Income and Pensions, is there a link?

Women have a problem when it comes to saving for retirement in all countries. In most countries around the world, women earn around 17% less than men who perform similar work. In addition to lower pay, women are far more likely than men to take time out of the workforce to raise children; to care for elderly parents; and to work part-time. All of these factors impact on the ability of women to accumulate retirement savings.

It’s important to acknowledge the link between the pension and wage gaps. Statistics Canada, for example, found women’s average hourly wages were 88 percent of what men earned in 2014, although that doesn’t necessarily take into consideration factors such as occupation, age, union status and location. But when it comes to annual pay, that drops to 74 percent, because women work far fewer hours. And pension contributions, of course, are based on total salary and not hourly wages.

So, when you’re looking at an employer contribution into a pension, that percentage will be pounds and pence, or dollars and cents, if you will, less in a woman’s pension than a man’s because she actually receives less in her salary.

The gap between the retirement incomes of men and women will never be solved by information campaigns, decision-making tools or new websites. Better information may help some women (and men) avoid the exorbitant fees charged by many pension plans, and may enable better investment decisions, but information will not overcome the underlying structural flaws in the system which disadvantages women.

For example, calculations by The Australia Institute show that an average woman who worked full time would have around $200,000 less in their superannuation savings than the average man, a hypothetical nurse who took time to care for her children and parents would have around $538,000 less and a hypothetical lawyer who took time out for caring would have around $457,000 less. A recent study by Zurich Insurance Co. Ltd. found that over the course of her career, the average British woman would earn 47,000 pounds less in employer pension contributions than the average British man. In Canada, women need to save 26 percent more than men for retirement.

If we are serious about improving the retirement incomes of women then tinkering with pension programs or superannuation has a very small role to play. Millions of women have already made 'bad decisions' such as having children, working parttime and caring for their elderly parents. Indeed, all women made the mistake of being born into the gender that gets paid between 17 and 26% less than a man.

The only way to help women in retirement, as opposed to making them feel guilty for having made 'bad decisions' is to increase the age pension. While such an increase would be expensive, the cost is trivial compared to the enormous, and rapidly growing, cost of helping senior women in poverty survive and be healthy.

If we wanted to spend money to help boost the retirement incomes of women or all retirees, we could do so. Instead, we have chosen to run seminars and provide information for women on how to make better decisions, and make women feel guilty about the choices they make for their family. 

The idea for this post came from an article written in 2014 by Richard Denniss.