Women face a perfect storm of challenges when accumulating retirement savings, a new World Economic Forum white paper warns. They earn less than men, contribute for fewer years, live longer and are more conservative in their investment strategies. The resulting difference in retirement balance for women is estimated to be 30-40% in Europe and a similar percentage in the United States, compared to a gender pay gap that currently stands at around 15-20% across high-income countries (World Economic Forum, Gender Gap report).
“Women have the pension odds stacked against them, so we need government and employers to help even the playing field,” said Han Yik, Head of Institutional Investors Industry at the World Economic Forum. “If women follow the same retirement plan as men, they fall short because on average they earn less and work fewer years. If they follow a more aggressive savings plan, they further lower their take-home pay, increasing the net pay gap.”
Although women can take it upon themselves to save more, that alone will not be enough to close such a large gap. Instead, the authors suggest that governments recognize the time individuals (both male and female) take out of the traditional workforce to contribute towards society. This could be done through pension credits or increases in social security benefits. They also suggest removing tax limitations to help those who have been out of the workforce catch up on lost years of contributions.
Employers also need to do their part, by addressing the underlying pay gap. “People look to their employers for guidance on financial wellness matters, including retirement,” said Renee McGowan, Global Head of Individual Wealth at human resources consultancy firm, Mercer. “Knowing the gravity of the gender issue at stake, they should act to help correct it.”
However, limiting or eliminating the gender pension gap won’t start to close the pension gap that is developing worldwide. Last year, the same authors found that the gap ballooned to $400 trillion by 2050 in the world’s eight largest pensions systems (Australia, Canada, India, Japan, The Netherlands, The People’s Republic of China, United Kingdom and United States). The new paper, co-authored with Mercer, explores how the gap can holistically be reduced.
On managing the “liability” side of the gap, a further increase in the retirement age (up to 70 and above) looks inevitable in most societies. On the “asset” side of the gap, measures to increase savings could include:
- Expansion of coverage to more individuals, with a particular focus on low-income populations, women (see above), and employer-facilitated plans
- Leveraging technology to increase levels of savings, including automatic design features to help improve retirement outcomes (these features could increase an individual’s wealth at retirement by 70%)
- The structuring of pension systems to provide further incentives to improve participation