Title

FERPA Women’s Committee:

HOW TO NARROW

GENDER PENSION GAP?

By Jasna A. Petrovic, FERPA Women’s Committee President

Brussels, 27-28 September 2012

PENSION AGAINST POVERTY

► The main objective of a retirement system is to relieve poverty in old

age through adequate income provision but also to offer insurance

against an unexpectedly long life.

► Support to the elderly can be organized in various ways: the family,

the market, or the state. In almost all countries all three solutions exist

but with one being dominant.

► Dependency ratios are increasing and fewer workers have to support

more retirees putting pressures on pension systems provided by the

market and the state.

► Changing family patterns and urbanization in the developing world put

a heavy strain on the family model and make informal retirement support

systems less reliable.

• Men and women have different patterns of work history, with women:

► a lower participation rate in the formal labour market ► interrupted careers in response to child rearing and elderly care ►limited careers after return ► lower wages – lower pension benefits ► more likely to work part-time and short term ► longer life expectancy than men ► more often become widows than men become widowers

“SECOND LEVEL” WORKERS

LOW PAY – LOW PENSION

• A gender pension gap exists across Europe, leading to lower living standards or poverty for older women.

• Women need a strong first pillar provision, with pension credits for child and elder care.

• Governments must move away from the ‘bread-winner’ family model to allow for women to become increasingly financially independent in future.

SCHOCKING

GERMANY OPENS THE CASE • The gender pension gap issue was not in the focus of the European

policy so far, even when the issue of only gender pay gap was discussed • In the study “The Gender Pension Gap Developing an Indicator

Measuring Fair Income Opportunities for Women and Men” – for the first time the GPG measuring model was promoted by the Federal German Ministry for Family Affairs, Senior Citizens, Women and Youth of Germany – February 2012

► The first info was shocking: the German GPG amounts to 59.6%. This means that in Germany, women generally receive 59.6% less individual pension than men!

EAST Vs WEST ► When comparing eastern and western Germany, it is evident that the GPG

in the east is lower than that in the west (36.7 percent and 63.8 percent respectively).

► The higher the level of academic or vocational qualification, the lower the GPG (university degree 35.6 percent, and no qualification 58.1 percent).

► GPG for married persons with children is 69.6 percent, while for married persons with no children it is narrower, at 51.6 percent. In eastern Germany the GPG is considerably narrower regardless of the marital status.

► The gap for the various cohorts rises from 54.3 percent for the youngest cohorts (65 – 69) to about 60 percent for the two middle cohorts. At 66 percent, the maximum gap occurs in the oldest cohort (the over 80s).

HUMANITY OR HUMILIATION

• Using the EU-SILC data ensures that the data for the individual countries are subject to the same classification regarding pension types.

• The calculation takes in all such pensions regardless of whether they are received on grounds of age, widowhood, loss of earning capacity, etc.

• The gender gap in old-age income in the EU-15 - including derived entitlements – ranges from 46.4 percent to 16.8 percent, with Germany’s comparatively wide gap of 42.3 percent.

• The figure calculated for Germany as regards the gender gap in old-age income is around 20 percentage points lower than the figure for the Gender Pension Gap that Germany finds appropriate.

* The European Union Statistics on Income and Living Conditions (EU-SILC) is an instrument aiming at collecting timely and comparable cross-sectional

and longitudinal multidimensional microdata on income, poverty, social exclusion and living conditions.

SAD, SADDER

DIGGING DIGNITY

► The poverty rate among older women is higher than for older men, especially in Member States where the predominant pension schemes relate benefits closely to lifetime earnings and contributions.

► Such pension schemes place those who care for children or for dependent relatives at a disadvantage because their career breaks and part time work reduce their lifetime earnings.

► The projected impact of pension reforms is usually based on a male, full time, full career, average earner profile.

► Women’s higher life expectancy compared with men means that inflation erodes their pension to a greater extent, if indexation is inadequate.

► Very old women are at the highest risk of poverty due to this erosion of income when ageing – in 75+ double than – men.

HOW TO TACKLE GPG?

• DIFFERENT policy areas are to be taken parallel:

• Pension provision – sustainability is increasingly taking priority over adequacy.

• Labour market organisation – measures to reconcile family and work/ flexibility.

• Gender equality – direct discrimination is outlawed, but life-course

decisions lead indirectly

to inequality.

LABOUR MARKET BARRIERS 1. INCREASE WOMEN’S ACTIVITY RATES: The Europe 2020 Strategy

aims at raising the employment rate of men and women up to 75%.

2. DICREASE WOMEN PART TIME RATE: The rate of part-time employment for women (30 hours or less a week) also varies across Europe. Whereas, between 2000 and 2006, part-time work was below 10% in most post-communist Member States, more than one third of employed women worked part-time in Austria, Belgium, Denmark, Germany, Luxembourg, the Netherlands, Sweden and the United Kingdom. Germany holds the second place (48%) behind the Netherlands (71.5%)

“The main difference between female full-time workers and part-time workers is that part-timers spend more time engaged in childcare and eldercare” (Eurofound 2007: 16).

3. INTRODUCE FAMILY FRIENDLY POLICIES AND LIFE&WORK BALANCE:

Thus, again, family responsibilities explain the gender gap.

ANTI GPG INSTRUMENTS 1 • Pension policy itself holds various instruments

which contribute to the reduction of the gender pension gap: minimum pensions, redistributive elements in the pension formula and credits for caring periods.

1. Minimum pensions can be residence-based. In this case everybody who has lived in the country for a certain amount of time is guaranteed a minimum pension income without the requirement of any former contributory payments. Women with a short or no employment record would benefit from such residence-based minimum pensions as is the case e.g. in Sweden and Finland. Usually contributory minimum pensions are linked to a certain insurance period; sometimes they are means-tested like e.g. in Austria. Again, they are favourable for women with short employment records and low average earnings. Germany does not provide any minimum pension but a social assistance scheme for persons over 65 years of age.

ANTI GPG INSTRUMENTS 2

2. Redistributive elements in the pension formula aim at weakening the link between contribution payments and benefits e.g. by using a “few best years” rule for benefit calculation which many countries like e.g. Sweden had before the pension reforms of the last decade. Thus, periods of low wage employment or short employment records could be compensated.

Another redistributive measure is to upgrade periods of low income to a certain amount which is the case in Belgium and was the case in Germany until 1992. Such measures benefit especially part-time workers.

ANTI GPG INSTRUMENTS 3

3. Credits for childcare vary considerably among Member States. The periods of childcare beyond maternity leave range from only three months in Belgium to up to three years in Germany. Credits are either linked to previous individual earnings like in Italy or Finland; or they relate to an average reference value like in Germany or Austria. In many countries credits for childcare are only provided if the carer is not employed during the childcare period. This might impact negatively on the working career of women since longer career interruptions lead to more difficulties in re-entering the labour market and to lower salaries.

Thus, credits for childcare either compensate for lacking contribution periods or also for periods of part-time employment due to childcare responsibilities. Other care credits for the care of dependent adult family members are not yet particularly widespread in Europe. In general those credits are linked to the average wage or the minimum wage or they are considered as contributory periods for a minimum pension guarantee. In Germany, credits are granted for the care of adult family members.

IS THERE ANY EUROPEAN STRATEGY

– Pensions and ageing are high on the EU agenda, due to 2012 being the European Year for Active Ageing and Solidarity between Generations and the European Commission’s recent White Paper on pensions.

• While the European Commission acknowledges that the pension gap between women and men needs to be addressed, it fails to propose a mechanism to measure and monitor the gender pension gap.

• The European strategy for equal opportunities has primarily referred to opportunities provided in the employment sphere as part of Europe’s economic goals. Such examples include the 1979 Directive on Equality on Social Security (79/7/EEC, 1979), the 1986 Directive on equal treatment in occupational pension systems (86/378/EEC, 1986) and the Community Charter of the Fundamental Social Rights of Workers 1989 (known in short as the ‘Social Charter’).

• The application of substantive equality is not distinguished from the application of formal equality whereby the same rule applies to all cases irrespective of their differences.

NO BACK-BURNER

Two of the headline targets of the EU 2020 strategy are directly relevant to the theme of the GPG:

75% of the population aged 20-64 should be employed. 20 million less people should be at risk of poverty.

The European Commission’s Annual Growth Survey (2011) highlights two types of retirement reforms: better balance between time spent in work and in retirement, and enhancing the contribution of complementary retirement savings to retirement incomes.

Europe’s financial challenges must not lead to social policies being put on the ‘back-burner’. Europe’s identity is based on fair opportunities for all, requiring greater harmonisation of social policy.

BROADER AGENDA

Gender equality within pension systems is part of a broader pension policy agenda:

1. Promote gender equality in the formal sense of the term that is by trying to establish equality between women and men without necessarily taking gender differentiations in work, life and care patterns into account.

Given that pension systems tend to reward fulltime, continuous and highly-paid employment records, women face a de facto disadvantage in terms of building adequate pension rights.

The problem with such strategies goes at the heart of the broader gender equality agenda at the European level, namely it lies with the focus on paid employment as a the fundamental reference principle for establishing equality or ‘sameness’ between men and women.

PENSION CARE CREDITS

2. Care credits are increasingly part of pension reform packages across European countries = the most important compensatory mechanism for people who devote a considerable part of their life caring for dependants, be it children, elderly or long-term sick or disabled persons. Since women tend to do the majority of caring across the Continent, the provision of care credits is also a policy tool promoting greater gender equality in the provision of social security.

With the exception of Finland, all of the countries that offer care credits for the provision of one type of care but not for another, provide credits for periods spent caring for children (including disabled children), but not for periods spent caring for other dependent persons within the household, whether disabled or elderly. BROAD RECOGNITION OF ELDERCARE NEEDED!

A STEP FORWARD

• STEP FORWARD: the provision of care credits towards pension contributions is a mechanism that compensates carers for the time they have spent outside the primary locus for accumulating pension entitlements. In this sense, they represent a step forward for gender equality in three distinct ways.

1. They recognise the existence of different life courses for the purpose of pension accumulation, care credits are consistent with the application of substantive gender equality.

2. The idea of providing care credits towards pension records departs from the conventional link in European-level social policy between paid employment and the promotion of gender equality. This departure represents a forward step in that it is an important recognition that any policy strategy aimed at the further application of gender equality must also take men’s and women’s contribution in the private sphere into account.

3. Care credits also depart from the inherent link in traditional pension systems between pension accumulation and paid employment.

Are care credits in practice: one step forward and two steps back?

• The implications, and benefits, of this departure are particularly important for women in country contexts where the combination of work and care is more difficult, resulting in a higher care penalty in terms of pension accumulation.

• The value of care credits, both symbolically and in financial terms, is also higher in contexts where female labour in the informal labour market is more prevalent and also more likely to go unnoticed for the purposes of social security.

• Care credits undoubtedly represent a step forward for carers but also for individuals (male or female) who tend to follow less typical life courses that may not be rewarded through traditional pension system structures.

• The recognition of care as an activity that is worthy of valorisation within pension provision should also be regarded as a sign that social policy is more responsive to societal norms.

• YES, as long as women tend to perform the majority of (unpaid) caring within households, care credits represent a step forward particularly for women.

TWO STEPS FORWARD?

LINKING LIFE

IN WHICH COUNTRIES IS

THE MOST IMPORTANT

TO INTRODUCE CARE CREDITS:

South-European countries and United Kingdom and

Ireland are the countries in which the financial

importance of care credits is greater than in

Scandinavian countries, because the link between

pension contributions and the labour market is much

closer.

Finally, in the ‘residual model’, exemplified by the UK

and Ireland, the minimum pension has to be

supplemented by earnings-related and/or private

pension provision in order to provide income security

in old age, and it is therefore in this model that care

credits probably matter the most for the pension

income of carers.

COUNTRIES’ REVIEW 1

AUSTRIA: Up to 4 years per child are credited as if earnings were equal to 1,350 € a month. In addition, 2 years per child can be used to meet the minimum contribution period for an old-age pension.

BELGIUM: All employees working for at least 1 year for the same employer are eligible for the so-called "time credit" which can count up to 3 years of caring for children as productive employment. The value of the time credit is the caregiver's earnings before exit from the labour market.

DENMARK: Periods spent outside of the labour force providing unpaid care are automatically covered under the universal basic pension program, which awards benefits based on years of residence.

COUNTRIES’ REVIEW 2 FINLAND: During paid parental leave periods (a maximum of 11 months), the pension accrues

based on 1.17 times the salary on which the family benefit is based. In addition, parents receiving the child home-care allowance for unpaid care to a child younger than age 4 are credited as if earnings were equal to 556.60 € per month (in 2006) until the child reaches age 3.

FRANCE: A parent caring for a child younger than age 16 for at least 9 years receives up to 2 years of coverage, whether he or she left the workforce or not during that time. In addition, a parent caring for a child younger than age 3, with earnings below a certain threshold (17,600 €, for the first child and more for subsequent children) is credited as if he or she had received the minimum wage. Finally, a parent who has raised 3 or more children for at least 9 years before the children reach age 16 receives a 10 percent increase in his or her old-age benefit at retirement. In the civil servants’ schemes, women get a one-year length of insurance bonus for children born before 2004 if they stopped working for at least two years at birth.

After negotiations with the social partners, the Government decided to split the two year bonus into two different parts. The first part, which offers a one-year length of insurance bonus for every child, is exclusively reserved for women, because it is explicitly linked to delivery. The second part, which also grants a length of insurance bonus of one year, is to be divided between people (mother and father) who have actively taken part in the education of a child during the four years that followed its birth. Parents will have to decide about the allocation of the pension bonus in the six months following the 4th birthday of the child. Credit is awarded separately for birth (or adoption) and for education of the child.

COUNTRIES’ REVIEW 3

GERMANY: The parent who is mostly in charge of care giving is credited with the equivalent of 1 pension point (equal to the pension entitlement a person with exactly the average income of all insured persons receives for contributions in 1 year) annually for the first 3 years of his or her child's life. Additional credits of up to 1 pension point are provided to parents who continue to work while raising a child up to age 10. In addition, parents who do not work but provide care to 2 or more children under the age of 10 generally receive a bonus of 0.33 pension points.

LUXEMBOURG: A parent caring for a child aged 4 or younger is credited with up to 2 "baby years" for one child or up to 4 for two children (or for a severely disabled child). Baby years are considered as periods of employment and are calculated based on the caregiver's income prior to childbirth or adoption. The credits can be granted to one parent or split between both parents.

COUNTRIES’ REVIEW 4

NETHERLANDS: Periods spent outside of the labour force providing unpaid care are automatically covered in the basic old-age pension system, which awards benefits based on years of residence.

NORWAY: Caregivers (including parents providing unpaid care to children younger than age 7 and individuals providing care to disabled, sick, or elderly persons in the home) are credited with 3 pension points (equal to 291,524 kroner per year in the supplementary earnings-related pension program.

SPAIN: Up to 2 years spent outside of the labour force providing care for children count as years of coverage (to fulfil the minimum requirement of 15 years of coverage for an old-age pension).

COUNTRIES’ REVIEW 5

SWEDEN: A parent caring for a child aged 4 or younger is credited with the most favourable of the following: (1) earnings the year before childbirth or adoption; (2) 75 percent of average earnings in Sweden; or (3) a fixed amount equal to one income base amount (52,100 kronor in 2011). In addition, a parent who has left the labour force to provide care for a disabled child can receive caregiver credits for up to 15 years.

SWITZERLAND: Years of care giving for children aged 16 or younger are credited as if earnings were equal to three times the minimum pension in the year in which the care giving parent retires. The credits can be granted to one parent or split between both parents.

UNITED KINGDOM: Periods of care giving are covered under both pillars of the public pension system (basic state pension and state second pension). For the basic state pension, a parent or caregiver receives credit for each week in which he or she is (1) getting a child benefit for at least one child younger than age 12; (2) an approved foster caregiver, or (3) providing at least 20 hours of care per week for anyone who is receiving an attendance allowance, disability living allowance, or constant attendance allowance.

* SOURCE: OECD (2009) and various country publications.

1. LACK of a uniform approach to the valorisation of care provision for the purpose of pension accumulation that creates inequalities between European Member States.

2. LOWER VALUE: as long as periods of time spent caring for dependants are valued to a lesser extent than periods of time spent working in the labour market, the provision of care credits remains an inadequate mechanism of compensation.

3. WOMEN SUBORDINATION: care credits could be considered to represent two steps backwards vis-à-vis the promotion of gender equality in pension because they perpetuate existing structures of gender inequalities and female subordination.

In other words, do care credits serve, at least in part, to preserve

women’s and men’s traditional roles in society, which carry specific advantages/ disadvantages within current pension entitlement structures?

LACK OF UNIFORM APPROACH

BETTER FOR WOMEN…

The design of pension systems is important? YES.

Will a certain design favour women more than another? YES

► differences in work patterns between men and women will be reflected by the pension system - will influence the level of pension benefits and thereby consumption possibilities in old age

► because the premiums are the same for men and women, a public mandatory system favours women

► a basic pension with a flat benefit favours low earners, i.e. mostly women, because they will get a higher rate of return and sometimes also a replacement ratio greater than 100%

► by creating an obvious link between reported incomes and future benefits, employment-based social insurance schemes encourage people to participate in the formal economy

► low incomes result in low pensions. If the system subsidizes non-market work, women get a higher rate of return on their contributions than men do. If benefits are based on final wages men are favoured as they have steeper age-earnings profiles.

► a defined contribution (DC) plan implies a tight link between contributions and benefits and thereby strong incentives for work in the formal market.

WHAT TO ADVOCATE FOR

• A minimum income provision is fundamental. Since women tend to rely on the state more for their pensions (as opposed to occupational or private schemes), the statutory pension needs to be strong.

• Minimum pension benefits would be good instrument to prevent female poverty.

• Lower retirement ages are no longer beneficial for women: fewer years in work lead to lower pensions. But raising the retirement age must be coupled with measures to improve the employability of 50+ women.

• Pension system norms need to change away from the pattern of 45 years’ full-time work, towards a life course perspective that includes periods of caring by both men and women.

• Given the growing importance of second and third pension pillars, steps are needed to make them more women-friendly.

LETS’ REPEAT:

WHICH PENSION SYSTEM FAVOURS WOMEN AND PREVENTS THEM OF POVERTY

• be public and mandatory in order to make unisex life tables possible • provide economic incentives for women to work in the formal sector • not punish women by giving them a lower rate of return on lifetime

contributions than men • not punish child rearing • provide a minimum guarantee • index pensions • provide joint-and-survivor annuities, which provide continued benefit • payments to a surviving spouse • allow accrued pension rights to be divided in the event of a divorce. * A Discussion of Retirement Income Security for Men and Women - Annika Sundén 2005

BACK TO POVERTY ISSUE

► 2010 - 23% of the population were at risk of poverty or social exclusion; majority of them are women

► 2010 - the highest shares of persons being at risk of poverty or social exclusion were recorded in Bulgaria (42%), Romania (41%), Latvia (38%), Lithuania (33%) and Hungary (30%), and the lowest in the Czech Republic (14%), Sweden and the Netherlands (both 15%), Austria, Finland and Luxembourg (all 17%).

► 16% of the population in the EU27 at risk of income poverty – with an increasing tendency

HOW TO TACKLE WOMEN’S POVERTY

• Reduce the gender pay gap & gender pension gap • Address the consequences of unpaid work (care work; the work undertaken by assisting partners in family Business etc.)

• Reinforce gender mainstreaming • Tackle specific issues such as older women, single parent, (80% are women) and women from ethnic minorities • Social protection benefits are often linked to the partner – stop it

A LOT OF THINGS TO DO

FERPA Women’s Committee fights against gender pension gap!