Women could be forgiven for thinking that retirement will bring an end to financial discrimination, but alas not. It turns out that after the gender pay gap comes the gender pension gap.
At first glance, that seems logical: if pensions are linked to lifetime wages, then women who have earned less (which is almost everywhere, in every case) will have lower pensions in retirement. But take a closer look, and it’s impossible not to notice that there are standalone structural inequalities that have solutions outside equal pay.
On average, women across the world end up with 30%–40% less money in their pension pots. As well as being unjust, this is hugely problematic. Women have greater cash needs than men since they live longer, often suffer from more drawn out and complex health problems, and typically end up caring for their partner late in life.
Certainly, pay has a lot to do with the problem. Women put less into their occupational pensions because they are paid less. And they often have smaller state pensions because they have not made the necessary contributions to the state – the result of employment gaps created by maternity leave and caring for children, the sick and the elderly, not to mention the pandemic, which has seen women being made unemployed at significantly higher rates than men.
It is tempting to surmise that pay is the problem, but there is no strong link between the gender pay gap and the gender pension gap
A paper from the EU parliament suggests that while it is tempting to surmise that pay is the problem, there is in fact no strong link between the gender pay gap and the gender pension gap. For example, in Estonia, men out-earn women by 25%, but the country has a gender pension gap of only 2.6%.
The paper identifies the pension problem as having three pillars, requiring a combined approach to ensure equity. The first pillar is the state pension, the second occupational pensions, and the third private pensions. There are different solutions for each.
State pensions are probably the least complex pillar to fix. The most important areas for fairness are the system’s coverage and the level of pay.
The goal of a state pension is to ensure a minimum standard of living. This can be achieved by granting pension rights for periods of child or elder care, eradicating retirement age differences, and appropriately indexing pensions.
For example, inequality in state pensions in China was driven by a mandatory retirement age for men in white-collar jobs of 60, but 55 for women, falling to 50 in blue-collar jobs. Women had vastly less time to contribute to their state pension, once childbearing and childrearing were taken into account. By 2038 the retirement age in China will be 67 – for everyone.
In the UK, women can fill gaps in their national insurance payment record by claiming child benefit when they have children, even if a high household income results in some or all of the benefit paid being clawed back in tax.
Governments need to educate themselves too. In some cases, they do not even have the data to help them understand what their population needs
In occupational pensions, the problem is pay. The policy options for fixing occupational pension inequities at the pay level are clear – and have been so for some time. Such solutions include providing compensation (not just a maternity salary) for career breaks since they are inevitable and since the provision of childcare and elder care are well-recognised economic goods in their own right.
Another route to fixing pay discrimination not based on career breaks is codifying the notion of equal work into law so that it is no longer legal to pay men and women differently for the same job.
Yet another would be to lower the salary level at which workers are required to contribute to a pension. Women tend to fill lower-paid or part-time positions, and can miss out on auto-enrolment occupational schemes since they do not earn enough to qualify.
Addressing the private pension problem is trickier still. Women are far less likely in general to invest – and a private pension is an investment product. That’s because they earn less, typically feel as if they know less about money, and are charged more than men over their lifetimes.
Financial education is key – and not just at the level of the individual. Governments need to educate themselves too. In some cases, governments do not even have the data to help them understand what their population needs.
In South-East Asia, for example, the fast-developing triple pressures of an ageing and declining population, disparate rural populations, and outmigration are creating a perfect pension storm for women in particular. The family as a safety net can no longer be relied on, and governments in the region have a lot of catching up to do on gender-disaggregated statistics.
At an individual level, financial education, starting at the earliest possible stage, might empower women to ensure they register for the relevant state credits. They could also ask their male partners to contribute to their pension pot, invest some money themselves, or ask their lawyer to include pension assets as part of divorce proceedings.
Ultimately, pensions are key to wellbeing, and there is no long-term benefit to ignoring the real needs of half the population. Governments would do well to close the gap.