theme, almost two thirds of them (62%)

say they already offer a fully comprehensive

benefi ts package to attract and retain employees

– which ranks them second only to Switzerland

Companies in the UK, for example, are looking

to change the employee benefi ts they offer

and to give employees more choice But in the

Netherlands, 43% say in future they are more

likely to give employees a cash allowance so

they can choose what benefi ts they like – that is

double the European average Dutch executives

were also the least likely (24%) to agree with the

statement: “It is often better for employees to

get certain benefi ts through work than buy them

themselves.” Perhaps this is why a signifi cant

minority of Dutch companies (21%) think the

cost of benefi ts as a percentage of salary will

actually decrease in the years to 2020

Which of the following statements describes your company’s attitude to benefits offered to employees: In the future, we are more likely to give employees a cash allowance and let them choose what benefits they like

19

11 43

8 © The Economist Intelligence Unit Limited 2014

With demographic change hitting the Netherlands sooner that anywhere else, it is

no wonder that Dutch employees are worried about their ability to save for retirement Today, according to their bosses, this is their second biggest concern (41%) No other country in Europe ranks it anything like as highly; the next nearest country is France on 24%

Yet, perhaps remarkably, executives expect this concern to evaporate in the years to 2020

Everywhere else in Europe, executives think retirement saving will become far more important

to employees The proportion of those in the UK who say it will be a top-three issue for employees leaps by 150% The increase is just about as high

in Spain But the Netherlands is the only country

Pensions? That’s your problem 3

where executives think employees will actually become less concerned about their fi nances in old age In fact, the proportion rating it as a top-three issue falls by a third

This may be because the Netherlands has a high savings rate and reforms to the pensions system currently underway are expected to strengthen

it However, the changes being made will not necessarily benefi t employees, transferring more responsibility for risk from the employer to the individual

One explanation for this could be that Dutch employers plan to give their workers more cash rather than non-fi nancial benefi ts (see above), which they can then invest in their own pensions

if that is what worries them most Today, 22%

of Dutch executives say the main reason they provide retirement benefi ts is so that employees can have an adequate income when they stop working; by 2020 that climbs to 35%, the highest level in Europe

What is more, Dutch citizens are particularly keen

to keep working past their normal retirement date, according to European Commission research Some 84% of them would like to take

a partial pension while working part time, compared to two thirds of all Europeans If employees think that is something their employer will offer in future, then it makes sense that their anxiety about retirement planning might abate.The signs here are positive Like their peers in other countries, many Dutch executives (33%) are concerned about the cost of making changes

to their pension provision, but the level of

What do you believe to be the issues your employees see as most

important today: Saving for retirement

(% of respondents)

Chart 5

Note: Chart compares the percentage of respondents from each country who selected “saving for retirement” in

answer to the question.

Source: The Economist Intelligence Unit.

23 19

31

35 38

27

33 26

24 44

concern they report is lower than in any other

country, except Italy (29%) Moreover, Dutch

executives are the most likely in Europe (45%) to

believe that individual employees should provide

or fund their own pensions benefi t In France, by

contrast, only 19% of executives had that view

This view is refl ected in the reforms currently

working their way through the Dutch pensions

system, which continue to shift responsibility

and risk from the employer (as in traditional

defi ned benefi t schemes) by, for example,

limiting employer contributions to underfunded

schemes At the same time, the Dutch system

already has seen a defi nite move by companies

At KLM Royal Dutch Airlines workforce ageing is a reality

today The age profi le of its 32,000 employees has changed

signifi cantly over the last fi ve years The proportion aged 50

or older has increased from 18% to 29% while those aged 30

or less has fallen from 10% to 6%

This is likely due to economics as much as demographics:

since the 2008 fi nancial crisis, the company has tried to avoid

hiring new people into the business But the challenges it

creates are the same

The main one is what Maarten Stienen, Vice President

Industrial Relations and Strategic Human Resources, calls

“sustainable employability” – taking care of the workforce

in a rounded way, so they remain employable for as long as possible

This requires fl exibility from the staff and investment from the business “To keep our workforce healthy and employable

we put a lot of emphasis on health policies,” says Mr Stienen

“Our vision for the next three years centres around promoting and furthering a healthy lifestyle and work-life balance.”But he does not expect the greater focus on health to increase the cost of benefi ts in this area “This is not really a concern,”

he says

Case study: KLM

to utilising a halfway house between DB and fully individualised DC schemes – collective defi ned contribution (CDC) – which also reduces

an employer’s pension risk, while not fully transferring it to individual employees This type of pooled risk pension scheme is being considered in other countries such as the UK

The picture that emerges is this: a large number

of Dutch executives believe that companies have

a responsibility to help their employees to plan for old age, but they feel the best way of doing that is to give them the cash and access they need

to make their own arrangements

10 © The Economist Intelligence Unit Limited 2014

Dutch executives are right to be worried about workforce ageing A tide of unavoidable demographic change is on its way, and will break over the Netherlands sooner than any other European country surveyed Some big employers – such as KLM and PostNL – are looking at ways

to extend the employability of their current workforce and rethink their approach to talent management But the survey suggests they may

be the exceptions rather than the rule

The fi nancial crisis of recent years has sucked

Conclusion

much of the urgency out of this issue With employees worrying about whether they can simply keep their jobs – or in the Dutch case, save for retirement – employers do not have to think too hard about talent management But as the recovery gains traction, this will change

In the Netherlands, that change could happen especially quickly Here the complacency of many Dutch executives – especially with regards to the supply of skilled workers – is worrying indeed

29 26 21

26

(% respondents)

What would you say will be the most important business priority for your organisation by 2020? Select up to two