How is our world to grow old gracefully?

We are all getting older, but some of us are getting older more quickly than others.

Last week the Social Security Secretary, Peter Lilley, focused attention on the consequences of an ageing population when he set out one way in which the UK might reform public pensions. It is interesting that, although Britain has a less serious potential deficiency in its public pensions than any other Group of Seven country, it should be at the forefront of reform. In practice it may well not be the Tories who carry through this reform, for obvious reasons, but reform will take place. And it will take place not just here, but everywhere.

The background to the pensions debate is shown in the chart, which demonstrates the different rates at which the G7 countries are ageing as measured by the proportion of the population over the age of 65 from 1950 to 2020. Two points are striking: first, all the countries in the graph are ageing; and second, they are doing so at different rates. The US becomes clearly the youngest of the G7 by 2020, while Japan whizzes from being the youngest G7 country to the oldest. The UK moves from being one of the oldest to one of the youngest, an encouraging outlook. So, while adapting to ageing matters for all, it matters much more for Japan and Germany than it does for the US.

But the pension deficiency is only one aspect of ageing. There are many others, and while the debate on the impact on pensions is now well under way in the UK, debate about the other consequences has hardly begun. In some ways these are even more important.

For a start, let's think about the consequences of ageing under three headings: older workers, older customers and older values.

Older workers. One of the keys to corporate success will be to economise on scarce younger people, using them for the things they do best, while finding ways of accommodating plentiful older ones and using them for the things they do best. This sounds obvious, but it is completely the reverse of what happens today, as companies not only bid furiously for the high-flying 20-somethings, but then spend a fortune on training them. Meanwhile they pay large redundancy or early retirement cheques for anyone over the age of 50.

They do this for perfectly rational reasons. Younger people are cheaper, even allowing for training costs, while company pension schemes often have a sufficient surplus to fund early retirement. In any case, the full demographic effects of ageing are not yet apparent. But new forms of employment structure are gradually being developed, and over the next 30 years these will replace the present contract and become the new norm. Companies that are adept at adapting will gain the most.

The new contracts will differ in several ways. Employment on contract rather than on staff will become standard. Contracts will not be sensitive to the age of the employee, but based simply on performance. Tasks will have to be more closely defined, and performance measured thoughtfully and sensitively.

More than this, I suspect that wise companies will develop a halfway house which blurs the present distinction between staff and contract workers. In particular, the idea that contract and part-time staff are lesser breeds will go. Wise companies will be thinking of developing new contracts which give some security of work-flow, and some relationship beyond the regular supplier/purchaser deal, so that they build not a workforce but a skillforce.

Many people in these skillforces will be part-time and of post-retirement age. Part-time working at home has obvious advantages for older people, and the older people of 20 years' hence will have the screen skills which many of the present generation of retired do not. As telecommunication costs plunge and the capability of communications systems rises, it will be possible to carry out a lot of the functions presently done in offices on-screen and at home. You can see elements of this at the moment, with the rise in semi-retired people doing consultancy work. This is on the fringe today, but expect it to move centre stage.

Next, older customers. At the moment you can spot a shift taking place, where instead of companies being worried about having an older age profile, they can see opportunities. Specialist firms are developing to serve an older market. But - no disrespect to Saga or The Oldie - explicit targeting of the silver market is not the future. The market will obviously grow, as will services like nursing homes. But it will not be the big winner of the next century.

Instead, expect the largest prizes to go to mainstream companies which are able to adapt the full range of their products and services to a market where the money will be with people in their 50s, 60s and 70s rather than 30s and 40s.

To explain, watch the television advertisements for cars. They are almost entirely aimed at the relatively young. This is not surprising: half the cars are bought by companies, so the aim is to get the 30-something executive to specify one car from the half-dozen in the band the company deems appropriate for his job grade. In future, however, not only will there be far fewer employees and far more self-employed, but the age range of the buyers will be much more varied.

So car companies which can create products appropriate for a more elderly driver, plus trouble-free service contracts, will find they can charge a premium. The key point is that the money will not be in developing special products and services for older people, it will be in adapting mainstream products so that they reflect and appeal to older values.

What are these older values? We have no experience of very old developed societies; no society where a near-majority of the population is over 50 has ever existed. An actual majority of over-50s is unlikely to happen in the UK, but it could conceivably occur in Germany if birth rates there do not recover.

This is a journey without maps, and imagining how these societies might behave is pure guesswork. But it seems reasonable to expect that they will be more cautious, more conservative (with, of course, the small 'c'), more orderly, more concerned about the environment, maybe more anxious. It seems probable, too, that they will be less materialistic, or maybe "differently materialistic". It is not much help to try to judge whether the world of these older values will be more or less pleasant a place. Better just to accept that it will feel different, and that the difference will have pluses and minuses.

It is worth remembering that this older developed world will not exist in isolation, for the ageing of the G7 nations will change the relationship between the developed world and what at present is still called the developing world. The dominance that has been the norm for two centuries will be reduced, simply because of the rebalancing of the world's population. Rapid economic growth outside the G7 will hasten the process. Eventually the developing world will age too, as birth rates fall. Some projections suggest that by 2050 China will have become the world's oldest society - as well as its oldest civilisation. But on a 20-year view, it will be "us" who are old and "them" who are young.

Curious, isn't it? Among all the uncertainties there is one thing about which we can be absolutely sure: the ageing of our societies. But beyond rethinking pensions in the UK (and to some extent in the US and the Netherlands), virtually no practical planning is being done. We have hardly begun to think about it. We should hurry. The pension debate ought to be the trigger for a much wider one about how to manage the old developed world.

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