Prompted by the coronavirus pandemic, many families around the world have recently been forced to re-examine their financial situations. Most had to prioritize financial survival in the immediate future. Others have also taken a closer look at their long-term financial strategies. Many workers, especially women, are at risk of not achieving a financially secure retirement. This was an issue of concern prior to the pandemic which has now been magnified.
Despite progress in recent decades, women around the world continue to be at greater risk of not achieving a financially secure retirement when compared with men. Why? The first reason is biological: statistically women tend to live longer than men. The second reason is financial: women’s lower pay and time out of the workforce due to caregiving and parenting can contribute negatively to women’s long-term financial security. Third, there are legal issues: for example, in more than sixty countries the retirement age is lower for women than for men resulting in women’s fewer years of pension contributions.
Even though women’s long-term financial security has improved over the years, the coronavirus pandemic – which has also been called a Shecession (highlighting the negative economic impacts of this recession particularly on women) – is likely to further widen the gender retirement gap. Here is why.
To be clear, the long-term implications of the pandemic and recession on retirement security are not yet fully understood. However, the financial vulnerabilities among women workers are increasingly becoming more evident. While women’s employment risk profiles vary widely from sector to sector and country to country, Citigroup estimates that there are 220 million women employed in sectors that are potentially vulnerable to the coronavirus slowdown. Moreover, 31 million women face potential job loss, compared to 13 million men. Layoffs, furloughs, or extended periods of time working from home have required many parents to balance job responsibilities with home schooling children and caregiving of coronavirus-impacted loved ones.
High risk frontline workers and impacted sectors
The reason why more women are expected to lose their jobs is because they are more likely to work in hard-hit sectors, especially the service sector: in human health and social work, women represent more than 70% of workers; in education women make up more than 60% of workers; in arts, entertainment, accommodation and food services the workforce is more than 50% female according to the International Labour Organization’s Monitor Covid 19 and The World of Work.
How does this impact pensions? Earnings are a key determinant of workers’ pension eligibility. Here, a prevalent gender pay gap (which exists in all countries) already puts women at a disadvantage: worldwide, the average woman’s annual income is $11,500, versus $21,500 for a man according to the World Economic Forum which estimates that it will take 257 years to close the gender gap. Take the example of Germany where women in most occupations receive 21% less salaries than their male colleagues. This contributes significantly to German women’s lower pensions which are on average 46% of pensions received by German men.
Lower earnings-related pension income is one of the key factors for higher poverty rates among women than men in old age. In fact, among the 37 high-income countries of the Organisation for Economic Co-operation and Development (OECD), at 46% Germany has the highest gender-pension gap compared to an OECD average of 25% notes the Bertelsmann Foundation. This also translates into a disproportionate share of poor elderly people being women: older women are at greater risk of poverty than older men in all OECD countries except Chile where risks are nearly equal. According to OECD’s 2019 Pensions at a Glance report, the average old-age poverty rates for women and men in the OECD are 15.7% and 10.3% respectively.
Since the onset of the coronavirus pandemic, not only were many of the women-dominated sectors the first ones to close down and furlough or lay-off workers, but they are also likely to be the last ones to fully operate again. In other words, many women are likely to re-join the labor force at a later stage than men – further delaying any earning-based income contributions to their pension funds.
The childcare conundrum
When women contribute less to their pensions and savings this can lead to financial hardship in retirement. Another reason why a post COVID-19 return to work by women is expected to be slower than men is also partially due to increased care responsibilities that happen to disproportionately be taken up by women. Prior to the pandemic, women spent three times more on unpaid care and domestic work than men which – over a lifetime – translates to a total of four more years than men.
Germany’s Hans-Böckler Foundation which studied the immediate impacts of the coronavirus pandemic confirms that 27% of mothers surveyed had reduced their working hours since the onset of the pandemic, compared to 16% of fathers – leading to further reductions in income and potential pension contributions for women. Indeed among surveyed couples who felt that care responsibilities were equally distributed in their family prior to the pandemic, two months into the pandemic only 60% were able to affirm that they now take equally shared turns. Similarly, UBS Global Wealth Management’s surveyed 1,825 high-net-worth investors in the United States and learnt that as a result of pandemic lockdowns, most women took the lead on domestic duties, such as homeschooling (64%) and childcare (60%). New research by Ipsos and in consultation with UN Women confirms that across 18 countries surveyed in May 2020, women are indeed taking on more responsibilities for household chores as well as care of children and family during the pandemic.
Giving birth or caring for children is vital for societies. As women are more likely to take time out of work to care for children, this can reduce a woman’s working life, her pension contribution records, and the earnings used to compute pension entitlements.
To reward parents and make up for any childcare-related losses in pension contribution records and earnings, some countries introduced care credits. Such care credits are particularly common in public defined benefit pension schemes.
Yet of the 91 economies studied by the World Bank Group’s Women, Business and the Law program that had mandatory contributory pension schemes in 2012, only 54 provided some form of care credit. In 2019, overall there were 85 economies globally that did not account for the periods that women take-off for care —including maternity leave— in the calculation of their pension benefits. Of the OECD high-income countries, Australia and the United States do, for example, not provide care credits according to the Women, Business and the Law database.
Life expectancies and retirement ages
Pension-benefits are also a function of life expectancies, and it is well known that women generally live longer than men. Due to inherent biological advantages but also differences in behavior and life style, women across the world on average live six to eight years longer than men (with notable ‘cause of death’ differences between low and high-income countries).
This means that women will spend more years of their lives than men in retirement, which requires women to target a higher level of savings than men to achieve the same levels of annual income throughout their entire retirement. Moreover, women are more likely to marry older men which – combined with women’s higher life expectancy – translates to women outliving their husbands often by many years. For example, in the United States, women will likely live alone for an average of 4.5 years without a spouse to share expenses suggests the World Economic Forum.
To better understand whether the coronavirus affects women and men differently, the World Health Organization (WHO) had called on its member states to invest in gender-guided research of this pandemic – particularly as early reports from China, Italy, and the United States had indicated that men appeared to suffer more severe cases and die of the disease at greater rates than women. Yet, as of early May 2020, only 40% of globally reported confirmed COVID-19 cases shared with WHO had age and sex disaggregated data. Even though limited, such data confirmed an equal share of infection rates among women and men, albeit the death rate appeared to be higher among men (58% of all cases). As older aged men are appear to be at higher risk to die from the coronavirus, this also has important care impacts for families and pension implications also for surviving spouses.
Widowhood is often associated with economic hardship, particularly for women who do not have a pension of their own. And while survivor benefit schemes exist to sustain the financial welfare for family members when the primary wage earner dies, survivor pension programs often only cover some of the financial needs. Unmarried individuals (including from the LGBTQ community) may not even be in a position (for example through recognition of domestic partnerships) to benefit from or pass on survivor pension benefits.
Another important driver of the gender gap in pension benefits are gender differences in retirement ages. Historically, countries around the world established pension laws with lower retirement ages for women than for men. At first glance that sounds wonderful for women. Yet, such provisions can translate to women’s shorter working lives and reduced contribution records, making it more challenging for women to build financially secure retirements. According to Women, Business and the Law 2020, in more than 60 of the 190 economies studied, laws establish earlier retirement ages for women to access their full pension benefits. In China, the difference in retirement age was as high 10 years.
Women can be further disadvantaged when pension vesting periods (minimum requirement of years of contributions to be eligible for a full pension) are high. Typically, countries that have lower retirement ages for women also have lower vesting periods. Yet, this is not always the case. Imagine being a woman in a country where women are required to retire earlier than men, but women are still expected to complete the same period of contributions for a full pension as men.
It should be noted that not many workers around the world have access to formal (and functioning) pension systems. Period. Take the fact that more than 60% of the world’s employed population are in the informal economy.
Moreover, existing pension schemes in many countries with aging populations were already struggling prior to the pandemic to meet their financial obligations to future retirees. These systems are under now under additional stress given unprecedented unemployment rates: four out of five people in the global workforce of 3.3 billion are currently not at work due to corona virus related lock-downs as per April 2020 estimates by the International Labour Organisation. While some workers will have to delay retirement due to the toll the pandemic has had on their finances, other laid-off workers are unlikely to return to the formal labor force facing early retirement and/or higher poverty risks in old age.
For those who are in a position to improve existing pension systems, here are some thoughts on how not to “not waste a good crisis” and rebuild retirement schemes that work better for women.
1) Women taking charge of their long-term financial security
UBS Global Wealth Management’s research highlighted that the pandemic has reinforced traditional gender stereotypes in the United States: most men reportedly took the lead in managing couples’ finances (71%).
At the same time, the pandemic has prompted women to zoom in on their financial future: 80% of surveyed women indicated that they want to protect themselves more than ever before. Yet, of those women who are considering reviewing their financial situation, a few months into the pandemic, 40% still need to make their intention a reality.
Is the younger generation of women more inclined to take financial planning into her own hands? The UBS research revealed mixed results: while the vast majority of single millennial women intend to participate equally in financial decisions, once married they defer to their spouses. In fact, millennial women are more likely than other generations to defer to their spouses on long-term financial decisions (54% of millennials vs. 39% of boomers).
2) Becoming an ‘employer of choice’ for women and men
Employers, too, can play an important role in supporting equality in pensions for women and men, particularly using equal pay as an entry point to promote women’s higher pension contributions and benefits.
Moreover, where – due to the coronavirus pandemic – employers are considering salary and/or retirement contribution cuts to offset coronavirus pandemic-related financial burdens, they should take into account pay-equity considerations and not make percentage cuts uniformly.
Importantly, flexible work arrangements and employer-supported childcare schemes can help employers retain a productive workforce and prevent mothers and fathers from reducing their full-time work hours that can leave workers less protected and less eligible for government support.
3) Governments leveling the playing-field
As many governments are tackling the gender pay gap, assessing and addressing gender inequalities in pensions constitutes a logical extension. Germany’s first national strategy for gender equality that was announced earlier this week does, for example, focus on closing the gender pay and pension gaps.
Equalizing women’s and men’s retirement ages can be a feasible option for governments to allow women to work longer and pay larger contributions to mandatory pension schemes with higher retirement benefits. In this regard, Argentina and Saudi Arabia made significant progress in the past years, while pension credits for periods of childcare were introduce in Timor-Leste and the Democratic Republic of Congo according to Women, Business and the Law.
What is clear is that as economies, societies and technology change, pension systems will face new challenges. Going forward, societies may have to reevaluate and rebuild their pension systems that were based on traditional jobs and family formations with the expectation that future generations will finance their parents’ and grandparents’ retirements.