4. Gender implications of the design of retirement savings plans

The gender gap in pensions has multiple causes, as the previous chapters of this publication show. Chapter 1 confirms the well-documented gap in pension income between men and women. This gap exists when considering total pension income, as well as the income received from retirement savings arrangements only. Chapter 2 identifies behavioural and cultural elements that could contribute to the gender gap in retirement income through a literature review. Chapter 3 finds that, in three case study countries, while labour market factors are important drivers of the gender gaps in retirement savings plans, so are factors such as job sector, when it affects access to a pension plan, and behavioural biases.

This chapter contributes to this research by assessing the gender implications of the design of retirement savings plans. It explores the extent to which the design of retirement savings plans may widen or narrow the gender pension gap. It analyses the different design features of retirement savings plans in OECD countries using a gender lens to see whether the rules and parameters of these plans may affect men and women differently. It also provides case studies illustrating the potential impact of different initiatives to reduce the gender pension gap due to retirement savings arrangements.

Several design features of retirement savings plans are not gender neutral and tend to disadvantage women, while others help to reduce the gender gap. Some of the rules of these plans may reduce women’s capacity to join a plan, to contribute or accrue rights during periods of maternity or parental leave, to earn good returns on their investments, to get recognition upon divorce for the time spent caring for the family, to protect their purchasing power during retirement, or to get longevity risk protection when surviving their spouse. By contrast, selected policy initiatives can contribute to narrowing the gender gap in pensions, such as introducing automatic enrolment, allowing spouses to contribute or transfer rights and assets to each other’s retirement savings plan, letting employers pay higher contributions on behalf of women, making survivor pensions the default option for couples, disregarding women’s longer average life expectancy when calculating retirement benefits, and having specific financial incentives, communication and financial education initiatives targeting women.

This chapter includes six sections assessing the extent to which the design of retirement savings plans affects men and women differently. It analyses the rules and parameters of retirement savings plans in OECD countries with respect to enrolment, contributions, financial incentives, the accumulation of assets, the pay-out phase, and communication and financial education. The last section concludes.

This section analyses how the design of retirement savings plans may affect the enrolment of men and women into these plans differently. It shows that women may have more limited access to retirement savings plans than men, but that periods of maternity and parental leave usually do not affect their eligibility to join plans. Policies such as automatic enrolment can help reduce the gender gap in the participation in retirement savings plans.

Although pension funds cannot discriminate based on gender when it comes to plan access, certain eligibility criteria may disadvantage women compared to men. Across the OECD, nearly 70% of people in part-time employment are women. The proportion of women over all part-time workers ranges from 54% in Turkey to 80% in Luxembourg.1 Therefore, eligibility criteria based on a minimum number of working hours or on a minimum income threshold may restrict women’s ability to join retirement savings plans more than men’s. These criteria can be found for occupational pension plans in Australia, Canada, Japan, Switzerland and the United Kingdom (minimum income thresholds), as well as in Japan and Korea (minimum number of working hours) (OECD, 2019[1]).

Periods of maternity and parental leave usually do not delay women’s eligibility to join retirement savings plans. Countries tend to consider periods of maternity and parental leave as normal employment periods for the purpose of calculating waiting and vesting periods. Women usually take time off work during pregnancy and after the birth or adoption of a child. In most countries, this time off work is included in the years of employment as normal working periods. Therefore, even if waiting or vesting periods apply, the maternity leave would not delay enrolment into the plan or prevent the acquisition of pension contributions. For example, in the Netherlands, when the waiting or vesting period ends during the period of maternity or parental leave, the pension accrual starts during the period of maternity or parental leave. In the case of the United States, for vesting and eligibility purposes, but not for benefit accrual, an employee who is absent from work due to pregnancy or the birth or adoption of a child is treated as having completed the number of hours that would normally have been credited for the period, up to 501 hours of service.2 This credit for hours of service during the absence is only used to determine if a break in service has occurred.3 In some countries, however, maternity and parental leave may not count as working periods. In Japan for example, it depends on plan rules whether the parental and maternity leave periods are included in the service period. In Ireland, there is no entitlement to continue to accrue retirement benefits during parental leave (i.e. beyond the statutory maternity leave), but service before and after this type of leave must be treated as continuous.

Policies aiming at reaching high participation levels in general may help close the gap in plan participation between men and women. Women tend to participate less in retirement savings plans than men do. Chapter 1 shows that the proportion of women being members of a personal or occupational pension plan is lower than that of men in most European countries. There are some exceptions, however, such as in Finland where men and women participate equally to the mandatory occupational pension system. In addition, in the United Kingdom, automatic enrolment helped close the workplace pension participation gap between men and women (Box 4.1). In Australia, women’s participation in the mandatory superannuation system increased along with their increased participation in the labour market. The proportion of all superannuation accounts that belong to women increased from 37% in 2004 to 46% in 2018.4

This section explores the extent to which taking maternity or parental leave reduces women’s contributions to retirement savings plans. It also looks at mechanisms to counter any negative impact on contributions for women, such as the possibility to contribute to a spouse’s retirement savings plan, or to pay higher contributions on behalf of women to account for their higher life expectancy.

Contributions to retirement savings plans or pension right accruals may stop during periods of maternity or parental leave. This penalises women more than men, as fewer men take parental leave. Women would need to contribute more upon returning to work if they wish to compensate for the loss. Fortunately, in most countries with available information, contributions continue during maternity leave and/or parental leave. However, this is not the case in some countries (Table 4.1). In Australia, Austria, New Zealand and the United States, employers generally stop contributing on behalf of mothers on maternity leave. It depends on plan rules in Belgium, Denmark, Ireland and Slovenia.5 In Australia, employers can pay superannuation contributions on parental leave payments on a voluntary basis. In New Zealand and the United States, only mothers benefiting from paid parental leave have their pension contributions paid during this period. In Austria, employees may contribute the employer’s part, in addition to their own. In Belgium, when plan rules consider certain periods of inactivity as periods actually worked (such as maternity leave), the employer can either pay the contributions or take out a premium exemption insurance, in which case the insurance company pays the contributions during such periods.6 In addition, in Lithuania, the social security institute stops collecting workers’ contributions to the statutory voluntary personal pension system (second pillar) during periods of maternity leave.

Conditions for the payment of contributions during periods of maternity and parental leave may vary according to the type of retirement savings plan. For example, in the United Kingdom, in a defined benefit (DB) scheme, the member is entitled to have her benefits calculated for the period of paid maternity leave as if she had been working normally (which would include any increases to pensionable pay that would have applied to the member had she not been on maternity leave). By contrast, in a defined contribution (DC) scheme, the member’s contributions are payable by reference to any reduced level of pay that the employer provides during the period of paid maternity leave, while the employer contributions are calculated by reference to what would have been the member’s pensionable pay had she not been on maternity leave. This leads to a divergence of outcomes, as the period of paid maternity leave does not affect pension benefits in the DB scheme, while it reduces the level of contributions and thereby the future level of pension benefits in the DC scheme.

The government can subsidise contributions during periods of maternity and parental leave. In most countries, employees and employers keep contributing at the same rate during such periods. However, in several countries with mandatory or statutory personal pension systems (Estonia, Latvia, Poland, the Slovak Republic and Sweden) and in Iceland, the government or the social security institute pays contributions to the pension account of mothers on maternity or parental leave. In the case of Finland, individuals on parental leave are not liable for pension contributions, but pension rights continue to accrue and are financed jointly by the earnings-related pension system on a pay-as-you-go (PAYG) basis.

Even when contributions continue during maternity and parental leave, the earnings base used to calculate these contributions may be lower than past earnings, thereby reducing the level of contributions compared to a period of full activity. Some countries use the earnings just before the leave or an average of past earnings (e.g. 3 months in the case of Chile and 12 months in the case of Sweden for occupational pensions). However, some countries use a lower earnings base. For example, in Estonia, the government pays pension insurance contributions based on the minimum wage only. In Iceland 80% of the past salary is used up to a cap. In Poland, the proportion of past earnings varies with the length of the leave (on average 80% if someone uses the maximum length).

By contrast, pension contributions may be higher during periods of maternity and parental leave. This is the case in Denmark, Finland and Sweden for instance. In Denmark, individuals on maternity, paternity or parental leave get an ATP contribution of DKK 4.02 per hour, instead of DKK 2.01. In Finland, the pension accrues during the parental leave based on annual earnings in the previous year increased by 21%, which is the base for the family benefit.7 In Sweden, the earnings base taken into account for the calculation of the parental benefit is the highest of:

  • the earnings the year before the child was born, if income during the parental leave is zero or lower than previous earnings;

  • 75% of economy-wide average earnings, for low-income workers or people who were not working before childcare responsibilities started;

  • one income base amount, if income actually rises or does not decrease to a great extent as childcare responsibilities begin.

Finally, the length during which contributions are being paid varies greatly across countries. It may be during the maternity leave only, such as in Canada, Chile, Iceland, Mexico, the Netherlands, Poland and the United Kingdom. It is extended to the parental leave in Denmark (ATP), Luxembourg, the Slovak Republic and Sweden.8

Beyond periods of maternity and parental leave, women may also take time off work to care for relatives. These periods may be taken into account for pension contribution purposes. For example, in Chile, when a child under the age of one has a serious illness, the mother is entitled to take medical leave to take care of the child for a time deemed sufficient by a doctor. The medical leave allows the mother (or father, in case the mother agrees) to receive her wage and contribute to the pension system during this time.

One way to compensate for the periods that women spend off work without contributing to the funded pension system is to allow spouses to contribute to each other’s retirement savings plans. Taking time off or cutting working hours to care for children or other relatives reduces the capacity to save for retirement and the level of contributions. Contributions from the working spouse in the retirement savings plan of the caring spouse could counterbalance this. Individuals can contribute to their spouse’s retirement savings plan in several countries. In Chile, the Czech Republic, Latvia and New Zealand, anyone can contribute to an individual’s voluntary personal pension plan, including the individual’s spouse. The husband, wife or civil partner can also contribute to a spouse’s retirement savings plan, usually a personal plan, in Australia, Hungary, Lithuania, Spain and the United Kingdom. The contribution limits applicable to the plan usually also include the spouse’s own contributions.

Special retirement savings arrangements can be set up to allow an individual to contribute on behalf of his or her spouse. For example, Canada and the United States have dedicated spousal retirement savings plans. In Canada, a spousal registered retirement savings plan (RRSP) is a voluntary personal pension plan opened in the name of the contributor’s spouse and controlled by the spouse. Contributions to a spousal RRSP are included in the contributor’s RRSP contribution limit but do not affect the spouse’s own contribution limit. Upon retirement, the spouse receives an income that is taxed at his or her marginal tax rate. However, if the spouse withdraws funds within three calendar years of the contributor’s contribution, that amount will be added to the contributor’s taxable income in the year of the withdrawal. In the United States, a spousal individual retirement account (IRA) is a voluntary personal pension plan that allows a working spouse to contribute to an IRA in the name of a non-working spouse.9 The working spouse’s income, however, must be equal to or exceed the total IRA contributions made on behalf of both spouses. The contribution limit for the spousal IRA is the same as for regular IRAs (USD 6 000 or USD 7 000 if the spouse is aged 50 or older due to the catch-up contribution provision in 2020) and does not limit any contribution by the working spouse to his or her own IRA.

Finally, special financial incentives may encourage individuals to contribute into a spouse’s retirement savings plan. For example, in Australia, a tax credit (called Spouse Super Contribution Tax Offset) may apply to after-tax contributions made on behalf of non-working or low-income-earning spouses. It is payable to the contributor, not to the spouse. The tax credit is calculated as 18% of the lesser of AUD 3 000 (reduced by one dollar for every dollar that the sum of the spouse’s income, total reportable fringe benefits and reportable employer superannuation contributions exceeds AUD 37 000) and the total amount of contributions paid.10 However, few people make use of this option (Box 4.2). In Spain, an individual can deduct up to EUR 2 500 per year for contributions paid to his/her spouse’s retirement savings plan when the spouse’s net earned and business activities income is less than EUR 8 000. This deduction can be carried forward for five years. If the spouse is disabled, the individual can make an additional deductible annual contribution of up to EUR 10 000 to the spouse’s retirement savings scheme.11

Paying higher contributions on behalf of women could be a way to compensate for their longer life expectancy, but could have negative consequences on their employability. Women’s longer life expectancy implies that they need to contribute more in DC plans to finance the same annual retirement income as men, everything else being equal. In all countries with mandatory or quasi-mandatory pension systems, contribution rates are set at the same level for both men and women. In occupational systems, mandating employers to pay higher contributions on behalf of women could provide a means to help close the retirement income gap. However, making it more costly to employ women could have negative consequences, as employers may refrain from employing them or reduce their base salary to compensate for the higher pension contribution. Still, some employers may be willing to make higher contributions on behalf of women on a voluntary basis to help their female employees, although non-discrimination rules may prevent them from doing so (Box 4.3).

Countries may also offer specific financial incentives to women. These incentives may be useful to encourage women, who tend to participate less in retirement savings plans, to join one. They may also help women to accumulate more retirement savings to compensate for periods off work or with reduced working hours. Other types of incentives may not target women specifically but may be particularly relevant to them.

Countries paying fixed nominal subsidies into the retirement savings plan of members having children usually do so in the account of mothers. Governments may pay these subsidies either once, such as in Chile, or regularly until the child reaches a certain age, such as in Estonia, Germany and Lithuania.

  • In Chile, women aged 65 or older are entitled to a government subsidy for each child alive at birth. The subsidy is equivalent to 18 months of contributions (10%) over the minimum wage in place at the birth of the child, invested in fund type C since 2009 or since the birth of the child, whichever is later (Box 4.4).

  • In Estonia, one of the parents is entitled to monthly contributions equal to 4% of the national average wage into the mandatory funded pension scheme for a maximum duration of three years per child (whether or not the parent has returned to work), for children born as of 1 January 2013.

  • In Germany, the government pays a child subsidy into the Riester account of the parent receiving child allowances. The maximum subsidy amounts to EUR 185 per year and per child born before 1 January 2008 or EUR 300 per year and per child born on or after 1 January 2008. By default, the mother receives the subsidy, unless otherwise agreed.

  • In Lithuania, the government pays a monthly contribution equal to 1.5% of the country’s average wage of the year before last to the statutory personal pension accounts of people who have children up to three years old and who receive maternity benefits. For persons with more than one child under the age of three, the government pays contributions for all children to one of the parents.

Financial incentives targeted at low earners may be particularly relevant for women, given that the proportion of women among low earners tends to be larger than that of men. Such incentives exist in Australia, Germany, Korea and the United States. In Australia, individuals earning up to AUD 37 000 are entitled to a tax credit (low-income super tax offset, LISTO) corresponding to 15% of concessional contributions paid, up to AUD 500. In addition, the government matches voluntary non-deducted contributions for individuals earning less than AUD 53 564. Individuals can get up to 50 cents for each dollar contributed, up to AUD 500. In Germany, employers contributing at least EUR 240 per year to an occupational pension scheme on behalf of an employee earning less than EUR 2 575 monthly, get a tax allowance of 30% of the contribution, up to a maximum contribution of EUR 960. In Korea, the tax credit received by individuals contributing to private pension plans is higher for individuals with an income lower than KRW 40 million (or KRW 55 million when the only income source is salary income). The tax credit is equal to 16.5% of the individual’s contributions for low earners, instead of 13.2%. Finally, in the United States, middle and low income earners can receive a non-refundable tax credit for making eligible contributions to an IRA or occupational pension plan. The amount of the annual credit (so-called Saver’s Credit) is 50%, 20% or 10% of the contribution up to USD 2 000 (USD 4 000 if married filing jointly), depending on the individual’s adjusted gross income.

Government subsidies paid into retirement savings accounts are also attractive for low earners and therefore can potentially encourage women to save. Government subsidies are fixed nominal amounts and are therefore more valuable to low-income earners, as the fixed amount represents a higher share of their income. Beyond the child subsidies described earlier, Lithuania and Mexico pay government subsidies into the retirement savings accounts of contributing members. In addition, subsidies can also play a role in automatic enrolment schemes to reduce opt-out rates. In Poland and Turkey, the government pays a one-time contribution when the individual joins the plan (PLN 250 and TRY 1 000 respectively). A NZD 1 000 kick-start contribution was also available in the KiwiSaver system in New Zealand for contracts opened until May 2015.

Financial incentives may also aim to encourage people to compensate for a lack of, or lower contributions, during certain periods by contributing more later on. The possibility to make “catch-up” contributions aims to give flexibility to those who take time out of work, work part-time, or have irregular income and therefore have periods in which they make no or limited contributions to their retirement savings plan. This is particularly relevant for women who may not receive employer contributions during maternity leave and often work part-time to take care of the family. For example, in Australia, individuals with a total account balance of less than AUD 500 000 can carry forward up to 5 years their unused concessional cap space. Concessional contributions are taxed at 15% on amounts up to an annual cap of AUD 25 000. Someone with an account balance below AUD 500 000 and contributing AUD 10 000 in a year for example, will be able to contribute AUD 40 000 in the following year (AUD 25 000 of the current year cap plus AUD 15 000 from the unused cap of the previous year). The possibility to carry-forward unused contributions cap space is also available in Canada (in any future year for registered retirement savings plans), Italy (for the first five years of participation) and the United Kingdom (three years).

This section examines different design features of retirement savings plans that may affect the level of assets that men and women may build up during the accumulation phase. The first element is the investment strategy and this section therefore looks at the extent to which the design of default investment strategies helps to address differences in investment choices between men and women due to dissimilar levels of risk aversion. The section also discusses the possibility to have bespoke investment options for women. It then looks at the impact of divorce on pension rights and assets. Finally, one way to compensate for time taken off work for caring activities is to split or transfer pension rights and assets between spouses. The section describes this possibility in selected countries.

The tendency to be more risk averse leads women to select more conservative investment choices. Women tend to be more risk averse than men in the allocation of their financial assets (Chapter 2) and are less likely to choose the high risk and high return option when offered investment choice (Garnick, 2016[5]; Watson and McNaughton, 2007[6]). This tendency may be against their best interest over the long term. Considering that women tend to contribute less to retirement savings plans and have a higher average life expectancy, it may be more optimal for them to invest in growth strategies in order to boost their retirement savings.

Conservative default investment strategies may reinforce women’s natural biases against risk. In Italy, Latvia and New Zealand, the default investment strategy is a conservative fund (Table 4.2). Given that women already have a tendency to hold conservative investments, they are less likely to switch to an alternative investment option if the default already matches their risk aversion level. This may imply that women are less likely to reach high average returns over the entire accumulation phase.

By contrast, life-cycle and diversified default investment strategies may help women achieve higher performance. Retirement savings plans in most countries with DC systems have to offer a life-cycle investment strategy as a default (Table 4.2). This allows members to have higher exposures to risky investments and higher potential performance when they are young, while reducing investment risk as they approach retirement and have less time to recover in case of losses. In the case of Australia, Canada (pooled registered pension plans, PRPP) and the United States (qualified default investment alternative, QDIA), pension providers can choose alternatively to offer a diversified investment option as a default.12 Provided that inertia limits switching to a more conservative option, this type of default also helps members, and women in particular, to combat their natural tendency for conservatism and increases the potential long-term performance of their pension assets. Members, however, run a higher risk of a significant fall in their retirement savings account just before retirement because of a higher exposure to risky assets.

Bespoke investment strategies could also be designed for women. For example, the Pensions Policy Institute (2019[8]) argues that life-cycle investment strategies are not well suited for women as they tend not to have linear working and saving trajectories. Investing in risky assets during the early to middle years of the career and reducing risk during the years prior to retirement relies on stable careers and a relative predictability as to when the individual will start withdrawing assets. As women may leave and re-join the labour market several times during their life, they may not be able to contribute into their retirement savings plan steadily. In addition, some may want to delay retirement as a result of longer lives in good health, while others may withdraw their funds early because they need to provide care to a family member. Potential options to address these issues include investing in alternative assets to achieve stable long-term returns without the need to de-risk, or de-risking a portion of funds only, while continuing to invest the other part in risky assets to increase growth potential (Pensions Policy Institute, 2019[8]).13

Divorce may have detrimental effects on women depending on whether and how pension rights and assets accumulated during the period of marriage or partnership are split between former spouses upon break up. If women take time off work or reduce their working hours to take care of the family, they will accumulate less in their retirement savings account than their partner. If pension assets are considered as individual property, they cannot be split between former spouses upon divorce. Women who counted on their partner’s retirement income to live on during retirement would therefore get no compensation. For example, the Pensions Policy Institute finds that divorce has a bigger impact on women’s retirement savings than on men’s in the United Kingdom, as the median pension wealth of a divorced man is a third less than the average man’s, whereas the median pension wealth of a divorced woman is just half of the average woman’s savings. One of the reasons is that 71% of divorce settlements do not take pensions into consideration.14

Pension rights and assets are usually considered as joint property during marriage or partnership but are not necessarily split equally upon divorce (Table 4.3). Pension entitlements are automatically split equally between former spouses upon divorce only in a few countries (e.g. Germany, the Netherlands, Poland and Switzerland).15 However, even if joint property needs to be split equally upon divorce, it does not necessarily imply that pension assets will be split 50/50. For example, in New Zealand, partners can come to an agreement that their KiwiSaver plans will not be divided, but the proceeds of the sale of their house will be split 40/60 to favour the partner with the lower KiwiSaver value. Conversely, if partners decide to split the KiwiSaver plans, the portion of KiwiSaver assets that each partner gets may not be a 50/50 split depending on how the rest of joint property is divided. The exact split of pension assets therefore depends on total joint property split and is settled in a financial agreement between former spouses, or in a court order if former spouses cannot agree between themselves. In addition, when the split is not automatic, pension rights and assets may be overlooked in divorce settlements.

Several options may be available to split pension rights and assets between former spouses. For example, in the United Kingdom, three options are available: offsetting, pension sharing order and pension attachment order. Offsetting implies that pension assets can be offset against other assets of the divorcing parties. Under a pension sharing order, retirement assets are divided at the time of separation and the ex-spouse receives her share in her pension arrangement. Finally, a pension attachment order results in the pension provider of one party paying an agreed percentage of the member’s pension directly to the former spouse when pension rights come into payment. There are several disadvantages with pension attachment orders: the ex-spouse has to wait until the member decides to retire and draw benefits before receiving anything; if the member dies before retirement, the ex-spouse does not receive anything; if the member dies during retirement, payments to the ex-spouse stop; if the member stops contributing, retires early or invests in poorly performing assets, the ex-spouse may receive less than expected. A pension attachment order may therefore be a riskier option for the former spouse unless the pension is already in payment. In addition, offsetting assets against each other may disadvantage one of the ex-partners, for example if one asset class (e.g. a retirement savings plan) has fallen in value more than another (e.g. the home). Pension sharing is therefore the favoured way to divide retirement assets.

Finally, a minority of countries do not split pension rights and assets upon divorce. Table 4.3 shows that this is the case in Austria, Denmark, Finland, France, Iceland, Latvia, Mexico, the Slovak Republic, Slovenia and Sweden. In the case of Finland, all earnings-related pension systems and plans are collective, which means that a person does not have her or his own ring-fenced assets. The rules upon divorce vary depending on the situation in Denmark and France. In Denmark, the general rule is that the individual keeps his/her own savings. However, a split of occupational and voluntary personal savings can be considered in three cases: i) one spouse gets much higher pension benefits than the other; ii) one spouse has saved less than usual during the marriage for the sake of the family (e.g. part-time work or parental leave); or iii) the marriage has lasted for more than 15 years and there is a large difference between the spouses’ retirement savings.16 In France, retirement savings plans are considered exclusive property of the individual member of the plan. However, if contributions paid into that plan during marriage were made using common funds from both spouses, the member must compensate his/her ex-spouse upon divorce with 50% of these contributions. In the other countries, pension rights and assets remain an exclusive property of an individual and therefore cannot be split in case of divorce.

One way to compensate for lower pension rights accumulation for women is to allow spouses to split or transfer accrued pension rights and assets between themselves during the accumulation phase. This option is available in Iceland, the Netherlands and Sweden.

The split of pension rights between partners can result in a transfer from one spouse to the other or correspond to a mutual split of past and future rights. For example, in Iceland, pension fund members can decide that up to one-half of their retirement pension rights accrue to their spouse or former spouse. This results in a retirement pension paid directly to the spouse. Alternatively, spouses can mutually agree to split retirement benefit rights equally (50/50). This equal split can refer to benefit payments, accrued benefits or future accruals (Box 4.5).

The transfer could be the default option in case people do not make an active choice under certain conditions. In the Netherlands, a (former) member of a pension scheme who is married or has a registered partnership can partially exchange his or her retirement pension for a partner’s pension.17 This means that the (former) member will receive a lower retirement pension, while his or her partner will receive a higher survivor pension upon the death of the member. This option is available upon leaving the pension fund or in the last year before the payment of the retirement pension to the member. The level of the partner’s pension cannot exceed 70% of the retirement pension that remains after the exchange.18 In addition, the pension scheme will automatically exchange the retirement pension into a partner’s pension if the (former) member has a partner but has only accrued a retirement pension (i.e. without a survivor option) and does not decide whether to exercise the exchange option within a certain period.

The transferred pension rights and assets may be reduced in order to reflect that transfers usually take place from men to women. In Sweden, it is possible to transfer entitlements to the premium pension between spouses. The transfer takes place annually and consists of the earned pension entitlement for the calendar year. To prevent unfair risk sharing, a charge of 6% of the assets transferred is levied. The charge is the same for men and women and reflects the fact that it is expected that there will be more transfers from men to women than vice versa, and that women have a longer life expectancy on average. Transfers can only start after the individual sends an application and stop when the individual notifies the end of the transfer.

Finally, options to withdraw the accumulated assets at retirement may include the transfer to a spouse’s retirement savings plan. For example, in Portugal, members of the public voluntary funded pension scheme have several options to withdraw assets from the scheme upon retirement. Beyond the usual options of annuities and lump sums, they can also transfer part or all of the accumulated pension assets to a child or spouse’s retirement savings plan.

As women live longer than men on average, the design of the pay-out phase may also affect the level of retirement income that men and women may receive during retirement. This section therefore describes the rules relating to the age of retirement, the mortality tables, the indexation of payments and the survivor benefits, and analyses how these rules interact with women’s longer lives.

Women are likely to draw their retirement income benefits for longer than men are. The age from which people can draw their retirement income is the same for men and women in most OECD countries. Women can withdraw their funded pension earlier than men do in Chile (60 for women / 65 for men), Israel (62/67), Poland (60/65), the Slovak Republic (women with children have a reduced age of retirement) and Switzerland (64/65). In Lithuania, withdrawal ages are currently different for men and women but are gradually converging to be equal as of 2026. Given women’s longer average life expectancy, having the same age of retirement for men and women, or a lower age for women, implies that women will spend more time than men do in retirement.

In retirement savings plans where benefits are determined according to a formula based on past salaries and career length, women would be entitled to a higher pension wealth than men, ceteris paribus. For example, let us consider two individuals, one man and one woman, with the same number of years of participation in a DB plan and at the same level of salary over their career. If they both retire at the same age, they will receive the same level of retirement income benefits every year from the DB plan. As the woman is likely to survive the man, however, she would receive benefits for longer. Women are therefore advantaged in DB systems.

Similarly, women have an advantage over men when annuity providers have to use unisex mortality tables for the calculation of annuity payments. In all European countries, insurance companies have to use unisex mortality tables for pricing, meaning that, for a given level of assets accumulated in a DC plan, a man and a woman retiring at the same age will get the same level of annuity payments every year. Given their longer life expectancy, women are likely to receive these payments for longer. In most countries outside Europe, annuity providers use differentiated mortality tables for men and women. For these countries, for a given level of assets accumulated at retirement, a woman would therefore receive lower annual annuity payments, although for longer, thereby equalising the pension wealth between men and women. In the United States, qualified occupational pension plans under ERISA regulation are not allowed to distinguish mortality tables between genders. The consequence is that occupational plans use women mortality tables and men have an incentive to roll over their funds to a non-ERISA plan (e.g. an IRA), where different tables across genders can be used.

Finally, women are more exposed to longevity risk when they select programmed withdrawals. If a woman withdraws her assets at the same rate as a man does, for a given level of assets accumulated at retirement, she is more likely to deplete her account before passing away. To make sure that assets can finance a longer retirement period, a woman would need to withdraw less each year.

As women tend to live longer than men on average, the extent to which benefit payments are indexed during the retirement phase matters even more to them. Indexation is important to make sure that women’s retirement incomes do not lose purchasing power and women do not fall in the income distribution over time. However, Table 4.4 shows that there is no legal requirement for the indexation of funded pensions in most OECD countries. Pension providers (e.g. insurance companies) may index benefit payments on a discretionary basis. Indexation may also depend on the financial position of the pension funds, such as in the Netherlands and Switzerland. Indexation in line with inflation (Consumer Price Index, CPI) is the most common.

The indexation of annuity payments comes at the cost of lower initial payments. Annuity providers indeed adjust the initial payment downward to account for later increases in line with the index. This keeps the total pension wealth equal to the case of an annuity with fixed payments in nominal terms. In the case of DB plans, such downward adjustment is embedded in the formula to calculate the initial payment (e.g. lower accrual rates).

Finally, women may be entitled to survivor benefits at the death of their partner. A survivor pension may be granted to a surviving spouse or relatives as part of the deceased’s pension to help maintain material living standards after the death of a partner or parent. The retirement income of the surviving spouse may be much lower than the one of the deceased person, as is often the case for women, especially among older generations. Relying on the pension entitlements accrued by the surviving woman alone may reduce her standard of living.

In most DC retirement savings systems, survivor risk is covered through the inheritance of unspent pension capital. Table 4.5 shows that eligible survivors or designated beneficiaries receive the remaining assets in the account upon the death of the deceased member in most DC retirement savings arrangements. This implies that the survivor does not get protection against longevity risk, unless he or she buys a lifetime annuity with the inherited lump sum. Exceptions include Chile, Denmark and Mexico, where the funded DC pension system is mandatory or quasi-mandatory and requires the payment of survivor pensions. In DB systems, survivors tend to receive a survivor pension.

Among countries where retirement savings arrangements pay survivor pensions, the survivor usually receives a fraction of the deceased member’s actual pension (if death occurs after retirement) or projected pension (if death occurs before retirement). This fraction varies from 50% in Chile and Finland, to 60% in Austria, Canada, Denmark, Portugal and Switzerland, and to 90% in Mexico. In the case of Iceland, Mexico and Switzerland, the survivor pension is actually expressed as a fraction of the disability pension rather than the old-age pension. In Chile, the survivor pension is calculated as a percentage of a reference pension, which is 70% of the real average covered earnings of the member in the last 10 years before death.19 Finally, in Chile and Finland, the survivor pension of the surviving spouse is reduced for each additional dependent child because an orphan pension is paid to children.

The survivor may receive benefits until his/her own death or just for a fixed period. For example, in Israel, survivor benefits are only paid for a maximum period of 60 months. The lifelong or temporary nature of survivor pensions may also depend on whether the member dies before or after retirement. For example, in Norway, if a member of a DC savings plan dies before retirement, the accumulated capital must be used first to buy an insured annuity for each orphan up to the age of 21 and then, if there is excess capital available, a fixed term annuity must be bought for the spouse.

Survivor pensions can be set up as a default option for couples. In the United States, federal law encourages survivor protection by requiring employers that sponsor DB plans to offer joint and survivor annuities as the default pay-out option (Box 4.6).20 Members can choose a single life annuity only if both spouses submit their written consent to the plan within 90 days of when annuity payments will begin. In addition, plans must require a plan representative or notary to witness the spouse’s consent.

This section provides selected case studies showing how communication and financial education initiatives can be targeted at women to increase their financial awareness and help them take action to improve their retirement readiness. It complements the examples provided in Chapter 2, looking at the potential impact of calculators, personalised videos, and communication and financial education strategies by pension providers. These initiatives are in line with the OECD/INFE Policy Guidance on Addressing Women’s and Girls’ Needs for Financial Awareness and Education endorsed by the G20 in 2013 (OECD/INFE, 2013[12]). They are also in line with the recently approved OECD Recommendation on Financial Literacy (OECD, 2020[13]).

Calculators can help individuals, in particular women, to assess the impact of family leave on their pension. In Finland for example, people who are planning to use family leave can use a calculator to assess how family leave periods of different lengths would affect their future pension and to compare their pension accrual during family leave with what they would earn as pension if they worked the same period. Finnish parents earn pension benefits during their maternity, paternity or parental leave almost the same way as when they are working, but long periods of child home care allowance have a negative impact on pensions. This is because the earnings base for pension accrual is the previous years’ income raised by 21% during maternity, paternity or parental leave, as opposed to a fixed amount of EUR 757.14 per month (in 2020) during the period of child home care allowance. Figure 4.4 shows the calculator’s output for a person born in 1990, earning EUR 2 000 per month in the previous year, and taking 10 months of maternity, paternity or parental leave, plus 26 months of child home care allowance. While the pension accrual during the parental leave (first 10 months) is slightly higher than the pension accrual had the person worked (EUR 24 vs. EUR 22 per month), pension accrual from working is 72% higher at the end of the child home care allowance period (EUR 79 vs. EUR 46 per month).

Communication and financial education initiatives targeting women can succeed in making them join a retirement savings plan. For example, the Italian pension fund Laborfonds has managed to attract more women than men recently.21 Since 2017, the number of women in the plan has even exceeded that of men (Figure 4.5), in particular in the 40 to 60 age group. This is the result of several initiatives put in place by Laborfonds in the last few years to increase individual awareness about pensions and develop a retirement culture, in particular among women and young workers:

  • Organisation of or participation in the general assemblies of firms having a pension plan with them. During these meetings, experts explain to the firms’ employees the main characteristics of the pension fund, the benefits, costs and incentives (i.e. contributions of the employer, tax benefits, lower cost compared to with-profit pension funds). Laborfonds targets firms where a small portion of employees are already members of the fund, or with a large representation of women or young people. In particular, the significant increase in the participation of women in the fund is related to the fact that several firms are in the agricultural sector and employ a lot of women.

  • Organisation of special events, some of them together with Pensplan, to reduce the pension gap between women and men (e.g. “Equal pension days”, “Equal pay day”).

  • New communication approach via a periodic newsletter and social media (Facebook, Instagram).

  • New agreements signed with local info-points in order to explain the characteristics of the pension fund and attract new members.

  • Participation in specific events during the Financial Education Month (every year in October since 2018) promoted by the Italian Committee for the Planning and Coordination of Financial Education Activities (www.quellocheconta.gov.it).

Finally, personalised pension videos can successfully engage women with their pension once they are members of a plan. For instance, Mercer works with several employers to develop personalised videos for each of their employees who are members of their DC retirement savings scheme. The short video highlights the figures members need to know about their pension (e.g. contributions made, total assets already accumulated), including an estimate of their income at retirement. Using insights from behavioural economics, it encourages members to take actions. It keeps the messaging clear and simple, and reduces the gap between intention and action by including an on-video link that members can click on to improve their retirement readiness (e.g. increase contributions).22 Whilst videos are aimed at all genders, anecdotal evidence from some employers suggests that women may be more likely to watch the video until the end and to click to increase their contributions (Read, 2017[14]). This could be due to the imagery and messaging in the video, although the fact that women are more likely than men to fall short of expectations in terms of their pension could also be a factor explaining why more women take action after viewing their video.

This chapter has assessed the gender implications of the design of retirement savings plans. It reviewed the rules and parameters of these plans in OECD countries using a gender lens, assessing whether they may affect men and women differently.

Several design features of retirement savings plans are not gender neutral and tend to disadvantage women:

  • Although pension funds cannot discriminate plan access based on gender, some countries still have eligibility criteria based on a minimum number of working hours or on a minimum income threshold that may restrict women’s ability to join retirement savings plans more than men’s.

  • While periods of maternity and parental leave usually do not delay women’s eligibility to join retirement savings plans, in some OECD countries, they lead to a break in contributions or pension right accruals. This penalises women, who would need to contribute more upon return to work to compensate for the loss.

  • Conservative default investment strategies may reinforce women’s natural biases against risk. Given that women tend to contribute less to retirement savings plans and have a higher average life expectancy, it may be better for them over the long term to invest in growth strategies in order to boost their retirement savings.

  • Some OECD countries do not consider pension rights and assets as joint property built up during marriage or partnership. This implies that women who took time off work or reduced their working hours to take care of the family, would not get compensation for accumulating less in their own retirement savings account in case of divorce. In other countries, pension rights and assets built up during marriage or partnership are considered as joint property, but the split between the ex-spouses is not automatic and pensions risk not being accounted for in divorce settlements.

  • There is no legal requirement for the indexation of benefits received from retirement savings plans in most OECD countries. As women tend to live longer than men on average, the lack of indexation puts them at higher risk of falling in the income distribution at the end of their life.

  • In most DC plans, survivors do not get protection against longevity risk as survivor risk is covered through the inheritance of unspent pension capital. By contrast, in DB plans, survivors tend to receive a lifelong pension upon the death of the spouse. Making survivor pensions the default option for couples can improve access to retirement benefits for surviving spouses.

By contrast, other design features of retirement savings plans are gender neutral or favour women and may help to reduce the gender pension gap:

  • Policies aiming at reaching high participation levels in general, e.g. automatic enrolment, can help close the gap in plan participation between men and women.

  • Options to offset contributions gaps for women include the possibility for spouses to contribute to each other’s retirement savings plans, the possibility to split or transfer pension rights or assets between spouses, or the possibility for employers to contribute more on behalf of women. For the latter, however, making it more costly to employ women could have negative consequences, as employers may refrain from employing them or reduce their base salary to compensate for the higher pension contribution. There may be also legal barriers preventing contribution discrimination between men and women.

  • Specific financial incentives for women may be useful to encourage them to join retirement savings plans. They may also help women to build larger pension accumulations to compensate for periods off work or with reduced working hours. Incentives targeted at low earners or allowing catch-up contributions can also be particularly relevant for women.

  • Women are likely to spend more years than men in retirement due to their longer average life expectancy. Everything else equal, this translates into a higher pension wealth for women than for men when retirement benefits are determined according to a formula based on past salaries and career length, or when annuity providers have to use unisex mortality tables for the calculation of annuity payments. By contrast, women are more exposed to longevity risk when they select programmed withdrawals if unisex tables are referenced.

  • Communication and financial education initiatives targeted at women (e.g. calculators, seminars, communication through social media, or personalised videos) can successfully increase their financial awareness and help them take action to improve their retirement readiness.

References

[10] Aura, S. (2001), “Does the balance of power within a family matter? The case of the Retirement Equity Act”, Innocenzo Gasparini Institute for Economic Research Working Paper 202.

[4] Australian Government (2018), Australian Government response to the Senate Economics References Committee Report: “A husband is not a retirement plan: Achieving economic security for women in retirement”, https://www.pmc.gov.au/sites/default/files/publications/govt-response-inquiry-husband-not-retirement-plan.pdf.

[5] Garnick, D. (2016), Income Insights: Gender Retirement Gap.

[9] Holden, K. and S. Nicholson (1998), “Selection of a joint-and-survivor pension”, Institute for Research on Poverty Discussion Paper 1175-98.

[11] Johnson, R., C. Uccello and J. Goldwyn (2005), “Who foregoes survivor protection in employer-sponsored pension annuities?”, The Gerontologist, Vol. 45/1, pp. 26-35, http://dx.doi.org/10.1093/geront/45.1.26.

[13] OECD (2020), Recommendation of the Council on Financial Literacy, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0461.

[7] OECD (2020), “Selecting default investment strategies”, in OECD Pensions Outlook 2020, OECD Publishing, Paris, https://dx.doi.org/10.1787/1c7381db-en.

[1] OECD (2019), “Are funded pensions well designed to adapt to non-standard forms of work?”, in Pensions at a Glance 2019: OECD and G20 Indicators, OECD Publishing, Paris, https://dx.doi.org/10.1787/1231a36d-en.

[2] OECD (2019), Pension Markets in Focus, http://www.oecd.org/daf/fin/private-pensions/Pension-Markets-in-Focus-2019.pdf.

[12] OECD/INFE (2013), OECD/INFE Policy Guidance on Addressing Women’s and Girls’ Needs for Financial Awareness and Education, https://www.oecd.org/daf/fin/financial-education/G20-Women-Girls-Fin-Ed-Policy-Guidance-2013.pdf.

[8] Pensions Policy Institute (2019), “The gender pension gap: can it be closed?”, PPI Briefing Note 114, https://www.pensionspolicyinstitute.org.uk/media/3185/20190604-the-gender-pensions-gap-can-it-be-closedpub.pdf.

[14] Read, E. (2017), Pension Gender Gap: How can we respond?, https://www.slideshare.net/OECD-DAF/eve-read-pension-gender-gap-how-can-we-respond.

[3] Senate Economics References Committee (2016), A husband is not a retirement plan: Achieving economic security for women in retirement, https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Economic_security_for_women_in_retirement/Report.

[6] Watson, J. and M. McNaughton (2007), “Gender differences in risk aversion and expected retirement benefits”, Financial Analysts Journal, Vol. 63/4, pp. 52-62, http://dx.doi.org/10.2469/faj.v63.n4.4749.

Notes

← 1. OECD Labour Force Statistics 2020.

← 2. This credit applies regardless of whether the employees’ leave of absence during this period was paid or unpaid, and whether their leave was approved.

← 3. If individuals leave an employer for whom they have worked for several years and later return, they may be able to count those earlier years towards vesting. Generally, a plan must preserve the service credit individuals have accumulated if they leave their employer and then return within five years. Service credit refers to the years of service that count towards vesting.

← 4. Source: APRA Annual Superannuation Bulletin, June 2018.

← 5. In Slovenia, employer contributions to voluntary occupational schemes during maternity and parental leave are not mandatory. However, employer contributions must continue during maternity and parental leave for mandatory occupational schemes covering civil servants and workers in arduous and hazardous conditions.

← 6. Employers may also include a social component to their occupational pension plan. Employers pay additional contributions to a solidarity fund, which can finance the continuation of the pension right accumulation (or the payment of contributions) during periods of inactivity, including maternity leave. See https://www.fsma.be/fr/faq/quelles-autres-couvertures-est-il-possible-de-proposer, sections C and D.

← 7. For someone with no earnings in the previous year, pension benefits accrue as if the person had earnings worth EUR 757.14 per month (in 2020). The same earnings base is used while receiving the child home care allowance.

← 8. In some countries, the term parental leave is used distinctively from the terms maternity leave and paternity leave to describe a separate family leave available to either parent to care for small children.

← 9. A spousal IRA can be a traditional or Roth IRA. They are subject to the same income limits, annual contribution limits and catch-up contribution provisions as traditional and Roth IRA.

← 10. It is also possible to split the compulsory superannuation contributions from one’s employer and have these paid into a spouse’s account.

← 11. Contributions to protect a person with disabilities applies if the contributor has a relationship of kinship in direct or collateral to the third degree with the member, as well as the spouse or for those who have the disabled person in custody or foster care.

← 12. A qualified default investment alternative (QDIA) must be diversified. It may be (i) a life cycle (or target date) fund; (ii) a balanced fund; or (iii) a professionally managed account.

← 13. The authors acknowledge, however, that there are difficulties associated with investing in alternatives, which tend to be more expensive and require more resources to manage.

← 14. https://www.nowpensions.com/press-release/divorced-women-half-of-average-savings/

← 15. In the Netherlands, a new law on pension distribution after divorce will enter into force on 1 January 2022. Pensions accrued during marriage will be automatically split in half and distributed, without any action required from the ex-partners. Today, even if the ex-partner is entitled to receive half of their former spouse’s pension built up during the marriage, pensions are often overlooked in a divorce (see https://apg.nl/en/publication/what-does-divorce-mean-for-your-pension/).

← 16. These exceptions do not apply to ATP plans, which cannot be split upon divorce.

← 17. The exchange may also go in the other direction, exchanging a partner’s pension (i.e. a survivor pension) for a higher retirement pension. This requires the consent of the partner.

← 18. The exchange takes place on the basis of collective actuarial equivalence, which means that the collective actuarial value of the partner’s pension is at least equivalent to the collective actuarial value of the retirement pension calculated on the same basis. This implies that the same exchange factors apply to men and women. The pension scheme can determine the exchange factors on the basis of actual percentages of male and female participants, as well as on the basis of an expected exchange pattern.

← 19. This is only for members currently insured (i.e. contributing and paying the insurance premium), not all members of the system.

← 20. If a DB participant survives until retirement age, the Retirement Equity Act (REA) of 1984 requires that the participant’s annuity be a qualified joint and survivor annuity (QJSA), under which payments continue for the lives of both the employee and their spouse. However, if a DB participant dies before retirement and is vested, a qualified pre-retirement survivor annuity (QPSA) is paid to offer compensation to the surviving spouse for the loss of retirement benefits that would have otherwise been paid to the employee.

← 21. Laborfonds is an occupational pension fund for people working in the public and private sectors in the Trentino-Alto Adige region. It is connected with Pensplan, a public company aiming at developing the private pension sector in the Trentino-Alto Adige region. Pensplan provides operational support (e.g. administrative service) to regional pension funds (Laborfonds and three other open pension funds) and organises local info-points to provide free advice to citizens with reference to the public and private pensions.

← 22. See https://www.uk.mercer.com/what-we-do/wealth-and-investments/personalised-pension-videos.html for an example of a personalised video.

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