Gender differences in pension adequacy

Gender differences in employment and life course may be reproduced, mitigated or compounded in pension systems. It is therefore often suggested that policy makers should subject present pension systems and all ideas for changes to a test of their differentiated implications for men and women.

There is, however, considerable complexity in stating the gender impact of pension policies because past, present and future cohorts may be affected in rather different ways and because gender differences of course also interact with income differences - and to an increasing degree as women become better represented in labour market hierarchies.

Even the notion of gender differences in pension adequacy is somewhat difficult. Whereas women’s average pensions are lower than men’s in terms of monthly or annual benefit amounts their average replacement rates will tend to be higher as effect of minimum or guarantee pensions. Moreover, if pensions are seen as primarily income smoothing women can also have a higher “return” on their insurance contributions than men if they benefit disproportionally from basic and guarantee pensions. However, requirements about minimum contributory periods may also deprive women of a return as they may fail to qualify for the minimum pension.

Obviously, results also depend on the overall objective behind policy designs. Member States presently do in fact have different gender and family policy goals. Whereas in some Member States, the goal is to create dual-income families other countries may not expect all adults (women in particular) to work full-time. Instead they may aim to expand choices and options by enabling people to take time out of their careers, without incurring disadvantages.

In order to achieve gender equality a pension system countries would have to combine gender sensitive features in line with gender specific life circumstances with gender neutral aspects. A pension system would be gender-neutral - or to a successfully extent promoting gender equality - if neither men nor women are penalized in their benefits for being poor or low-waged, living longer, bringing up children, getting divorced or being widowed. It would be fair in gender terms, if it at the same time established similar incentives for men and women to take part in the world of work and to contribute to the pension system.

5.1.2. Risk profiling: identifying threats to adequacy in gender gaps

One major point of agreement in the work towards the EPC-SPC Report was that what pension policy makers need to concern themselves with more than anything are the short, medium and long term risks entailed in the pension system designs and mixes countries have opted for. This

point follows from the observation that no-size-fits-all and that different designs can in fact - where well implemented - deliver pensions that are equally adequate and sustainable, but in order to manage a pension system one needs to be aware of its inherent risks.

Such risk profiling for gender would be about how the character of the pension system relates to the (pre-existing) gender gaps in participation, employment and in life expectancy at 65 - how good is the fit in terms of reproduction, mitigation or accentuation? The question to ask would be: How gender sensitive is a national pension system – how well does it correspond to gender differences in the sense of being able to compensate or mitigate how such differences in employment and life course impact on the fairness of pension adequacy outcomes for men and women?

In assessing the likely risk in a Member State's pension system one can possibly work backwards from a calculation of the pension gap and try to disaggregate the pension adequacy outcome into the factors at work pertaining respectively to features of the pension systems and pre-existing gender differences in labour markets and life courses.

Risks can also be deducted from a number of employment related indicators such as the gender gaps in pay, hours worked, career duration, employment and unemployment rates – particularly after 50 – in exit ages and in life expectancy at 65.

Likewise risks of transmitting or accentuating pre-existing gender gaps could be deducted from features of the pension system. For example one could look at the relative accent on 2nd & 3rd pillar in relation to gender gaps in coverage and average entitlement accruals, whether there are any minimum pension, whether there are any credits for periods of care and the degree of close ties between contributory record and entitlements etc.

5.1.3. The Gender Pension Gap as potential common indicator

Since the detailed design of pension schemes thus will determine the extent to which those differences in employment and remuneration which give rise to the gender pay gap will tend to be compounded into an even larger gender gap in pensions it would be useful to develop a standard way to measure and compare the difference in pension outcomes for men and women. One composite indicator of gender equality in pension adequacy could be a measurement of the pension gap as expressed as the difference between the average individual pensions entitlements of men and women. This would be particularly useful if it were possible to measure differences in the combined pension package for men and women, i.e. the sum of old age income from entitlements under the 3 pillars.

At the recent peer-review on the Effects of life courses on women's pensions in Berlin the ‘Gender Pension Gap’ (GPG) was used as an indicator of unequal pensions today, the product of the interaction between pension schemes and gender specific employment and life course behaviour. The following box is an excerpt from the Host Country Report discussed at the peer- review.

Definition of gender pension gap

The gender pension gap is defined as the percentage difference between the average female individual pension benefits and the average male individual pension benefits. The formula is:

% benefits pension individual male average benefits pension individual female average - 100% % Gap Pension Gender 

Reference benefits are the monthly gross benefits. If, for instance, women’s individual pension benefits amount to 600 Euros per month and men’s to a monthly 1,000 Euros, the gender pension gap is 40%.

The index takes into account individual pension benefits from all three pillars of the pensions system (statutory, occupational and private). And while all old-age benefits a person has accumulated individually are taken into consideration, derived old age pension entitlements, especially survivor’s pensions, are excluded.

The gender pension gap looks at individual persons aged 65 or older so that, unlike with other analyses of retirement income, it does not refer to the household as an economic unit. Accordingly, these figures do not allow any conclusions to be drawn on the actual income situation of elderly women or men.

In future work on adequacy it would make sense to ask the Indicators Subgroup to investigate if such an indicator could be developed and agreed.