The entire world is about to get much older. According to the World Health Organisation, global elderly populations are expected to more than double by 2050. Which means, if there were ever a good time to take a closer look at our pension systems, now would be it.
The prospect of ageing while being financially secure, however, is a lot more worrisome for women than for men. That is the viewpoint according to the 2021 Global Pension Systems Rankings report published jointly between Mercer and the Chartered Financial Analyst (CFA) Institute2. The findings revealed that gender gaps in pensions were prevalent amongst all OECD countries - bar none.
The question is not whether or not women are disadvantaged by the very systems meant to safeguard their retirement lives, but rather the extent to which they are. Japan held the unenviable position of having one of the highest gender pension gaps at nearly 50%, meaning that the average male pension of Japanese men is nearly double that of Japanese women3. Even in Estonia, a country with one of the world’s most equal pension systems, men still hold an average of 3.3% more pension than women4.
Pension gap is defined as the difference between the average male pension and the average female pension. The higher the pension gap, the greater the average male pension over the average female pension. The gender pension gap amongst the 34 OECD countries lies at nearly 30%.
A variety of factors determine the retirement income of individuals when they enter their twilight years. These include socio-cultural norms, employment matters, government assistance, and even the structure of pension systems. To be clear, no singular factor directly influences pension returns more than the others, making it difficult to detangle a problem that is deeply entrenched within our society.
One of the most obvious factors that demonstrate this phenomenon might be the gender wage gap. A higher gender wage gap no doubt contributes to lesser pension funds for women, although a closer look at the statistics reveals that this correlation might not be as linear as one would imagine.
In 2000, the gender wage gap in Austria and Estonia were similar at 23.1% and 25.0% respectively. Yet, 20 years down the road, Austria’s gender pension gap sits at 40.6%, several times higher than that of Estonia’s 3.3%5 .
Further thickening the plot is the fact that no two countries are the same, meaning that even if a country has a relatively more equal pension system, it is unlikely that other nations can reap the same results from replicating the system.
The 2021 Global Pension Systems Rankings report looked over a multitude of factors for why women across all nations invariably received less pension than men. These included, but were not limited to, spending less time in the workforce, lower financial literacy, and pension systems that do not recognise the economic contributions of women outside their official working hours. Below are some key insights drawn from the comparison on gender norms in the workplace.
Even in 2018, women still earned 15% less than men for the same jobs6. Though the gap has significantly narrowed from the 33% disparity in 1980, economists predict that at the current rate of change, the gender wage gap will only fully close by 20597.
Though detractors often attributed this to the fact that female-dominated industries such as caregiving and teaching traditionally pay lower wages, this simply highlights a deeper issue of certain professions being undervalued due to their associated gender connotations.
Women were also found to spend less time in the workforce due to family making responsibilities that are often placed on their shoulders by societal expectations.
Most pension systems place restrictions on crediting and withdrawal amounts on individuals who spend less time in formal employment. As the main caretaker of families in many societies, women often have to settle for informal or part-time jobs to maintain flexibility around their schedules.
The result is that women do not spend enough years in formal employment to make sufficient monthly withdrawals when they retire. Pension systems that require contributions during parental leave fail to take this into account, to the detriment of caregiving parents (majority of whom are women).
Several countries have implemented changes to their pension crediting schemes to ensure that primary caregivers can continue to have their pension accounts grow. This is crucial for allowing caregivers, most of whom are women, to take necessary time away from their careers during the formative years of their children’s life.
Canada and the UK offer pension credits to primary caregivers of children up to ages seven and 12 respectively. In Finland and Germany, pension credits continue to accrue as if the caregiver were working during the first three years of their child’s life10.
The report provided recommendations that the pension industry, governments, and employers can take to narrow the gender pension gap. Considering the complexity and scale of the problem, alleviating and bringing it closer to resolution will require concerted effort from all parties involved in shaping the financial future of women. Below is a breakdown of the recommended actions for the industry at large, as well as employers and governments.
Pension systems can make retirement funds more equal for women by removing eligibility restrictions for individuals to participate in employment-related pension arrangements. This will allow women to take on remote, freelance, and informal jobs to provide for their families while simultaneously building their retirement savings to secure their future.
In addition, pension calculators should be made available to help individuals map out how time away from work would affect their retirement income. Such initiatives would help raise the level of financial literacy amongst women, which was found to have prevented them from making informed financial decisions that would later impact their pension sums.
Employers were also urged to expand employee coverage to include non-traditional workers, such as the self-employed, as not all individuals would actively save for retirement without an automatic enrolment mechanism in place.
Within the office, employers can also contribute by being more flexible in the areas of working hours and parental leave, allowing greater wiggle room for parents to schedule work around their children’s needs.
Finally, employers should work towards balancing all gendered aspects within the workplace. This includes offering equal pay and opportunities to all workers and striving towards a better gender balance at all levels of the organisation.
Government support is essential for ensuring that women can return to the workforce earlier. These provisions include the availability and accessibility of affordable, quality childcare services, as well as paid parental leave.
Legal protections should also be in place to ensure that assets can be split evenly in the event of divorce or separation. Assets are more often than not divided on the basis of income contribution, which often fails to take into account the women’s contributions towards homemaking and childrearing.
Governments should also encourage employers to provide opportunity to older workers, as well as set retirement ages according to the life expectancy of people in the country. This will ensure that citizens can accumulate wealth for as long as they are able and draw upon pension support when the time is right.
In some heartening news, regional governments have already taken the lead to reduce gender pension gaps. The UAE has undertaken various initiatives to help bridge the pension gender gap. A key initiative that has taken place in 2020 saw the UAE government legalise pension protection via a presidential decree mandating equal pay for men and women in the private sector. Additionally, another important initiative spearheaded by the Government of Dubai in a recent announcement is the Savings Scheme for Foreign Employees in the Government of Dubai (which is expected to extend to the private sector on a voluntary basis) – this initiative helps to develop a culture of savings, financial discipline, which is expected positively affect the pension gap.11
The Kingdom of Saudi Arabia’s (KSA) Vision 2030 also is seeing a push for Saudi women’s rights, which were previously restricted. Part of Vision 2030’s goals is to increase women’s job opportunities, improve social security policies (example: pushing the normal retirement of women to be equal to men in 201912), fund entrepreneurship ventures, and update the legal system to allow for improved gender equality. Those changes are highly encouraging, and would be expected to help bridge the pension gender gap in KSA over the long-term.
There remains much work to be done to ensure that women receive the same opportunities as men, both today and tomorrow. But the first step to detangling the gender pension gap problem is recognising each individual factor that contributes towards it, and then taking action.
1 World Health Organisation. 4 Oct, 2021. Ageing and health.
2 Mercer CFA Institute Global Pension Index 2021.
3 Mercer CFA Institute Global Pension Index 2021.
4 Mercer CFA Institute Global Pension Index 2021.
5 Mercer CFA Institute Global Pension Index 2021.
6 Rakest Kochhar. 30 Jan, 2020. Women’s lead in skills and education is helping narrow the gender wage gap. Pew Research Center.
7 The New York Times. 25 Mar, 2021. In 25 Years, the Pay Gap Has Shrunk by Just 8 Cents.
8 Mercer CFA Institute Global Pension Index 2021.
9 Mercer CFA Institute Global Pension Index 2021.
10 Mercer CFA Institute Global Pension Index 2021.
11 Gulf Today. 2 Mar, 2022. Sheikh Hamdan launches savings plan for expat workers in Dubai government
12 Saudi Gazette. 2 August 2019. Double delight for Saudi women as labor ministry scraps retirement age rule