Towards Improved Retirement Savings Outcomes for Women

Executive summary

The gender pension gap observed today is mainly the result of past work history differences between men and women. Differences in labour market participation, part-time employment, wages, and career length translate into different pension outcomes down the road. The transmission mechanism from the labour market to the pension system is direct with retirement savings arrangements, which depend upon putting aside part of individuals’ total earnings to finance their retirement. Given the growing importance of these arrangements in the provision of retirement income, policy settings should at least ensure that their design does not increase the gap, putting women at a further disadvantage.

This publication provides governments with guidelines to ensure that retirement savings arrangements do not further exacerbate inequalities between men and women stemming from labour market or other factors. This study first presents evidence of the gender pension gap in retirement savings arrangements in selected OECD countries. It then explores the literature to shed light on some of the behavioural and cultural factors that contribute to these inequalities. Country case studies then look into the question of what explains the gender gap in pension coverage, assets and entitlements in some OECD countries, with a focus on unpacking drivers other than labour market factors. The study then analyses the rules and parameters of retirement savings arrangements using a gender lens. Finally, it provides policy options to improve retirement savings outcomes for women and to help close the gender pension gap.

Key findings

• On average in the OECD, combining public and private sources, women aged 65 and older receive 26% less income than men from the pension system.

• Part of this gap originates from retirement savings arrangements, as women participate less in retirement savings plans and build up lower pension assets and entitlements, in particular from the ages of 25 to 44, which may correspond to the impact of the first career break for parenting.

• Beyond labour market drivers, behavioural and cultural elements, as well as societal interactions, may influence the decisions taken by men and women in a way that contributes to the gender gap in retirement savings arrangements. Compared to men, women are often found to be more risk averse and have lower levels of financial literacy overall, which may influence their attitude towards savings. Marital choices may also affect retirement incomes, as couples may be able to mutualise their pension savings. Gender stereotyping could also encourage women to opt for solutions that are more conservative than what their actual risk preferences imply. Moreover, communication campaigns may fail to take into account certain needs specific to women, such as how to compensate for the decrease in salary and contributions during parental leave.

• Country case studies demonstrate that while labour market inequalities are important drivers of the gender pension gap, aspects related to the design of retirement savings arrangements also explain much of the gap. They show that factors such as pension eligibility rules can lead to significant differences in pension plan coverage from workplaces. The studies also exhibit evidence of behavioural biases, particularly when it comes to personal pension plans that may lead women to save less than men.

• The design of retirement savings plans is not always gender neutral. Women are disadvantaged compared to men when:

  • eligibility criteria based on working hours or earnings restrict plan access;

  • contributions or pension right accruals stop during periods of maternity and parental leave;

  • conservative investment strategies are used for the default option;

  • pension rights and assets are not split automatically between ex-spouses upon separation;

  • retirement benefits are not indexed;

  • pay-out options with survivor benefits are not available.

Policy guidelines

There are ways to design retirement savings arrangements that mitigate their effects on the gender pension gap. While it cannot address the drivers themselves in all cases, particularly those stemming from the labour market, the design of these arrangements should at least account for and accommodate gender differences that can lead to lower eligibility, lower participation, lower and less frequent contributions, lower returns, lower individual rights, and lower retirement income. As such, retirement savings arrangements should aim to be gender neutral. The following policy guidelines would contribute to reducing the gender pension gap:

• Promote women’s access to retirement saving arrangements by increasing the availability of such arrangements in industries predominantly employing women and relaxing eligibility requirements.

• Encourage women’s participation in retirement savings arrangements through hard or soft compulsion, financial incentives to join, and financial education initiatives tailored specifically to women.

• Improve the level and frequency of women’s contributions to retirement savings arrangements with contributions from employers or spouses, financial incentives that target groups with large female representation (e.g. low-income groups), subsidies for maternity and caretaking, contribution limits that can be carried forward, and targeted communication to educate women on the importance of regular contributions.

• Adapt the design of retirement savings arrangements to the career patterns of women by allowing more flexibility with respect to contributions, improving the portability of plans, and adapting the fee structures to small account balances.

• Improve investment returns on women’s retirement savings by implementing non-conservative default investment options and offering objective assessments of their risk tolerance to inform their investment decisions.

• Increase women’s own retirement benefit entitlements by allowing spouses to share their pension rights with each other, facilitating the split of retirement benefit entitlements upon divorce, and increasing women’s awareness of the option to share their former spouse’s benefits, when it exists.

• Increase the level of retirement income that women receive by equalising retirement ages between genders, calculating lifetime retirement income based on unisex mortality tables where feasible, providing a subsidy directly to women, promoting pay-out options with survivor benefits, and encouraging the availability of pay-out solutions that increase payments over time.