How to fix the gender pension gap 

Article originally published on the World Economic Forum’s Agenda on September 27, 2021.

A global perspective

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%. In today’s values, on an average this wage gap can represent $8,400 per year in the US and £6,000 per year in the UK.
The following graph shows the gender pension gap for most OECD countries:

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 labor 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 organizations 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 that 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 adversely impact because of longer life expectancy of women:

    • 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.
  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 the 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 prioritize 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 math 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.

How to fix the gender pension gap

Bear in mind that it takes a lifetime of saving to finance a pension. For those already in later life therefore, there will be some serious catch up to do.

Here are the key calls to action for relevant stakeholders:

Short-term actions HR leaders Pension leaders Women themselves Governments
Easy wins Enable more flexible working arrangements and more sharing of parental leave. Remove eligibility thresholds and restrictions from pension plans so low earners and part timers can join. Don’t go into denial on financial matters.  Be interested in your money and make it work harder. Enact enabling legislation to make all jobs flexible. Improve pay rates for low income roles.
Introduce targeted financial wellness seminars. Include the small actions women can take now such as sharing child-rearing costs. Pay contributions for paid parental leave and carers leave. Lobby for and attend financial education seminars. Ask for support with financial advice. Investments benefit by growth over time, so get moving – don’t wait too long. Improve and expand affordable and appropriate childcare options.
Long-term actions
Strategic decisions Remediate gender pay gaps – this is one of the most important things you can do. Introduce unisex rates on annuities, make sure survivors benefits are built in and index all pensions. Discuss savings, expenditure and pension arrangements with your partner. Ensure you have scope to save for your own pension. Introduce catch up provisions for pension contributions to fill career gaps.
Remediate career differentials that lead to pay gaps. Ensure that communications contain the best language to engage women. Improve health factors that will affect your healthy life expectancy. Ensure pension rights form part of divorce proceedings.
Introduce personalized models to show impact of different working arrangements and career gaps on pay and pensions. Create greater awareness of the implications of divorce on pensions. Ensure your job role is on the growth trajectory. For example, P&L roles, customer-facing and supervisory roles tend to have higher promotion rates. Introduce pension credits for carers.
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