Governments need to address the gender gap in retirement savings arrangements

By OECD’s Diana Hourani, Jessica Mosher, Elsa Favre Baron, Romain Despalins and Stephanie Payet

The gender pension gap, or the difference in retirement income that men and women receive, averages 26% across OECD countries, according to a new OECD study. This percentage clearly signals gender inequality, despite efforts by governments in recent decades to reduce the gender gap in pension systems. The growing role of retirement savings arrangements within pension systems calls for a deeper analysis of their contribution to this gender pension gap.

Closing the gender pension gap for retirement savings arrangements poses a particular challenge as the income from these arrangements is closely linked to employment and income patterns. This link means that gender differences with respect to labour market participation and gender wage gaps, which are further reinforced by women’s disproportionate role as caretakers, directly contribute to the gender pension gap. These labour market differences affect every stage of preparing financially for retirement, from access to and participation in retirement savings arrangements, to the level of contributions made throughout an individual’s career, through to the level of income received in retirement. The design of retirement savings arrangements alone cannot correct all labour market differences. Nevertheless, their design should strive to reduce the impact that these factors have on the retirement income of women or, at the very least, ensure that inequalities are not exacerbated.

Progress has been made over the last two decades in reducing the gender differences that have been driving the gender pension gap. Women have joined the labour force in increasing numbers and the gender pay gap has decreased by 5 percentage points. These trends have been bolstered by more and more women completing higher education and by changing societal attitudes about the role of women as homemakers and caretakers. Increased employment and higher wages have flowed directly through to improved retirement savings and entitlements for women.

There is, however, still a long way to go before reaching the goal of gender parity and the COVID-19 crisis is threatening this progress, particularly in light of the adverse impacts the pandemic is having on women. Women are more likely to be employed in the most affected sectors, such as hospitality, tourism and retail. They are also more likely to hold part-time work, positions which are more vulnerable to lay-offs. Furthermore, women have shouldered the brunt of educating their children during school closures, in addition to other caretaker responsibilities. These responsibilities have led many women to reduce their working hours or withdraw from employment, thereby reducing their ability to contribute to their retirement savings plans. Women’s retirement income is also more likely to be negatively impacted by the indirect effects of COVID-19, such as the potential increase in divorce rates following lockdown measures or policies that have allowed individuals to withdraw their retirement savings earlier than intended.

This makes it even more urgent that policy makers take measures to address the gender pension gap and to ensure that progress made to date is not reversed. While the situation calls for measures beyond the pension system to help women overcome barriers to working and address pay gaps, attention still needs to be paid to the design of retirement savings arrangements to ensure that it does not exacerbate gender inequalities in retirement. This report sheds some light on the drivers of the gender pension gap and provides concrete policy options that governments can consider for the design of retirement savings arrangements to help further the progress made to date to reduce the gender pension gap.

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