Men have a higher retirement income than women. Here’s how pension systems need to change – BRINK – Conversations and Insights on Global Business
Pension systems around the world require or encourage the provision of financial support to retirees from a variety of sources. Yet all systems offer higher retirement income to men than to women.
Indeed, the origins of most pension systems developed on the basis of a “normal life course”, which inevitably sets a standard. This often involves continuous full-time employment for decades.
But, such assumptions do not represent reality for many people in the workforce, men and women. Flexible and non-standard work models are on the rise around the world with increasing mobility and increased digitization, which have been accentuated by the COVID-19 pandemic. One of the consequences of this standard approach is that the poverty level of retirees is 50% higher for women than for men, according to the OECD.
A global comparison
A gender pension gap exists in every retirement income system. It is the difference between the average pension for men and the average pension for women, expressed as a percentage of the average pension for men. That is, the calculation is based on those who are currently receiving a pension. Thus, if there is no difference in the current pensions, the gap is zero, while if the average pension for men is double the average pension for women, the gap is 50%.
Figure 1 shows the gender pension gap for most OECD countries. The range is very wide, with Japan having a gap of almost 50%, while Estonia’s gap is less than 5%.
Figure 1: Gender pension gap in selected OECD countries
What are the causes of the gender pension gap?
The many causes of the gender pension gap can be broadly grouped into issues related to: employment, pension design and socio-cultural issues.
Employment issues: There is a direct relationship between employment patterns and the resulting pensions in most systems. On average, women’s pensions are lower for several reasons. For example, women may have shorter careers due, on average, to a slightly later entry into the labor market and earlier retirement, which is often linked to having a longer partner. age.
Women are also more likely to work part time, which can be an option, but is often present to cover the demands of the caregiving role. Reducing employment over a number of years has long-term effects on promotion opportunities and hence on the lifetime earnings of some women.
This lack of progression in employment has an aggravating effect on the salary and the subsequent pension. Indeed, the gender pay gap in the OECD area for full-time workers was 13% in 2018. This result is partly due to a lower average wage in female-dominated sectors than in female-dominated sectors. predominantly male sectors.
And finally, there are cases where women are paid less than men to do the same job.
Given these historical and current differences in employment, it is not surprising that, on average, men’s pensions under employment-based pension schemes, whether paid by insurance social or occupational pension schemes, are higher than women’s pensions.
Pension plan design issues: Although the main causes of the gender pension gap are employment-related, there are also several design features of pension systems that compound the problem. For example, eligibility restrictions in some arrangements require a minimum income or a minimum number of hours of work. Periods of paid parental leave may not require contributions or the accumulation of pension benefits. And most systems do not offer pension credit for time spent caring for young children – however, there are examples where credit is given in this context.
In addition, there are no survivor pension benefits, which affects more women than men due to their longer life expectancy. For the same reason, the lack of indexation of pensions at retirement, where the amounts of pensions increase to take inflation into account, have a stronger impact on women.
A global trend in pension benefits is the gradual replacement of defined benefit (DB) plans with defined contribution (DC) plans. In defined benefit pension plans, the same pension is paid to men and women, for the same salary and service. Yet this result does not occur with defined contribution plans in many systems, as the gender-based annuity rates result in lower pensions for women than for men, for the same accumulated balance.
Socio-cultural issues: In addition to the employment and pension design issues that generate the gender pension gap, several characteristics or characteristics within many societies and cultures limit the possibility of closing the gap.
Variations in working patterns in some societies reflect cultural differences or preferences. For example, gender stereotypes can lead to differences in education and an expectation that women do more unpaid family work.
When child care is needed, but there is no affordable and appropriate quality child care, work opportunities for parents are limited. In addition, childcare costs can have a negative impact on voluntary pension contributions, as these costs are sometimes paid directly by women.
Low financial literacy among women can also affect their financial decisions. Communication and pension fund campaigns often ignore the specific needs of women or use language that does not appeal to women. In defined contribution plans, where the choice of investments is offered to individuals, women are often more risk averse, which can lead to lower returns.
And, in the context of a divorce, pension rights accrued during a partnership are not normally distributed evenly, which can lead many women to have lower pension benefits.
In summary, the causes of the pension gap between men and women are mixed and varied. No two countries are the same. Yet in every pension system there are a series of problems related to employment, pension design and socio-cultural issues that result in a significant difference between the average level of retirement income perceived by men and women.
In addition to the above causes, the COVID-19 pandemic has affected women’s retirement savings to a greater extent than men’s due to its significant impact on part-time and casual workers, as well as its effect on certain female-dominated industries, such as hospitality and tourism.
Given the variety of causes, there is no single solution. Rather, the issue must be approached from several angles, including employment differences, pension design and cultural issues.
Recommendations for reducing the gender pension gap
In light of the many causes of the gap around the world, the following steps should be taken to improve pension outcomes for women around the world.
Employer actions: Employers can encourage flexibility in terms of where and when employees work; remove the range of distinctions that exist between part-time and full-time employees; and ensure that parental leave can be taken by either parent.
Actions within the pension sector: The pension industry itself could remove all eligibility restrictions for individuals to join employment-related pension plans; introduce pension credits for carers, so that those caring for young children or elderly parents are not penalized during their retirement years; abolish annuity rates based on sex; require that all pensions be indexed in one form or another; and introduce publicly available models and calculators to show the impact of different working arrangements and career gaps on retirement pensions.
Government actions: Governments can provide affordable and quality child care services; provide greater flexibility for pension contributions, recognizing that employment patterns over a professional career can vary widely; demand the maintenance of pension contributions during periods of paid parental leave and on-call leave; authorize pension contributions to the retirement account of a spouse or partner; ensure that pension rights accrued during a partnership are taken into account in divorce proceedings; and ensure that there is no difference in the retirement age for men and women.
Most of these changes can occur in government funded social insurance schemes, as well as in second pillar private pension schemes, with appropriate legislation and government support.
Now is the time to act to reduce the pension gap between men and women in the future.