The global economic and financial circumstances since the summer of 2007 are without precedent in post-war history. The resultant higher unemployment, lower growth, increasing national debt and financial market volatility have made it harder to deliver on pension promises and demonstrated serious weaknesses in the design of many pension schemes and their long-term sustainability. The crisis has enhanced existing challenges as well as creating new ones. This has accelerated the momentum of change in relation to pensions in a number of EU countries. Recent strategies to deal with pension challenges have differed with some countries extending help to safeguard private schemes while, in others, pension funds have been raided to shore up public account balances. But what effect have these changes had on women? Are women more likely to be disadvantaged then men as a result of these changes? These are the questions that I seek to address in an article in Policy & Politics.
This focus on women is particularly important given that in the 27 EU countries, with the exception of Hungary, women are, on average, poorer than men. For example, the poverty rates for people over 65 years of age in Estonia, Latvia and Lithuania are approximately twice as high among women as men. While the gap is smaller in other countries, it is almost exclusively to the detriment of women. The gendered nature of retirement relates to many women’s experiences and opportunities to contribute to pensions throughout the life course. Inequalities also reflect the extent to which welfare systems address diverse experiences and compensate for relative disadvantages in the division of work and care.
Women’s pensions are generally at greater threat as a result of the economic crisis. The crisis has affected pension schemes in three particular ways. Firstly, in some countries first-tier schemes (mandatory schemes run by the state) have served as a form of ‘automatic stabiliser’ for those in retirement and mitigated the potential consequences of the state of the economy. Given women’s greater reliance on first-tier pensions, this has positive implications for many women in retirement. Secondly, the deteriorating economic position has resulted in new challenges for financial sustainability of social protection systems and led to strengthening of eligibility criteria in first-tier pension provision. These include changes to retirement age, limiting early retirement and changes to the benefits provided. Tightening eligibility criteria for public pensions is expected to constrain the growth in public pension expenditure in almost every Member State. Reductions in the eligibility of state pensions erode their redistributive function, as women are more reliant on statutory pension provision. Thirdly, the crisis dealt a severe blow to second-tier (occupational schemes) and third-tier (mainly private savings schemes) pensions (and public reserve funds) and increased the speed of changes to their design. The decline in rates of return on investment and the persistently low interest rates have placed pension funds at risk of huge losses. Many EU countries have moved towards Defined Contribution (DC) schemes from Defined Benefit (DB) schemes. In DC schemes members have no guarantee concerning the level of their future pensions, since the latter depend entirely on interest on capital invested. Career breaks most likely to be experienced by women generally have a greater negative impact on pension benefits in DC than in DB schemes.
It is important to ensure that the design of pension schemes does not result in them performing in a way which adversely affects women, a situation which is occurring in a number of countries following the economic crisis. Strengthening the connection between labour market and pension policies and other social investments, such as education and family-friendly working and childcare strategies, is particularly important if women are to bridge the pension divide. Spending on welfare policy can help to balance the economy in periods of recession, functioning in a countercyclical way by maintaining workers’ wages and maintaining pension contributions and stimulating growth. Innovative policies, permitting time off and/or reduced work time in the childrearing years and a greater recognition of other forms of caring, and full-time or part-time jobs in the ‘retirement’ years, could introduce greater flexibility and creativity in structuring education, work, and free time. The greater use of care credits ‘compensating’ women for periods of unpaid care needs to be explored to assist with penalties associated with time out of employment.
The current economic crisis (and an ageing population) has sped up changes to pensions. However, ensuring that pension spending in EU countries remains sustainable, while reducing pensioner poverty, represents an enormous challenge. Policy needs to recognise women’s diverse life course experiences and explore their capacity to plan in relation to pensions, while encouraging women to, wherever possible, build up pensions in their own right. We need to ask to what extent strategies since the crisis are likely to impact on women’s pensions, and to consider whether individuals are retired, close to retirement or expect to continue contributing to pensions for many years to come. Responses need to address the specific challenges presented by the crisis in relation to scheme design (both public and private), investment strategies and capacity to absorb economic shocks. The economic crisis and the responses to it have revealed the need to place the position of women at the heart of pension debates.
Read the full article about this topic in Policy & Politics here.
Dr Liam Foster is a Lecturer in Social Work in the Department of Sociological Studies, University of Sheffield.