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knowledge 13 December 2018 |

Gender Pensions Gap – Key Considerations

Background

The gender pay gap may be gaining traction as a concept, but the knock-on effect this gap is having on pensions needs to be carefully considered. In Ireland, a retired woman receives on average 26.1% less retirement income than her male counterpart1 and is consequently at a greater risk of living in poverty. 2 This ‘gender pension gap’ (the difference in pension income between men and women), is predicted to continue into the future unless positive action is taken to tackle it.3

Employers should provide for the financial stability of their employees, male and female, and this includes stability in retirement. By taking positive steps to investigate and close gender pension gaps in their workplaces, employers can stay ahead of regulatory change, drive business growth through increased diversity and employee engagement, and recruit and retain top talent.

Understanding the gender pension gap

The gender pay gap

The gender pay gap, which currently stands at 13.5% in Ireland, is a leading contributor to the gender pension gap. Women in Ireland continue to earn less than men for a myriad of reasons: they tend to work in lower-paid jobs, they are under-represented as a group in senior management roles and over-represented in precarious and part-time work, indeed, women are nearly three times as likely as men to work less than 18 hours per week, and over twice as likely as men to work between 19-35 hours per week.4 Earning less means that a greater portion of women’s income is dedicated to satisfying immediate necessities, and they are therefore less likely to contribute to private pension schemes. As a result, 27% of women do not regularly set money aside for their retirement, compared to 18% of men.5

Lack of engagement and attitude to risk

Perhaps, owing to the greater challenges faced by women accumulating retirement savings, research shows a lack of engagement by women on the topic of retirement planning generally. Research indicates that 24% of women have not considered how much they would need to live comfortably in retirement, while the comparable figure for men is 14%. Further, 44% of women say they don't understand pensions and investments, compared to 27% of men.6 When it comes to investing for retirement, women are also 67% more likely than men to invest in a defensive fund with a low expected level of growth, contributing further to the gender pension gap

Breaks in participating in the labour market

More women than men assume caring responsibilities and their participation in the labour market is therefore more likely to be interrupted by taking maternity or carer’s leave. Breaks in employment reduce women’s capacity to contribute to pension funds, with the gender pension gap being compounded by the loss of growth that would have accumulated over the years. Many employers will bridge a small part of this career gap only, while tax rules that limit annual employee contributions make it difficult for women to catch up on missed contributions at a later point in time.

Traditional nature of pension schemes

Most pension products are designed with an uninterrupted, forty year long, full-time career in mind, and do not reflect needs that depart from that model. Research shows that less than 10% of organisations offer pension schemes that can be modified to provide for differences in working patterns.7 This means that those earning less, working part-time or taking caring leave accrue less benefits over time.

Actions employers can take

The European Commission has listed reducing the gender pension gap as a key priority.8 Progressive employers should anticipate policy shifts in this area and prepare accordingly. By taking action now, employers will be in a strong position to adhere to future regulation, enhance their organisation’s public image, and attract and retain talent.

Encourage gender diversity

A simple way to reduce the gender pension gaps is to actively support a gender-diverse culture at all levels of an organisation.

Review pension schemes

Employers should review female participation rates in their retirement benefit programmes, and, if a disparity exists, investigate why and take steps to remedy the situation. This might involve providing additional funding supports to pension scheme members during periods of extended leave or introducing quotas for female representation on trustee boards of pension schemes.

Targeted communications

For many reasons, women are disengaged with retirement planning. Employers should consider whether positive action should be taken to discuss with female employees their specific pension requirements and concerns.

By working towards more diverse and inclusive workplaces, and taking the time to address deficiencies in current systems of retirement benefits, employers can make a real difference to the lives of women in Ireland in their retirement.

How can we help?

Our Employment, Pensions and Incentives Group at McCann FitzGerald are working with employers to evaluate the gender pay gap and gender pensions gap issues and can set out strategies and policies.

  1. “Pension Adequacy Report 2018, Current and Future Income Adequacy In Old Age In The EU” (2018) European Commission.
  2. “Strategic Engagement for Gender Equality 2016-2019” European Commission Directorate-General for Justice and Consumers (2015).
  3. “OECD Reviews of Pensions Systems: Ireland” (2014) OECD.
  4. University of Limerick report (2015).
  5. Research carried out on behalf of Aviva, 2017.
  6. Research carried out on behalf of Aviva, 2017.
  7. “When Women Thrive, Businesses Thrive” Mercer (2016).
  8. “Strategic Engagement for Gender Equality 2016-2019” European Commission Directorate-General for Justice and Consumers (2015).

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.