PENSION ENTITLEMENTS OF

WOMEN WITH CHILDREN IN

OECD COUNTRIES Anna Cristina D’ADDIO

Social Policy Division, OECD

http://www.oecd.org/els/social/pensions

Second Cinitia Conference Torino, 24-25 November 2014

2/20

• Some facts

• Results from pension models: which design features affect pension outcomes for women with children?

• Some conclusions

Outline

1st fact: The gender pension gap is large

The gender pension gap is here defined as: ( 1-(average gross (mandatory) old-age and survivors pension payment to women)/(average

gross (mandatory) old-age and survivors pension payment to men )) *100%.

Source: d’Addio (2014), Socio-economic factors that matter for women pension entitlements in OECD countries (forthcoming)

0%

10%

20%

30%

40%

50%

60%

OECD-24: 29.5%

Mean gender pension

gap

2nd fact:

older women are poorer than men

NLDISLCZEHUN

LUXDNKNOR FRA

ESTSVKESP

GRC BELDEUOECD24 PRT IRL

GBRSWEFIN

POL ITAAUT

SVN

0

5

10

15

20

25

0 5 10 15 20 25

Women more likely to be poor

Men more likely to be poor

Source: based on EU SILC rev1 August 2014

Old-age poverty

rates, 2011

WHY?

5/20

6/20

• There are gender differences in pensioners’ outcomes: lower average incomes, higher poverty rates – Part results from different working patterns of

men and women part-time work is more common

women over-represented in low-paid occupations

long career breaks (due to caring)

– Part results from demographic developments

– Part explained by pension rules

Economic and social factors

7/20

Women have shorter careers…

Past career duration for individuals age 65 +

0

5

10

15

20

25

30

35

40

45

50

Women Men

And their employment rates tend to be lower when they have

children (see OECD, 2012 Closing the gender gap. Act now)

Data for the Figure in this slide extrated from SHARELIFE (third SHARE wave) as in d’Addio (2014)

The characteristics of women labour market

participation translates also into lower earnings

Source: OECD Earnings database

Gender pay gap, 2012

9/20

9

The gender gap tends to deepen along

the earnings distribution…

0%

10%

20%

30%

40%

50%

p10 p20 p30 p40 p50 p60 p70 p80 p90

ITA IRL ESP NOR

JPN NZL SVK

Source: Based on OECD Earnings database

10/20

• Women live longer

• Increasingly, they live in single-headed households in old-age

– Women live longer than men

– Women more and more often separate / divorce from their husbands when old

10

Demographic developments increase

the risk for women to be poor in old-age

11/20

Changes in marital status +longer life expectancy =

increasing probability of spending longer portions of

lives alone

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

WID

MAR

NEV

DIV

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

15

-19

20

-24

25

-29

30

-34

35

-39

40

-44

45

-49

50

-54

55

-59

60

-64

65

-69

70

-74

75

-79

80

-84

85

-89

90

+

95

+

WID

MAR

NEV

DIV

Italy 1970 2005

Source: Based on national data

12/20

Pension policy may deepen or lessen

some of the gender pension gap…

• By modifying (for example):

– Eligibility conditions and duration over which pension entitlement are built

• Pensionable age

• Length of contributory periods

• Vesting periods and portability

– Pension amount

• Presence of income ceilings

• Structure of accrual

– Types of schemes

• DB vs DC;

• earnings related vs non-contributory

• But also

– Changing solidarity mechanisms

• derived rights,

• minimum pensions

• Pension credits for interruptions

Example:

Women exit the labour market earlier than the

pensionable age and earlier than men…

Men Women

13

50 55 60 65 70

Lussembu…

Belgio

Francia

Rep.…

Ungheria

Italia

Finlandia

Grecia

Austria

Germania

Spagna

Polonia

Slovenia

Rep. Ceca

Danimarca

Estonia

Paesi Bassi

Regno Unito

OCSE

Irlanda

Stati Uniti

Svezia

Portogallo

Giappone

effective legal (current) legal (LT)

50 55 60 65 70

Lussembu…

Belgio

Francia

Rep.…

Ungheria

Italia

Finlandia

Grecia

Austria

Germania

Spagna

Polonia

Slovenia

Rep. Ceca

Danimarca

Estonia

Paesi Bassi

Regno Unito

OCSE

Irlanda

Stati Uniti

Svezia

Portogallo

Giappone

effettiva legale (corrente) legale (LT)

With a tight link between contributions and pension benefits, differences in

pensionable age between genders and/or shorter contribution histories may translate

in lower pensions for women relative to men….

14/20

0

5

10

15

20

62 63 66 68 70

SVK

61 64 65 67 69

FRA

SVN

GBR

AUS

DNK

DEU ISL

ISR (64F)

USA

NOR

Pensionable age, years

Number of OECD-34 countries

ESP

PRT

SWE

TUR

CHE (64F)

JPN

AUT

BEL

CZE

CHL (60F)

FIN

GRC

HUN

IRL ITA

KOR

LUX

MEX

NLD NZL

POL

CAN

EST

Convergence between pensionable ages of men and

women is then important to fill some of the “gender

pension gap”…

BUT OTHER MECHANISMS MATTER…

15/20

16/20

(1) Credits for childcare absences without the obligation to interrupt one’s own work

(2) Credits for childcare absences are awarded if the mother stops working to care for the child

2a. Childcare periods increase the pension benefit (e.g. Luxembourg)

2b. Childcare periods are ignored in the calculation of earnings so that the absences do not reduce the assessment base (e.g. Czech Republic)

4a. the number of children determines early retirement eligibility conditions (e.g. Czech Republic, Slovak Republic, Italy)

Childcare credits in Pension Systems

1a. Increase in pension benefits (e.g. France, Germany and Italy)

1b. Increase in the insurance period (e.g. France)

1c. = 1a. + 1b.

(e.g. France)

3a. pension eligibility is residency-based (e.g. the Netherlands)

3b. The number of contribution years required to obtain a full-pension is relatively low (e.g. United States)

2b. Childcare periods are taken into account to determine pension eligibility conditions (e.g. Belgium and the Scandinavian countries)

(4) Credits are granted according to the number of children

4b. the final pension benefit is increased according to the number of children (e.g. France )

2d. Childcare periods count as qualifying years but are not taken into account for the calculation of benefits

(3) Credits for childcare absences are implicit in the pension system

Types of childcare credits

17/20

• The period covered (maternity and parental leave are treated differently)

• The reference earnings on which the credits are based. – Previous earnings

– Fictive earnings

– Flat rate or minimum wage

• The way childcare periods count toward the pension entitlement. – Increase the duration of the insurance period

– Increase the pension entitlement

– Count for eligibility but not for the amount of pension

– Excluded from the computation of pensionable earnings

– …

17

Differences relate to:

18/20

• APEX models (OECD Pension models)

• Simulate pension entitlements for workers entering the labour market currently and retiring in the future

• Generally use average wage definition, however this work also uses the entire earnings distribution

• Women with 2 children (2 and 4 years)

• Aim: Comparison between the gross pension value of a women who has interrupted her career to care for children and a childless woman with full-career to assess the impact of childcare breaks on pension entitlements

18

What is the role of mechanisms designed

to cover period of care for children?

19/20

19

Impact of childcare breaks over the

earnings distribution for future retirees In

terr

upte

d-c

aree

r

Rel

ativ

e to

Full

-car

eer

pen

sion v

alu

e

Duration of break, years

Source: estimates from OECD Pension Models

70%

75%

80%

85%

90%

95%

100%

105%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

full career: Base

lowest decile

highest decile

Ratio between IC and FC gross pension

Median

20/20

20

And for average earners…

Source: estimates from OECD pension models for

interrupted careers

Rel

ativ

e to

fu

ll-c

aree

r

Pen

sio

n

Duration of break, years

21/20

21

The reduction of pensions widens as:

(1) childcare lenghtens; and (2)

earnings increase

0

0.05

0.1

0.15

0.2

0.25

5 10 15

1st decile Median 9th decile% reduction in gross pension

duration of childcare break, years

THE EFFECT OF CHILDCARE CREDITING

PROVISIONS FOR FUTURE RETIREES HAVING EARNED

THE AW: COUNTRY-SPECIFIC

ESTIMATES

22/20

23/20

23

In some countries, children and periods of

childcare will translate into higher pensions…

60

65

70

75

80

85

90

95

100

105

110

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Germany Italy FC

ratio between IC and FC gross pension

break, years

24/20

In others they will substantially reduce the pension

entitlements especially for long absences

24

50

60

70

80

90

100

110

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

France Hungary Full-career Portugal

ratio between IC and FC gross pension values

duration of break, years

25/20

In others they will not make (almost) any

difference

Duration of the interruption

Rel

ativ

e to

fu

ll ca

reer

pen

sio

n (

AW

=1)

Source: estimates of OECD pension models

40%

50%

60%

70%

80%

90%

100%

110%

120%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Spain United States

Relative to FC gross pension value, %

duration of the break (years)

26/20

26

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

supplement Basic ATP Occupational

0

20

40

60

80

100

120

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Basic Occupational

Denmark Netherlands

Pension crediting mechanisms lessen

the impact of childcare breaks

Note that: where (1) the link between contributions and

pension benefits is tight; and (2) there is no crediting

provision the impact on pension entitlements is large. (e.g.

occupational)

27/20

• What matters?

– Design of credits

• earnings covered

• duration covered

– Relative weight of redistributive parts (basic, means-tested, minimum etc.)

– Strength of links between contributions and benefits in earnings-related (DB, NDC, points) schemes

Are childcare credits all that matters? Not

sure

28/20

• Gender gap in pension outcomes will lessen increased education and skills

more time spent in paid work

anti-discrimination legislation has cut the gender pay gap

• More women will build their own pension rights rather than relying on those derived from their husbands

• However, gender equality in pensions is still a long way off!

• Career interruptions to care for elderly relatives and children will not disappear…

Looking forward

29/20

• To what extent should pension systems compensate for gender differences in work?

earnings, hours of work, years of work etc.

• Different dimensions of inequality call for different pension solutions

• Gender pay inequalities are best addressed through redistributive features

means-tested, residency-tested basic schemes

• Persistently differential allocation of caring responsibilities may also need other interventions

effective family policies, childcare credits in pension systems

Implications for pension policy

30/20

• Childcare credit mechanisms work to boost pension entitlements of mothers and contribute to the wider goal of poverty alleviation

but not enough to fill the gaps caused by career breaks

however mothers with career breaks would have much lower pensions relative to full-career in a “no-credit provision world”

• The treatment of labour-market inequalities and old-age poverty require a comprehensive approach to the work-challenges facing parents

• Pension policies for parents need to be designed in the larger context of family and employment policies

Conclusions

31/20

anna.daddio@oecd.org

http://www.oecd.org/pensions/pensionsataglance.htm

New OECD Pensions Outlook

forthcoming 8th December 2014