THE GENDER PENSION GAP
It’s a fact of life in Ireland that Irish people are not saving sufficiently for their retirement. This is especially true in the case of women. The Auto-Enrollment Pension scheme coming down the tracks may help alleviate some of this shortfall but it won’t solve the problem fully.
As people live longer the state pension will continue to come under pressure and we will have to rely more on private pension schemes. At present Ireland has circa 4 workers for every person receiving the state pension. Based on future demographics we will have 3.5 people working to every 1 retired by 2032 and this trend will continue with the ratio expected to be 2:1 by 2050. Clearly this is not sustainable.
Data shows that across European OECD countries, pension payments to women aged 65 and over were 25% lower, on average, than for men. There are stark differences across the European countries with differences above 40% in Germany, Luxembourg and the Netherlands, while in Denmark, Estonia and the Slovak Republic the pension gap is lower than 10%. Ireland sits on the wrong side of the average with difference in excess of 25%.
Men and women share a lot of the same characteristics when it comes to pension planning as follows;
- Women on average start their pension plan age 36 and men start theirs at 37.
- 48% of employed women participate in pension plans when they are made available to them compared to 47% of men.
- 57% of women are active in their pension plan when in paid employment versus 55% of men.
- Both women and men contribute on average 11% of salary to their pension plan, including AVCs, employer and employee contributions.
Based on the above there should not be a gender pension gap but for a number of important reasons there still is. Some of the main reasons for the differential between pension funds for men and women;
- Women on average earn less than their male counterparts. €48,000 is the average annual salary women are earning, where men are earning €58,000 on average. As pension contributions are largely paid as a percentage of salary, the difference grows over time.
- Many women take time out of the workforce during their careers usually to care for others. The more time a woman takes out, the more dramatic the decline in her future earnings potential when she decides to return to work. The Centre for Work-Life Policy estimated that taking one to two years out of the workforce can decrease earnings potential by 14% and an absence of over three years can reduce earning power by almost 50%.
- On average women tend to be more risk averse and as such will choose lower risk funds when investing their pension pot. Over time this leads to a gap in fund growth thus leaving a smaller pot than a male counterpart.
Along with solving the overall pension shortfall in Ireland we also need to look at bridging the gender pension gap. This can be worked on in a number of ways;
- Having a progressive auto-enrolment policy taking account of gender disparity.
- Employer to review gender salary differences, promotion and leave policies, with a view to developing more progressive solutions.
- Flexible pension plans that facilitate pension contributions for those on unpaid maternity or parental leave.
- Progressive pension plans that provide support for parents who may be taking time out of work to raise a family.
It will take time to fully resolve the gender pension gap and it will be a collective effort between Government, Employers and Employees. We will need progressive and thoughtful planning around the distribution of care tasks between genders along with some innovative ideas on funding pensions even while not working.
It is important to keep the issue in the limelight and everyone involved in the pensions industry can play a part.
