How to fix the gender pension gap
The pensions gap needs to be tackled from several perspectives and by multiple stakeholders. Image: Unsplash.
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- The gender pension gap is a problem in most retirement income systems around the world.
- The causes and compounding effects are related to employment and pension design as well as socio-cultural issues.
- These issues need fixing at a multi-stakeholder level by HR and pension leaders, governments and women themselves.
The gender pension gap exists in virtually every retirement income system around the world. The range is remarkable, with Japan having an almost 50% gap whereas Estonia’s gap is less than 5%. By today’s values, on an average wage this gap can represent $8,400 per year in the US and £6,000 per year in the UK.
Causes of the gender pension gap
1. Employment related
There is a direct relationship between the pensions arising from occupational pension schemes and employment patterns. Women’s pensions are lower for the following reasons:
- Shorter careers due, on average, to a slightly later start in the labour force and/or career gaps for childbirth, and earlier retirement.
- More part-time work, which might be choice driven but is often to cover the requirements of the parent and/or caregiver role.
- The long-term effects that limited employment for a number of years has on promotion opportunities and pay progression.
- Lower average salaries for full time women workers, despite 72% of organisations globally reporting that pay equity is part of their compensation strategy.
- The average wage in women dominated industries, such as as hospitality, health and education is lower than in industries dominated by men.
2. Pension design related
There are several design features which aggravate the gender pension gap which include:
- Eligibility restrictions which require a minimum salary and/or a minimum number of hours to be worked.
- Payment of contributions and/or the accrual of pension benefits may not be required during periods of paid maternity or parental leave.
- Retirement payout options may be limited for women if they require a minimum accumulation or a minimum eligibility period.
- Gender-specific mortality tables lead to smaller annuities for women due to their lower mortality rates.
The following issues adversely impact because of women’s longer life expectancy:
- The absence of survivor’s benefits when pensions are paid.
- The lack of indexation of retirement income benefits.
- Switching from Defined Benefit (DB) pensions to Defined Contribution (DC) arrangements, where the same accumulated cash sum may generate a smaller lifetime income for women.
- Draw down/withdrawal models, may mean that the income will run out for women before they die.
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3. Socio-cultural issues
Characteristics within many societies and cultures aggravate the pension gap. These include:
- The absence of affordable and appropriate quality childcare restricts work opportunities for women.
- The impact of childcare costs on the ability to make additional voluntary pension contributions as these costs are often paid directly by women, leaving them less disposable income for savings.
- Within DC arrangements where investment choice is available to individuals, women are often more risk averse, which can lead to lower returns over the long term.
- Lower levels of financial literacy amongst women in some cases which can also affect their financial decisions.
- Communication and other campaigns from pension providers often ignore needs that are specific to women and use language that does not appeal to women.
- Pension rights accrued during a partnership may not be evenly split on divorce or separation.
- Women may prioritise current spending on the family home and others over themselves and/or longer term saving for retirement.
- Gender stereotyping can lead to educational differences (for example, in maths and sciences) and an expectation that women do more unpaid family work.
Given the variety of causes and compounding effects of the gender pension gap, there is no single solution. Rather, this pressing issue needs to be tackled from several perspectives and by multiple stakeholders.
Ways to fix the gender pension gap
Bear in mind that it takes a lifetime of saving to finance a pension. Therefore, for those already in later life, there will be some serious catching up to do. Here are the key calls to action for relevant stakeholders:
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