It's High Time We Fix The Gender Gap in Pensions

Margaret Franklin, president and CEO of the CFA Institute wrote an op-ed for CNBC back in November on why the gender gap in pensions is real and needs to be fixed:

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.

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.

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.

Today is International Women's Day, so let me begin by celebrating women all over the world who work hard in the workplace and at home.

I'm especially thinking of all those Ukrainian women who had to flee their homes, leaving their husbands and sons behind to fight the Russians while they traveled alone to Poland with their young children. These women are simply incredible as are the many women and men in Poland helping them during these dire times.

The reason I bring this comment up today is self-evident, it's International Women's Day and I don't mince my words in my title, it's high time we fix the gender gap in pensions.

Pension poverty is a major policy issue, one I've covered many times in the past and one that should concern all of us.

The key thing to remember is pension poverty strikes more women than men for a whole host of reasons:

  • Women are not earning as much as men (and thus contribute less to their retirement)
  • Women have less linear career paths because of the nature of their work (part-time vs full-time), child-raising and elderly care.
  • Women live longer than men (longevity risk which is magnified by conservative investing strategy women typically adhere to)
  • Lack of flexible workplaces disadvantaging women
  • Lack of government support (ie. paid parental leave)
  • Most women work in jobs with no defined-benefit or any retirement plan.

And here is something else to think about, more women than men are affected by chronic illness and that includes mental illness. 

In fact, women face unique health challenges compared to men and policymakers need to recognize this, especially as it pertains to closing the gender gap in pensions.

The good news is if employers and governments implement policies that address long-standing inequities, then the gender pay and pension gaps can become a relic of the past.

But let's not kid ourselves, we are far from reaching that point.

Let me give you one example on compensation.

Do you know if your organization pays women just as much as men for equal work?

Maybe you do know but most places do not publicize detailed compensation data, slicing and dicing it by gender and minority groups.

A friend of mine once remarked that every major organization (private and public sector) should publish median compensation and also publish a chart showing the CEO's compensation relative to the median over time (with detailed explanations).

Of course, that will never happen unless it is legislated but we know that in almost all places the guys (and a few gals) at the top garner the lion's share of total compensation. 

We can argue about whether this is "fair" but what we can't argue about is that in 2022, it is wrong if men are being paid more than women for equal work and responsibilities or that white employees get paid more than those from visible minorities for equal work and responsibilities or that disabled employees get paid far less for equal work and responsibilities.

Well, we don't have worry about that last one because disabled employees almost never get hired even if they're competent and willing to work. Sadly, they're routinely marginalized and discriminated against so we can strike them from the list of minority groups that matter in this conversation.

I realize some of you may get irritated reading this but it's most likely because I'm exposing an uncomfortable and ugly truth you don't want to openly discuss.

In this day and age where "ESG" investing reigns supreme, there's still a lot of work we need to do on the "S" front to make sure we live in a just society.

And let me throw this out to all the large pensions reading this, what exactly are you doing to address the gender gap in pensions and compensation, both within your organization and in all those companies you invest in across public and private markets?

I'd love to see a section in your annual "Responsible Investing" report that discusses this and other important diversity & inclusion initiatives you have undertaken to address these inequities.

Anyway, I'd better stop there because my inner voice is telling me not to push the envelope on these issues as it makes too many people uncomfortable. 

Let me just end by stating the gender gap in pensions is real and even though it's less prevalent in Canada than other countries, it's still a major problem here too. 

The longer we ignore it, the worse it will get, and this is a huge problem which will come back to haunt all of us.

You should read my recent conversation with  Derek Dobson, CAAT Pension Plan's CEO and Plan Manager, on saving Canada's retirement system

The more women and men we get covered with a proper defined benefit plan or hybrid plan, the better off the country will be over the long run.

This is why I welcomed enhanced CPP when it passed a few years ago and why I want to see more initiatives like CAAT's DBplus and OPTrust Select to cover more Canadians that lack adequate coverage for their retirement. 

One last shout-out to all the women out there on this International Women's Day and that includes many women at all levels of the large Canadian and US pensions I cover in this blog. 

Today, we celebrate you and your achievements and our hearts, minds and prayers are with those Ukrainian women fleeing their country with their children. 

Let's hope some peaceful resolution comes sooner rather than later. 

Below, women and pensions: Gender pensions gap – a roundtable discussion with Now Pensions, Aegon and The Geeks. 

NOW: Pensions research has revealed that women are reaching retirement age with over £100,000 less in their pensions than men. The COVID-19 pandemic has compounded already challenging issues when it comes to managing childcare and work responsibilities. 

The gender pay gap and gender pension gap present significant hurdles for women trying to save for their futures. In this session, our panelists discuss what can be done to help close the gender pensions gap and how the industry is working to create a fairer pension system.

And to celebrate International Women's Day in Przemysl, a Franciscan friar is offering flowers to Ukrainian women who are fleeing the war. More than two million refugees have fled Ukraine since Moscow's invasion.