Gender and Pension Reform

1
Gender and Pension Reformwhat policies matter
and what would we like to know?

• by
• Estelle James
• Presented at World Bank ECA Workshop, January 2008

2
What is the impact of pension reform on women vs.
men?

• Recent pension reforms in LAC, ECA region and
  OECD include 2 pillars
• Privately managed individual accounts that link
  benefits more closely to contributions
• Downsized public benefit for risk diversification
  and safety net
• Critics argue that close B-C link hurts women
• We studied this in Latin America and found
  positive impact on relative position of women.
• Similar studies in ECA, Sweden have different
  results. Why? What design features determine
  gender impact? Do women behave differently from
  men in response to new system?

3
Why the gender difference in pensions? (labor
market)

• Low labor force participation rates, more
  household work
• Women work half as much as men, in L.Am.
• Often part-time work
• Low wages (2/3 as much as men)
• So if benefits depend on contributions and
  contributions depend on wages and work, women get
  low benefits
• Women allowed to retire earlier than men
  (60/65)-policy exacerbates low work history

4
Why gender differences? (demography)

• Women live 3-5 years longer than men and are
  younger than husbands, become widows
• Household income may fall by 70, yet expenses
  only fall by 30-35 (household economies of
  scale)
• Husbands often make financial decisions, dont
  save and insure enough for wives, so non-pension
  resources used up
• Very old widows often pockets of poverty

5
Our methodology

• New systems dont have retirees yet and absolute
  benefits in old systems were unsustainable
• We constructed synthetic work histories of
  representative men and women using hh surveys
• We applied rules of new and old systems to
  simulate future benefits for young workers
• average vs. 10 year vs. full career (FC) women
• workers in 5 different educational groups
• We compared relative (not absolute) positions of
  men and women in new and old systems

6
We found

• Womens monthly pension from own account is only
  30-50 that of menvery unequal
• But other transfers double this amount
• Public benefit adds disproportionately to low
  earners (mainly women)
• Joint pension raises lifetime income of married
  women more than public benefit
• Both set floor on income of very old women
• So average married woman gets 70-80 as much as
  men over her lifetime full career married women
  get more than men
• Must take all parts into account policies can
  accentuate or mitigate labor market differences

7
Gender ratios trebles due to public benefit,
joint pension, more work
8
Building blocs (1) individual accounts

• Lower wages, work, retirement age
• Workers get back their contributions interest,
  no redistribution
• Gender-specific mortality tables used
• Monthly annuity 30-50 that of men
• higher on lifetime basis
• Would increase by 50 if retirement age equalized
  (more interest, fewer years)

9
2) Redistributive public benefit

• In LAC targeted to low earners (women). Raises
  female/male pension ratio
• Minimum pension in Chile--sets floor for
  contributors
• PASIS sets meant-tested floor for
  non-contributors
• Social quota in Mexicoflat payment per day of
  work
• Flat benefit in Argentina for 10 yr contributors
• Northern Europeuniversal flat or min.
  pensionhigher coverage, cost
• ECA (NDC, BD)--more work-related, less
  redistributive to women
• Key issues
• What mix of poverty avoidance, work incentives,
  cost?
• How to handle non-contributors, informal economy?
• Indexationto prices or wages?

10
(3) Survivors benefit, joint pension

• Survivors benefits important to women because
  they live longer, have lower wealth and incomes,
  if husband dies hh income falls more than costs
• In LAC, husbands must purchase joint pensions
• Enforces implicit family contract re hh division
  of labor after husbands death (family
  co-insurance)
• Big income to widows, no cost to public treasury
• Adds 50-80 to lifetime own-pension
• Keep ownjoint pension (no work disincentive)
• Avoids controversial unisex issue, subsidy to
  middle class married women
• Survivors benefit downsized but joint pension not
  required in ECA, Swedenlooming problem

11
Own annuity lt50 total lifetime pension for
women joint annuitygtpublic benefit
12
Womens position improved in new system. Which
women?

• Women gained relative to men, especially
• Low earners due to public benefit
• Married women, especially those who work--keep
  joint annuity own pension
• Full career women (flat age-earnings profiles)
• Mixed results for
• Women who worked 10 years or less--low own
  pension, sometimes not eligible for public
  benefit
• Single and divorced womenno joint pension
• Single men also gained because they dont have to
  pay tax to finance widows benefit

13
Different impact in transition economies (East
C. Europe)

• Wage inequality is growing, so accounts unequal
• Public benefits less targeted toward low earners
• Survivors benefit reduced to save money
• Policies re joint annuities not yet clear
• Many single and divorced women
• Earlier allowable retirement age hurts women more
  in new systems
• Therefore new systems appear to increase gender
  inequality in pensions in transition economies
• Detailed design features matter a lot

14
How to increase and share growth dividend
among women

• Equalize retirement ages and get rid of other
  policies that discourage womens work
• increases GDP, raises womens pensions
• earlier retirement is example of myopia that
  mandatory system are supposed to counteract
• Consider more redistributive public benefit
• to help women, low earners, informal sector
• partial wage indexation once costs are under
  control
• Require joint pensions
• In Europe survivors benefits downsized to save
  money, but this inevitably hurts older women
  (poverty is high)
• Joint pension protects widows, no cost to public
  treasury
• women keep own joint pension (no work
  disincentive)
• Share assets in case of divorce

15
Research on how pension reform changes behavior
of M and W

• In Chile old and new systems co-exist and
  retrospective data set built so we study impact
  of new system on behavior, which affects
  outcomes
• Does new system postpone pension age for MW?
• Does it postpone withdrawal from labor market
  because work restrictions removed, exemption from
  payroll tax?
• Which retirees choose annuitization?
• Do M and W make different risk-return
  investments?
• How well informed are M and W about new system?
• We found Women less likely to annuitize, have
  smaller LS impact. M and W have very limited
  information.
• Can comparable studies be done for ECA?