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A female teacher in Egypt and a homemaker in Ohio may have widely differing lives, but both are likely to fall victim to the same trend in their later years: the global pensions gender gap.
Ageing populations and longer life expectancies have led to a worldwide retirement savings shortfall that may be as large as $100tn, according to Richard Marin, clinical professor of finance at Cornell University. He believes this gap will “redefine global macroeconomics”. In both developed and developing economies, the risk of poverty in old age falls disproportionately on women.
Women are less likely than men to receive a pension and the benefits they receive are lower in most countries for which data exists, according to the UN’s Progress of the World’s Women report, released in April. In the EU, the poverty rate among elderly women is 37 per cent higher than among men.
In countries from Estonia to the UK, single women’s mean pension income is close to the poverty line. But gender gaps are worst in Egypt, where 62 per cent of men receive a pension compared with 8 per cent of women, and Jordan, where the figures are 82 and 12 per cent respectively. With lower proportions of women contributing to pension schemes, these trends look set to continue.
Women on average live five years longer than men, making their retirement needs more acute, yet the growing prevalence of defined benefit pension schemes — in which retirement outcomes are determined by savings during a person’s working years — comes with inbuilt disadvantages for women because of the nature of their working lives, the UN found.
“The issues are similar in many countries: career breaks, part-time work and a lot of women are still responsible for childcare,” says Jackie Leiper, director of employer relationships at Scottish Widows, a UK insurer.
In such cases, women may be relying on a partner for financial support in old age. But this carries its own risks in the event of divorce or the partner’s death, and can also rob women of financial autonomy, says Ben Franklin, head of the economics of ageing at the International Longevity Centre in London. “There’s obviously a systemic problem in terms of the pay divide, which exists even before the typical age of childbirth,” Mr Franklin adds.
If women face the biggest risks in the pensions crisis, how can policymakers address the gap? Both Mr Marin and Mr Franklin argue the answer is in broader social policies aimed at reducing inequality.
“In the parts of the world where women have lesser property rights and generally lower earning power, extra attention must be given . . . it is a well-established fact in the development discipline that money available to women has far broader economic impact on the full range of the family,” says Mr Marin.
“Retirement income security for women is an important issue in a growing worldwide demographic segment.”
Mr Franklin says that richer countries “need to focus on those people who are in the workforce now, between their 30s and 40s, and how to induce equalisation of pay, probably through childcare”.
Such policies, however, sometimes take generations before widespread change takes place. In the meantime, other possibilities range from adjustments to pensions systems, including “care credits” for time off work to care for children or the elderly — already in place in the UK’s state pension system, among others — to broad changes in how pensions are accrued or paid out.
The percentage by which poverty among elderly women exceeds that of elderly men in the EU
The UN has praised universal or means-tested — as opposed to contributory — pension schemes, which are in place in countries including Bolivia to Thailand. But it acknowledges the benefits are “almost always lower” than those from contributory plans. In India, national pensions pay retirees as little as $3 per month, about a fifth of the official poverty-line income.
In Australia, David Knox, a partner at the pensions consultancy Mercer, has masterminded a form of pooled longevity insurance for retirees that is similar in some ways to an annuity, but it aims to be more cost-effective by coming with fewer guarantees attached.
He says the product, designed for people who saved in a defined contribution scheme, should help reduce the retirement income gender gap, since women’s longer lifespans expose them to greater so-called “longevity risk”.
One other measure that may be relatively cheap and feasible to implement is to increase access to financial education and planning for women. A study conducted by Scottish Widows, carried out shortly after radical changes to the UK pensions system, found that women lacked confidence in their own understanding of financial and pensions products compared with men.
When it came to annuities, only seven per cent of women surveyed said they understood how the products worked and 84 per cent of divorced women said they had not discussed pensions in reaching a settlement. Women also tend to have lower risk appetites than men, despite the fact that riskier investments may help long-term investment-based savers to reach their goals, says Ms Leiper.
Women have benefited from auto-enrolment, under which many UK workers are automatically placed into pension schemes, but are still saving 40 per cent less on average than men, Scottish Widows found.
Mr Franklin backs financial planning initiatives aimed at specific categories of women deemed to be most at risk of falling behind.
“It’s vital that we think about the differences in terms of pension wealth between men and women — but we’re moving to a place where we’re not just thinking about differences between men and women,” he says.