Addressing the Gender Pension Gap

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    Stockholm (NordSIP) – As the world has come increasingly together to celebrate international women’s day (IWD) every year, much light has been shed on the issues of gender inequality regarding wages, working conditions, harassment and the role that systemic injustices and personal preferences play in these divergences.

    Old age is, by the standards of our gerascophobic  western society, not a sexy topic. However, it, too, is a battlefield for gender inequality. Indeed, while much is rightfully made of the gender pay gap, this issue dwarfs in comparison to the gender pension gap.

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    The Gender Pension Gap and the Pay Gap

    Although on average, women enjoyed 13.7% less in gross hourly wages than men in the EU during 2019*, that figure is less than half of the average 30% gender pension gap witnessed in the bloc for the same year, according to the latest estimates**.

    The state of gender inequality is less stark in Scandinavia, although pension disparities remain. The figures are best for Denmark (7.4%) and Iceland (5%) and worst for Sweden (28.1%). However, the best performers also appear to be in the seemingly unusual situation where their pension inequality is smaller than their wage inequality, with Denmark’s and Iceland’s 14% and 14.2% pay gap clearly exceeding that of Sweden (13.3%).

    There’s also quite a lot of heterogeneity in the relationship between these two variables, so that asides from being below the EU average, nothing appears to cluster gender inequality in the Nordics together any more than any other group of countries.

    The Relationship Between the Gaps

    In general, the data suggests that pension gaps largely exceed pay gaps. To this extent, it is not unreasonable to suspect that gaps in pension wealth reflect older lags in income wealth during previous years when men and women were active in the labour force. “The reason is that many women (i) work fewer years in their career, (ii) work fewer hours per year and (iii) receive less per hour. Thus, a pay gap (hourly measure) is magnified into a wider (annual) earnings gap over their career. As most pension systems base the pension calculation on career earnings, a larger difference in pensions is only to be expected,” a 2019 report to the European Parliament notes argues.

    This perspective was echoed explicitly by the Swedish Pensions Authority (Pensionmindighet) in the beginning of last month. In a recent report, Measures for more equal and equal pensions, the  Pensionmindighet points out that the problem with unequal pensions has its basis in unequal incomes between women and men during the years that one works, because the pension system is designed based on the lifetime income principle, that is to say that the whole life’s income must be reflected in the pension. An unequal working life and unequal parenting will therefore result in unequal pensions, according to Pensionmindighet.

    Addressing the Gender Pension Gap

    These facts suggest that the pensions pay gap does not necessarily require intervention at this stage. It merely reflects past injustices, so as the correction of these injustices in the labour market are fed back onto pension incomes, the pension gap will also be corrected, in time. While there is some truth to this observation, those seeking to narrow this gulf will perhaps be unhappy to sit on their hands and wait. There are measures that can be used now to address past injustices.

    Since past income cannot be changed, equalisation must be pursued on the basis of other principles. Addressing the inequalities created by childcare, survivorship and post-divorce economic setbacks seems to provide some potentially fertile ground for reducing the gender pension gap.

    A recent report by Now Pensions, a British think-tank, argues in favour of four policy measures to bridge the pensions gap. Given the part-time nature of women’s work, the report argues that auto-enrolment into workplace pension schemes should not be conditional on the salary level. The £10,000 minimum trigger in the UK excludes many women from earning pension income. Individuals who took leave from their jobs to care for a family member should receive a pension top-up from the government to the employer’s contribution. Pension assets should also be considered during separation processes. To ensure more labour income is accumulated as a basis for pension wealth, the same report also emphasises the importance of affordable and available childcare, since mothers are often left as the main parent in charge of children in some countries.

    “In the debate about equal pensions, there is often a lack of discussion and analysis of measures that can be taken. (…) If the legislator wants to act to get more equal pensions, the Pensions Agency considers that a voluntary survivor’s protection for income pension is the most appropriate measure to investigate further. The financial standard often falls if an income disappears in a couple’s household and survivor protection could mitigate the loss of income. Today, it is only possible to choose survivor protection for the premium pension,” says Kristin Kirs, analyst at Pensionmindighet and one of the authors of the Measures for more equal and equal pensions report.

    A 2022 Mercer report reiterates the importance of separations and survivorship in the gender pension gap. One of the recommendations it repeated for improving the Danish, Finnish, Icelandic, Norwegian and Swedish systems, was “introducing arrangements to protect the pension interests of both parties in a divorce.”

    Considering the best performers in the EU provides echoes of these recommendations. According to the European Commission’s 2021 Pension Adequacy Report, there’s little similarity between the Denmark’s and Estonia’s starting points. Whilst Denmark is an affluent country with “little severe material deprivation among older people”, “Estonia has one of the highest at-risk-of-poverty-or-social-exclusion (AROPE) rates for older people (aged 65 years or over) in the EU (44.6 % vs the EU average of 18.5 % in 2019).”

    What they do have in common is a system which through different channels protects women. In Denmark “Low-income groups receive substantially more in public pensions and tend to have better replacement rates than high-income groups. This is a result of the income-testing of old-age pensions: the flat-rate part of the public pension (the basic amount) is only reduced for income from work income above a significant amount.” In Estonia, “for old-age pensioners aged 65-74 the pensionable length of service is the most important component of pensions. In addition, one of the parents who had raised children for eight years, usually the mother, before 31 December 1998 (i.e. children must have been born before 1 January 1991) received a pension supplement equal to the value of three years of pensionable service. Furthermore, the actual time of childcare leave (up to a child’s age of 3) was included in the pensionable length of the service component. As a result, neither differences in earnings nor career breaks due to childcare influence the current gender pension gap.”

    Shinning a Light on Women in Finance

    These policy proposals seem to be the low-hanging fruit of addressing gender inequality. However, it is not the only issue. In past years, NordSIP has taken the opportunity presented by IWD to consider the appeal of sustainable investing to women, mentorship, gender balance and the appeal of working in finance for women. This year we asked men in the industry to help temporarily restore the balance by promoting worthy female colleagues and peers who might or might not be too shy to do it themselves.


    *The figure was down to 13.0% by 2020. This analysis focused on 2019 figures because that is the year for which most data is available for the Gender Pension Gap at EU level.

    ** The slight discrepancies between the figures presented in this article and the figures presented in the various linked EU reports is due to the fact that figures have been updated since the publication of those report.

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