Engendering equality

The design of retirement savings arrangements should not exacerbate gender inequalities in retirement

By Stéphanie Payet, pension analyst, Consumer Finance, Insurance & Pensions Division, Directorate for Financial & Enterprise Affairs, OECD

The difference in the retirement income that men and women receive — the gender pension gap — remains substantial, at 26% on average in the countries of the OECD. It stems from gender inequalities throughout the life cycle.

Private retirement savings arrangements contribute to this gap. The March 2021 OECD publication “Towards Improved Retirement Savings Outcomes for Women” presents evidence that these arrangements play a role in the overall gender pension gap. Indeed, women are less likely than men to participate in a retirement savings plan and, when they do, they also contribute less. As a result, women accrue less in their plans. The gap in pension assets between men and women emerges in the 25-34 age group and widens afterwards (see figure below). Moreover, women’s longer average life expectancy means that in many defined contribution plans they will have to rely on their assets for longer.

“Women are less likely than men to participate in a retirement savings plan.”

Labour market differences drive the gap

Closing the gender pension gap for retirement savings arrangements poses a particular challenge, given that the income from these arrangements is closely linked to employment and income patterns. Labour market differences between men and women are indeed the main driver of the gender pension gap. Women participate less in the labour market than men, meaning that fewer women will have employment-related retirement savings plans.

Women also tend to have shorter careers, as they take breaks to care for children or relatives. This means they can contribute for fewer years to a plan and accumulate fewer retirement benefit entitlements, as shown in the figure above. Moreover, women are overrepresented among part-time workers. Working part-time may make a worker ineligible to join a retirement savings plan, but also implies lower wages and retirement benefit entitlements. Finally, the average gender pay gap for full-time employees in the OECD currently stands at around 13%1. For a given contribution rate, women will therefore contribute lower amounts than men to their retirement savings plan.

“Women have shorter careers, take breaks and work part-time.”

Multiple secondary drivers too

Beyond labour market factors, behavioural, cultural and societal factors are important secondary drivers of the gender gap in retirement savings arrangements that are worth recognising. Women frequently demonstrate higher levels of risk aversion than men, which can translate into a preference for lower-risk investments and therefore lower returns on average for their retirement savings. Women, on average, have lower levels of financial knowledge than men, making it harder for women to make informed decisions about retirement savings2.

Additionally, the consequences of divorce or death of a spouse for retirement savings may be worse for women than for men, given that financial decisions within couples may prioritise the main income-earner, most often the man. Gender stereotyping and gendered expectations may also partially explain why women are often still the primary family caregiver, affecting their labour and earnings history. Finally, communication campaigns may fail to engage women in retirement planning because they do not take into account the fact that women react differently to the context and how information is framed.

“Behavioural, cultural and societal factors are important secondary drivers of the gender gap in retirement savings arrangements.”

Policymakers can help

Policymakers can take action to reduce the gender gap in retirement savings arrangements. They can improve the design of arrangements to ensure that it does not exacerbate the inequalities stemming from the labour market:

  • Promote women’s access to retirement savings arrangements by increasing the availability of such arrangements in industries predominantly employing women and by relaxing the eligibility requirements for joining a plan.
  • Encourage women’s participation in these arrangements through nudging strategies (eg, automatic enrolment), financial incentives and tailored financial education programmes.
  • Improve the level and frequency of women’s contributions through contributions from employers or spouses, subsidies for maternity and caregiving, financial incentives to contribute that target groups with large female representation (eg, low earners) and targeted communication.
  • Adapt the design of retirement savings arrangements to the career patterns of women by being more flexible about contribution levels and improving the portability of occupational plans.
  • Improve investment returns on women’s retirement savings by using non-conservative default investment strategies to overcome risk aversion and by providing objective assessments of individual risk tolerance.
  • Increase the financial independence of women by allowing spouses to split pension entitlements either while they are accumulating them or upon divorce, and by communicating about the options available for splitting retirement assets upon divorce.
  • Address women’s longer average life expectancy by equalising retirement ages between genders, calculating retirement income based on unisex mortality rates where appropriate, promoting survivor income benefits, and encouraging the availability of pay-out options that increase retirement benefits over time.

Stéphanie Payet

Pension analyst Consumer Finance, Insurance & Pensions Division Directorate for Financial & Enterprise Affairs OECD