It is no secret that in virtually all countries, women earn less than men. Globally, the gender pay gap is 40 per cent. In other words, a woman earns 60 cents for every dollar earned by a man. This has many societal implications, of course, but what is often overlooked is the impact that this pay gap has on pensions and pension benefits after retirement.
Theoretical gender gaps in pensions, a report from the ISSA Technical Commission on Old-age, Invalidity and Survivors’ Insurance, examines some of the root causes of the gender gap in pensions and puts forward some considerations in addressing this issue.
There are three types of gender gaps:
- A difference in the average monthly pension benefit received
- A difference in the average monthly individual economic standard of living
- A difference in the total lifetime amount of pension funding received
In terms of total pension funding received, analysis shows that the gender gap here is reduced or even reversed. Although women generally receive less in monthly benefits, due to their greater life expectancy, they will, on average, receive those benefits for a longer period. In Russia, for example, women have 32 per cent higher life expectancy than men, meaning that, over their lifetime, women will receive 22 to 25 per cent more than men in pension funding.
However, pensions are about enabling the elderly to meet their day-to-day survival needs, not about how much they receive in total. This is where the gender gap comes into play.
Women will receive average monthly payments lower than those of men. Not only that, but because they live longer than men, they are significantly more likely to be living alone. It has been shown that the loss of a partner reduces the economic standard of living for the spouse, in part due to economies of scale. Two people living together have an economic standard of living higher than one person living on half the income of the couple.
With lower monthly income and higher monthly expenses, the gender gap means that women face a far more difficult financial situation upon retirement.
There are a number of ways this problem can be addressed, such as:
- Introducing gender-gap equalizing measures within those pension plans that are based on earning
- Providing survivor benefits that compensate the surviving spouse for the loss of economic standard of living upon the death of their partner
- Indexing pension benefits to growth in average wages
The primary reason for the gender gap in pension benefits is that women have lower lifetime earnings. Women, on the whole, receive lower wages. This can be partially attributed to the fact that women dominate in low-skilled, low-paying jobs and industries. Women have lower labour force participation rates – in part because of time taken out of the workforce to care for family members. And women work fewer hours, and more frequently as part-time worlers, perhaps in response to the needs of their families. Subsequently, correction measures have been taken to increase the final return of women’s contributions.
Reducing the difference in lifetime earnings between women and men is a societal issue beyond the power of politicians to mandate. Adapting the pension system to ensure converging benefits and economic standards of living for both women and men, however, is an issue that social security systems will need to undertake.
Download the full report on the ISSA website at https://ww1.issa.int/wssf2019/reports