Gender Issues in Pension
Systems
By Estelle James
Prepared for Women and Pensions
Workshop, Paris, March 2010
Gender issues in social security
• Majority of old people and most very old are
women
• Poverty among the old is concentrated in very
old women
• So women should be at the forefront of old
age security systems
• However--today’s systems may be appropriate
for women of yesterday but not for women of
tomorrow; re-evaluation needed
• Also, rethinking needed in DC context
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Why does social security affect
men and women differently?
• Some rules are gender-specific—e.g. younger
retirement age for women in many countries
• Same rules have different effects for women
because they have different employment and
demographic histories
– Fewer years of work, lower wages so contributionbased pensions smaller, safety net more relevant
– Greater longevity—so lifelong pension,
annuitization, indexation more important
– Become widows—survivors’ benefits important
But these differences are changing
• When ss started, strong social norms
determined women’s roles—married young,
many children, divorce rare, low lfpr
• Now—women marry later or not at all, few
children or none, divorce common, many
work, at least part of the time
• Women now have more choices about work in
market vs. home. Studies show that incentives
from ss system can influence and distort these
choices; important to avoid work disincentives
Women are varied group
• Important to bear in mind that all women are
not the same—earlier vs. later generations,
married vs. single, young-old vs. old-old, high
vs. low income--what are their problems, who
should get benefits that exceed contributions?
• Old rules protected married women who
weren’t expected to work in market
• May not be best for younger generations who
may not marry, have choice about work in
home vs. market, and live to be old-old
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Policies with gender implications
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Earlier retirement age for women
Structure of safety nets
Survivor benefits
Payout rules--annuitization, indexation, unisex
What is their impact on work incentives,
cross-subsidies and vulnerability of old-old?
Earlier retirement age for women
• Legal retirement age often 5 years earlier for women
– Equal in US, most W. European countries have moved
toward equality
– But earlier age for women in most E. Europe, L. Am., China
• Studies (e.g. Gruber and Wise) show most workers
start pension, stop work as soon as possible
• Leads to lower lfpr for women, less training,
experience, smaller wages, lower pensions for very
old women, less contribution to GDP
• Social rationale? But conflicts with goals of pension
adequacy, poverty avoidance, gender equality,
especially in new DC systems
• Yet change is very difficult politically (Poland, Chile)
Problems with Safety nets
• Women work, earn, contribute less than men
– Leads to own-pensions, need safety net
• Most European countries (& Chile) pay flat or
minimum pension to low or non-contributors
– Targeting based on income, not marital status
– Women are major recipients (if they meet
contributory requirements)
– Usually these are phased out (30-50% rate) as
own-pension grows so reduces return to work
• In U.S. safety net is smaller, except for married
women who get large spousal benefits—
subsidy based on marital status
– Crowds out own-benefit, reduces returns to work
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Why mandatory survivors benefits?
• Women are younger than husbands, live
longer, become widows. Smoothing
consumption over life cycle should include
widowhood as another life stage for women
• Studies show families are myopic, don’t save
and insure enough to smooth (reason for ss).
So poverty is concentrated in very old widows.
• Mandatory survivors insurance smooths living
standards for widows, prevents poverty
• SS systems often give 50-80% of husband’s
benefit to widows (100% in U.S.)
Problems with survivors’ programs
• Costly subsidy to married couples from singles
– Nonworking widow gets larger pension than single
low-wage woman, financed by common pool
– Usually widows must give up own-pension to get
survivor’s benefit—discourages work
• Recent cuts, espec. E. Europe & Scandinavia—
– Eliminated except for temp. adjustment period
– This reduces cost, subsidy, work disincentives
• But creates new problem that is overlooked
– Ignore hh economies of scale--hh costs fall by <30%
when husband dies but hh income falls by > 50%, so
widow’s living standard must fall—for long period
– Less protection for old-old women
How to smooth living standards without
costly subsidies and work deterrents
• DC plans in Chile and other L. Am. countries
require spouses to purchase joint pension
– Like mandatory life insurance
– Each spouse takes lower primary benefit to cover
joint pension so internalizes cost within family
– Solves myopia problem without imposing cost on
others or increasing fiscal burden
– Maintains widow’s standard of living
– Widow keeps own pension + joint benefit so
doesn’t penalize work (lfpr rose)
– Symmetrical for men & women—family insurance
– Could be adapted for DB in social security
Should pensions be indexed? To prices
or wages? Why a gender issue?
• Price indexation holds real pension constant;
wage indexation holds ratio of average
pension to average wage constant
• Recent move toward price indexation or
partial indexation, to cut costs (Sweden)
• Indexation pushes income to later life
• Trade-off: Indexation, espec. if to wages, costs
a lot, but also provides valuable insurance &
redistributes to old-old
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Indexation protects the old-old and
groups with greater exp. longevity
• Indexation financed by common pool
redistributes to groups with greater ex ante
expected longevity (women)
– Pushes pension resources toward very old age
– Prevents relative poverty in very old age
– Raises return and work incentives for women
• Any downgrading of indexation saves money
but hurts very old women disproportionately
• Swiss (mixed) indexation a good compromise;
especially important for safety net
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Treatment of women in divorce
• Divorce is very common, espec. in U.S., Europe
• Varied treatment of divorced women
• They lose consumption financed by husband’s
pension but may have small own-pension
• Sometimes they get no survivors’ benefits (L.
Am., M. East, some E. Europe) but get 100% in
U.S., partial in W. Europe
• Important to consider DB and retirement
saving as common property at point of divorce
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Should unisex tables be required?
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Which risk categories are allowed for pricing?
Assumes same mortality rates for M and W
Implicit in DB plans if same monthly payout
Explicit decision needed in DC plan
– Gender-specific tables=>lower m. payout to W
– Unisex redistributes lifetime income from M to W
– Poor men lose most, rich women gain most
– Raises return to women so may encourage their
work and contributions (and vice versa for men)
• Changes payouts by 7-8% for individuals, but
only 2-3% if joint annuities--issue disappears
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Their 15
Conclusions: problems
• Old policies protect married women in traditional
roles but discourage women’s work
– Earlier retirement age for women reduces their
training, wages, pensions, contrib. to GDP
– Safety nets protect low earners but high tax on work
(phase out, subsidy to non-working wives)
– Survivors’ benefits help widow(ers) maintain living
standard, costly, give favored treatment to nonworking married women but penalize their work
• New policies cut distortions, still discourage
work, reduce protection to old-old women
– Survivors’ benefits cut and indexation downgraded
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Solutions from various countries
• Equalize (and raise) retirement age—shift pension
flows and subsidies to old-old age
• Flat benefit or high threshold for phase-out
• Don’t finance survivor benefits from common pool
– Instead, mandate joint family pensions, financed by
spouses; widow(ers) retain own + survivor’s pension
• Consider pensions part of family wealth in divorce
• Use indexation, pension jump or deferred annuities
that push retirement income into very old age
• Unisex requirement makes little difference in context
of joint pensions
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