Opinion - Advisor Insight

Op-ed: Gender gap in pensions is real and needs to be fixed

Margaret Franklin, president and CEO, CFA Institute
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Key Points
  • While the gender pay gap is well documented, women also face a pension gap compared to men.
  • The pension gap is about 34% in the U.S., yet exists worldwide.
  • The reason is clear: Less money earned, less contributed to the system.
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Women get paid less than men.

In fact, it's been well documented that, worldwide, women make only 77 cents for every dollar earned by men. Less well-known, and partially a result of that very pay gap, is the pension gulf between men and women.

The gender gap in pensions is a real issue and it needs to be fixed. This year, "The Mercer CFA Institute Global Pension Index Report" explored the gender pension gap that exists in every retirement system surveyed. The average gender gap in benefits between men and women comes in close to 30%, the gap being defined as the difference between the average male pension and the average female pension, expressed as a percentage of the average male pension.

That gap stands at around 34% in the U.S.

Globally, the report found that employment-related considerations, system design and socio-cultural issues contribute to this disparity. Yet one fact stands out: Women face daunting challenges when it comes to retirement income and are clearly disadvantaged versus men.

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Why? The reason is clear: Less money earned, less contributed to the system.

Women also tend to have less linear career paths. They may work part-time at some point; they may have shorter careers due to child-raising and elder care; and they may retire earlier than men for a variety of reasons.

This, in turn, impacts their eligibility and credits in a retirement system. And socio-cultural issues such as a lack of affordable child care or the implications of divorce may further impact the benefits they receive later in life.

Great variations exist between the countries evaluated.

In Japan – which had the largest gap in the survey at 47% – the historical gap between the genders remains a major factor; the overall lower employment rate of women also plays a part. Canada holds a lower-than-average gap at 24%, helped by a policy where women accrue pension credits for being the primary caregiver for a child under the age of 7.

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Whatever the reason, the gender pension gap presents urgent challenges, with women facing their retirement years with fewer benefits and thus grave financial challenges. And since women, on average, live longer than men, this problem compounds over time.

What can we do about it? The continued narrowing of the gender pay gap – which has indeed been improving over time – will help.

Employers can implement more flexible workplaces and policies that will encourage more women to join and remain in the workforce. The pandemic has proven that alternative styles of working can thrive.

Parental leave for mothers and fathers will lessen the burden on women, typically the primary caregivers. And of course, more gender balance at all levels of an organization will empower women.

A system like Social Security or traditional workplace plans must not punish women for leaving the workforce, even temporarily, to care for infirm relatives or young children. Systems that include private investments in the markets must increase their efforts to promote financial literacy.

Studies have shown women to be more conservative investors than men. A conservative approach can have a significant impact on returns over a long-term horizon.

Governments can do their part by increasing access to affordable child care, the lack of which drives many women out of the workforce. Plans should continue to accrue benefits for women during periods of leave. And pension rights must be considered if a divorce occurs; this can and should be codified into law.

So, how does the gender pay gap affect savings and retirement planning? Quite simply, a lower salary equals lower pension contributions and therefore less to live on in retirement.

The gender gap in retirement benefits does not grab headlines in the same manner as the pay gap, yet the issue remains no less urgent. And it needs fixing before even more women face poverty in retirement.

 — By Margaret Franklin, president and CEO, CFA Institute