Gender Impact of the Estonian Pension Reform

1
Gender Impact of the Estonian Pension Reform

• Lauri Leppik
• Tallinn University
• Chair of Social Policy

Bucharest, 25 January 2007
2
Labour market situation (2005)

• Employment rate (15-64) 64
• men 66.2
• women 61.9
• Unemployment rate 8.1
• men 9.0
• women 7.2

Source Estonian Statistical Office
3
Three pension pillars in Estonia

• I pillar
• state managed
• pay-as-you-go
• defined-benefit principle flat-rate
  earnings-related old age pension
• financed from social tax by employers (16)
• II pillar
• private fund management
• fully funded
• defined-contribution principle individual
  accounts
• individual contributions and share of social tax
  by employer (24)
• III pillar
• voluntary
• private pension insurance or pension funds

4
First pillar reform (1999-2000)

• Equalisation of pension age of men and women
• equal pension age 63 to be reached by 2016
• Acquisition of new pension rights solely on the
  basis of social tax payments
• payment of social tax by the state on certain
  periods of economic inactivity
• child care leave, military service etc.
• New pension formula with earnings-related
  component
• flat-rate base
• currently about 30 of the average old age
  pension
• supplemented with a point (coefficient) system
• periods until 1999 counted on the basis of years
  of service (employment)
• minimum pension guarantee

5
Gender pay gap versus pension gap

• Gender pay gap (2005) 25
• Gender pension gap (2004) 4
• All different in working life, all equal in
  retirement?

Sources Estonian Statistical Office, PRAXIS
Center for Policy Studies
6
Life expectancy (2005)

• at birth
• women 78.1
• men 67.3
• at 60
• women 22.1
• men 15.9

Source Estonian Statistical Office
7
Pension age

• Pension age (2007)
• men 63
• women 60
• gradually increased to 63 by 2016
• Early retirement
• 50 of men
• 33 of women
• retire before the general pension age

Source Social Insurance Board, PRAXIS Center for
Policy Studies
8
Old age pensioners by gender (2006)
Source Social Insurance Board
9
Distribution of old age pensioners by years of
service
Source PRAXIS Center for Policy Studies 2004
10
Distribution of amounts of old age pension by
gender
Source PRAXIS Center for Policy Studies 2004
11
Gender differences in the current state pension
system

• Women outnumber men by over 21 among old age
  pensioners
• due to significantly lower life expectancy of
  men, coupled with higher retirement age
• Differences in the length of service of current
  pensioners by gender are not significant
• Still relatively flat structure of pensions
• but differentiation is increasing

12
Pension insurance periods 1999-2003
Source PRAXIS Center for Policy Studies 2004
13
Pension insurance periods 1999-2003

• More men than women had incomplete insurance
  record over the 5 year period (1999-2003)
• 70 of women and 60 of men had insurance record
  over 4 years
• 5 of women and 10 of men had insurance period
  less than 1 year
• Likely reasons
• more men were engaged in grey economy
• men change jobs more often, with intermittent
  breaks

14
Distribution of annual pension coefficients
Source PRAXIS Center for Policy Studies 2004
15
The sum of pension insurance coefficients
1999-2003
Source PRAXIS Center for Policy Studies 2004
16
New pension rights acquired since the reform

• Women have lower pension contributions
• more women than men have coefficients below 1.0
• more men than women have coefficients over 1.0
• Reasons
• lower wage of women
• women more often have to rely on contributions by
  the state, which are very modest

17
Payment of contributions by the state
Source PRAXIS Center for Policy Studies 2004
18
Payment of contributions by the state

• For over 30 of women in age group 25-35 pension
  rights depend on contributions by the state
• child care leave
• For men, state contributions play some role only
  in age group 20-25
• military service

19
Second pillar gender dimensions

• Unisex life tables
• difference in life expectancy at retirement age
  5.5 years
• life expectancy gap (25) balances the gender pay
  gap (25)
• Inheritance
• due to higher mortality rates of men, women will
  more often benefit from inheriting the pension
  assets of their husbands
• Payment of contributions by the state for periods
  of receiving parental benefit
• however, the state contributes only 1 of
  parental benefit, instead of normal contribution
  rate of 6

20
Second pillar participants by gender (2006)
Source Central Depository of Securities
21
Challenges

• Narrowing the life expectancy gap
• Narrowing the gender pay gap
• Increasing pension rights for child care periods

22
Pension rights for child care periods

• Crediting of pension rights for child care
  periods very modest
• in the I pillar
• contributions on 55 of the minimum wage, until
  3 years of a child
• corresponds to an annual coefficient 0.2, i.e.
• caring for a child corresponds to earning
  
• 20 of the average wage
• in the II pillar
• 1/6 of the former contributions
• caring for a child corresponds to earning
• ca 17 of the former wage