Gender and Pension Reform—what policies matter and what would we like to know?

1. Gender and Pension Reform—what 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, don’t save and insure enough for wives, so non-pension resources used up • Very old widows often pockets of poverty

5. Our methodology • New systems don’t 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: • Women’s monthly pension from own account is only 30-50% that of men—very 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 Mexico—flat payment per day of work • Flat benefit in Argentina for 10 yr contributors • Northern Europe—universal flat or min. pension—higher 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? • Indexation—to 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 husband’s death (family co-insurance) • Big income to widows, no cost to public treasury • Adds 50-80% to lifetime own-pension • Keep own+joint pension (no work disincentive) • Avoids controversial unisex issue, subsidy to middle class married women • Survivors benefit downsized but joint pension not required in ECA, Sweden—looming problem

11. Own annuity <50% total lifetime pension for women; joint annuity>public benefit

12. Women’s 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 women—no joint pension • Single men also gained because they don’t have to pay tax to finance widow’s 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 women’s work • increases GDP, raises women’s 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 M&W? • 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?