Unequal at work, men and women are even more so in retirement
The gender pensions gap is even wider than the pay gap
“THE retirement-savings crisis is a women’s crisis,” says Sallie Krawcheck, co-founder of Ellevest, a financial-advice firm for women in America. When it comes to retirement income, women are far worse-off than men. The gender pension-gap may be less well-known than the gender pay-gap, but it is in fact far larger.
Among those retired in the EU, women on average receive 39% less in pension income—from state and workplace pensions—than men do. This puts women at greater risk of old-age poverty. The European Institute for Gender Equality, a think-tank, warned in a study in 2015 that it also makes them more likely to stay with abusive partners. Reforms to European pensions, tying benefits even closer to individual contributions and thus income, mean the gap may widen further.
The schism is primarily a reflection of the labour market. Women on average work fewer hours than men, in less well-paid jobs, for fewer years. So of course their workplace pensions are smaller. But retirement is more costly for women. In Europe they retire on average earlier than men and live five years longer. Longer lives are not a problem if the state or a company has promised to pay a fixed income until death. In the EU, annuities are not allowed to discriminate on gender grounds and so are a better deal for women than men. But women also have longer periods of illness and are twice as likely to live alone in old age. And they tend to be more cautious than men, often preferring cash or fixed-income investments. Mercer, a consultancy, found that women are 67% more likely than men to invest in a defensive fund with a lower expected level of growth. So women without a fixed pension tend to be worse off.
The gap is greatest in countries where workplace pensions make up a big chunk of retirement savings, or where state benefits—such as social security in America—are linked to lifetime contributions. In the Netherlands, which has a long tradition of quasi-mandatory workplace pensions, men are not only more likely to have a work pension pot, but it will also be twice as large, because most women work part-time and retire earlier.
In Germany the gap is far more pronounced in the west than in the east, where more women work, partly a hangover of the communist past. Then women worked almost as much as men and pensions were tied to years worked, not income. That helps explain the small pension gaps among the retired in former Soviet countries. Such historical legacies must be kept in mind when projecting what the gaps might be in the future, says Ole Beier, from the OECD, a think-tank.
A few recent developments, however, may aggravate the problem, notably a steady shift from public to private pensions. This is vital if state pensions are to be affordable as societies age. But unless women earn and save more, the gap will widen. And after years of progress in many countries, the pay differential between men and women has stopped narrowing.
Add to this the growing divorce rates among the over-60s (in America they have doubled since 1990), and it is clear a storm is brewing, most urgently for women entering retirement. Some women can count on spousal pensions, others may not be so lucky. Women starting their careers have most cause for concern. Their pensions will depend more than previous generations’ on what they put in.
Prescriptions for narrowing the gap in workforce pay are well-known. Access to affordable child care, paid parental leave and flexible working all help. Abolishing lower retirement ages for women, as is happening in most OECD countries, will also help. But even so, for the immediate future women are likely to continue to have different career trajectories from men’s, with more breaks—for raising children and caring for the elderly—and fewer promotions. Diane Garnick, from TIAA, a financial-services firm, says that many women think that so long as they put the (default) recommended share of their pay into a savings pot they are on track, even if in absolute terms the number is too low.
She suggests that part of the solution could be for employers to nudge women to contribute a larger share of their pay towards their pension than men do. She estimates that an American woman graduate starting on the same salary as a man will need to save 18% of her salary compared with a man’s 10% to achieve the same retirement outcome over a lifetime. Mr Beier adds that it also makes a big difference if pension savings continue during maternity leave, thanks to (near) full maternity pay.
Merely focusing on equality, however, is not enough. Yet among the 75-plussers in the EU, none is poorer than an Estonian; and almost nowhere is the gap between male and female life-expectancy greater, meaning older women often live alone in poverty or close to it. That men are not much better off is little consolation.