Gender Gap in Pension Systems

The gender gap in pension systems around the world is a very real and pressing issue. Numerous studies have been conducted on this matter and almost all of them have concluded that the gender gap is a systematic problem that needs to be addressed by pension funds as well as by pension fund regulators across the entire world.

The scale of the gender gap problems varies widely across the world. For instance, the problem is the most severe in Japan where the differences in pension benefits can be as much as 50%. On the other hand, there is Estonia where this gap is close to 5%. In the United States as well as in most western countries, this gap is close to 25%.

On average, a female draws close to $10000 less in a pension in the United States as compared to a man. This is a serious issue as it impacts the quality of life of female retirees.

In this article, we will have a closer look at the various causes of the gender gap as well as the ways in which this gap can be addressed.

Causes of Gender Gap in Pension Funds

According to the various studies conducted in this regard, the gender gap in pension funds can be classified into three main categories. They are as follows:

1. Employment-Related Pension Gap: The fundamental point raised here is that women have fewer opportunities to grow and prosper in their employment as compared to men. This is because of the familial responsibilities which are placed on them.

   Empirical studies have shown that women tend to have shorter careers. This is because of the fact that childcare and elder care are considered to be a woman’s primary responsibility in many parts of the world. As a result of these responsibilities, women either temporarily drop out of the workforce or tend to take up part-time employment.

   Since women are more inclined towards family responsibilities, they are chosen less frequently to take on leadership roles. This has an impact on their salary as well as their career progression.

   In the end, it all means that the lifetime earnings of women are lower as compared to that of men. Hence, they also contribute lower to pensions as compared to men. There are some industries where women workers dominate.

   For example, women form the majority of the workforce in the health, hospitality, and education sector. However, the average wages in these sectors are lower compared to other sectors.

2. System Design Related Pension Gap: The fact that women earn a lower income as compared to men is not the only factor responsible for the pension gap. The design of the pension system is also such that it works against the interest of women.

   For instance, part-time workers are not covered under pension in many parts of the world. The system places a restriction on the number of hours that need to be worked so that it becomes mandatory for employers to contribute to a pension fund. Since more women are part-time workers, the end result is that they contribute less to pension funds.

   There are other methods in the pension system which end up being discriminatory towards women. For instance, employers are not required to contribute towards pension when the woman employee is on maternity or childcare leave.

   Similarly, in many parts of the world, there are gender-specific mortality tables. These tables allow pension funds to pay lower incomes to women since they are expected to live longer.

   The problem is that even if women are paid the same amount of pension because they live longer, they are paid so at a later date. Hence, as per the time value of money concept, women are actually paid a lower pension!

3. Socio-Cultural Factors Creating Pension Gap: There are several socio-cultural factors that further exacerbate the pension gap problem. For instance, in many developed nations, the cost of childcare is exorbitant.

   Childcare costs are like an opportunity cost for women. Hence higher childcare costs actively discourage people from participating in the workplace. Also, higher childcare costs leave women with lower disposable incomes. As a result, women are able to contribute less to pension funds.

   Also, when women get divorced, they do not end up getting a share of the pension which was accrued during the marriage. Lastly, women are less financially aware and hence are not able to make the correct choices when it comes to selecting the required asset classes in defined contribution pension plans.

Actions to be Taken by Pension Fund Regulators and Government

The gender gap in pension funds is a complex problem that will require a concerted effort by governments as well as pension fund regulators. Also, this problem may take many years to solve. However, there are a few steps that need to be taken immediately.

For instance, part-time workers should also be brought under the pension net. It is the government’s responsibility to provide dependable and inexpensive childcare systems to enable women to work for longer hours. There is also a need to conduct targeted seminars to improve the financial literacy of women so that they can be brought up to speed and be empowered to make financial decisions.