FACT SHEET 3
Social security schemes have been an important arena of policy reforms throughout the UNECE region during the last decade. So far gender equality has been only a marginal consideration in social security reforms. The drafting of reform proposals, the public deliberations around them, the political process leading to reform decisions and the assessment of preliminary experiences with reform have not systematically included gender equality concerns.
During the past 10 years governments have responded to emerging challenges to welfare state systems, often of a financial and demographic nature. Typically, reforms were designed to reduce the burden of welfare state provisions on the State budget, and to ensure the financial sustainability of social security. In UNECE countries with economies in transition, welfare state institutions and provisions had to be adjusted to be compatible with a market economy environment. The efficiency and effectiveness of the delivery of social security benefits and services needed to be increased, and greater transparency of benefit administration was a popular demand in the reform debates.
Why the issue is important
It is by now widely recognized that women and men are affected differently by social security systems.
Some gender differences are caused by unequal social security regulations and practices, others by differences in the need for and use of social security, and yet others by inequalities outside the social security system as such, for example in the labour market.
Social security is an important tool for achieving gender equality:
Time use, for example, is influenced by family benefits. Benefits can support parents in balancing work and family responsibilities, for example through the provision of childcare or other care services, and though parental leave schemes. In addition, creating incentives for an increased use of family benefits by fathers is an important step toward more gender balance.
In the light of demographic trends, old age security remains a central element of social security. Given the greater numbers of women in old age and the persistent gender inequality in lifetime income and control over property, pension schemes are particularly relevant for women. Yet, most pension schemes currently produce gender unequal outcomes, to the disadvantage of women.
Expenditure for family benefits and family support programmes, as a share of GDP, have reportedly declined in a number of UNECE countries over the last decade. This trend is worrying, because a positive relationship between expenditures for the birth, upbringing and care of children and women’s employment and labour force activity rates has been established. In some countries, family benefits have also lost in value as a consequence of insufficient adjustment to inflation (see Table 1).
- The private pension component, which was introduced in a group of countries as a second pillar of the pension scheme, is by definition not redistributive. Pension savings are accumulated in individual accounts. Individual savings accounts for pensions contribute further to women’s disadvantage in pensions.
- This is mainly an effect of women’s weaker labour market position (reflected in lower incomes and lower pension contributions), and their shorter total working life, mainly due to childcare breaks.
- One advantage of such a system, however, can be that all contributions, even those paid during a short period of employment, are reflected in the savings accumulated. Previously, a number of restrictions to pension contributions had applied regarding the length of the employment contract or hours worked, for example.
- The retirement age was increased by most countries as part of their pension reforms. Increases amounted to about two to three years for men and three to six years for women (see table 2). Even where increases are phased in over an extended period of time (over 16 years in Estonia, 14 years in Hungary, 10 years in Latvia, for example), the reforms demand greater adjustments on the part of women.
- Formally equal treatment of women and men with respect to their retirement ages has not been achieved throughout the region. Retirement ages for women and men have been equalized only in a number of countries, among them Estonia, Hungary and Latvia. Most countries in the region, however, have preserved a retirement age difference by sex. In some countries (Poland, Slovenia), initial proposals to equalize women’s and men’s retirement ages were rejected after public debates. The difference, where maintained, is between two years in Slovenia and five years in Poland, with other countries in between. In the Czech Republic women’s retirement age continues to depend on the number of children that she had.
- While differences in women’s and men’s retirement ages may be important in all different pension schemes, it must be emphasized that earlier retirement for women has a particularly strong negative impact in combination with a closer link between contributions and benefits described above. With the elimination of redistribution towards workers with low lifetime contributions, most women who retire early will receive substantially lower benefits than before the reforms.
Box 1. Stimulation of the gender effect of the Polish pension reform
A simulation of the Polish situation shows the likely future effect of the retreat from redistribution through the pension reform. Under the old rules, the average pension paid to a woman who retires at 60 is about 82 per cent of that paid to a man retiring at the same age. Once the new NDC and privatized schemes are fully phased in, the average woman retiring at 60 will receive just 74 per cent of the average pension paid to a man with the same retirement age.
Specifically, the typical woman retiring at age 60 will draw a pension equal to 22.4 per cent of the average wage while her male counterpart will draw one equal to 30.4 per cent. Should they both retire at 65, the woman’s pension would equal 29.2 per cent of the average wage while the man’s would equal 39.6 per cent. In both cases the average woman’s pension will be just 74 per cent of the average man’s.
The effect of the five-year difference in women’s and men’s retirement age, too, is illustrated in the Polish simulations. Once the new mixed system is fully implemented, a woman retiring at 60 with an average female’s pension will receive an amount equal to only 57 per cent of a man retiring at 65 with an average male’s pension. By delaying retirement until 65, she would receive a pension equal to 74 per cent of his (Wóycicka et al. 2003).
Pension credits for periods spent out of employment in order to care for young children or other family members have traditionally been an important benefit for women in a great number of countries, especially European countries in transition. Pension reforms during the 1990s, however, brought revisions of caring credits, often to women’s disadvantage. Nowhere have reforms led to the inclusion of other care responsibilities, elderly care for example, as demographic developments might suggest. Instead, carers in most pension systems, notably in Central and Eastern Europe, are penalized in their pension benefit accumulation if they leave the labour market temporarily. Some West European countries, however, have designed caring credits to be virtually neutral compared to work (Sweden) or independent from an employment relationship (Germany).
Box 2. Caring credits
Hungary, for example, retained the old rules for caring credits in the public component of the new pension system, but applied new rules to the new mandatory private component adopted in 1998. In this case, participants must contribute 6 per cent of their childcare benefit to a commercially managed individual savings account. As explained above, their future pension benefits will be calculated as a simple return on this contribution – i.e. investment performance minus management fees. This private benefit will supplement the individual’s public pension. The amount of the public pension will be reduced due to the diversion of a part of the contribution to the private tier. As with all other contributions to the privatized component of the pension system, there is no employer matching contribution to the contribution from the childcare benefit. However, 6 per cent of the childcare benefit is a tiny amount, equal to less than US$ 4 per month. Time off for caring will thus reduce a carer’s benefit portion from the private system substantially. This policy is especially disadvantageous for middle- and upper-income workers, since the pension entitlements that they earn while working are substantially higher than those based on the childcare benefit (Fultz & Steinhilber 2003).
Poland in turn, chose a transfer from the State budget to finance caring credits, making pension financing more transparent and shifting the burden of financing caring credits to the public at large. However, the subsidy is based on the minimum wage, which makes the benefit much less generous than it was before. As a result, most individuals who take leave from work to provide childcare will receive lower pensions. As it is almost exclusively women who take leave and receive childcare benefits, it is their earnings history, and consequently their pensions, that will be reduced. Moreover, the degree to which carers are penalized in their pension entitlements rises with their income level (Wóycicka et al. 2003).
In Germany, a parent receives one pension credit point per year. This is available for three years, regardless of whether the parent is employed or not. If the parent is employed, the caring credits are added to the credits earned from obligatory pension contributions withheld from wages. For a parent with a low wage (due, for example, to part-time work), while the child is between 3 and 10 years old, pension contributions are boosted by 50 per cent. However, they cannot be higher than the contributions from the average wage of all insured during this calendar year.
In Sweden, childbirth credits can be claimed by either parent and are equal to the most advantageous of (a) contributions based on 75 per cent of average earnings for all covered persons, (b) 80 per cent of the individual’s own earnings in the year prior to childbirth or (c) a supplement consisting of a fixed amount indexed over time to the (covered) per capita wage. Individual calculations based on a sample of actual earnings records indicate that the system is nearly neutral in its effect on the final pension compared with the alternative of working instead.
Key challenges / Issues to consider
Link between family benefits and women’s employability. Benefits should be designed in a way to support women’s employability.
For example, where childcare is overwhelmingly provided by women, making long-term home care benefits available through an employment relationship creates incentives and rewards for labour force participation.
Conversely, if long-term care benefits are restricted to those with low incomes or limited means, mothers who stay at home to care for young children may become isolated from the world of work and find their subsequent reintegration into the labour market more difficult. Also, the duration of leaves may have negative effects on women’s employability. Cash benefits for home care have been shown to set incentives for a withdrawal from the labour market, while provision of services, especially care for children below 3 years of age, tends to stimulate greater labour market activity of mothers.
Sharing family caring responsibilities more equally between women and men, and achieving a more equal distribution in the benefit take-up is a central goal for gender equality policy in relation to social security. Removing obstacles to fathers’ use of family benefits is thus an important step toward greater equality. However, while formally equal treatment is necessary, other measures are needed: parental leave periods reserved for fathers, linking the childcare benefit level to the previous wage and legally guaranteed entitlements to part-time work are some measures implemented by UNECE countries. Systematic comparative evaluation of such measures and sharing of experiences with father-centered social security provisions are an important area for further action in the region.
Equalizing women’s and men’s retirement ages appears to be a reasonable demand in the interest of equal treatment. Moreover, it is becoming a practical necessity in pension systems that are strongly individualized, and closely link contributions and benefits. However, the equalization of retirement ages typically demands greater adjustments on the part of women than men, since lowering men’s retirement age does not appear like a viable financial solution.
A higher retirement age for women is likely to create a considerable strain on established patterns of childcare provision within the family and new demands on institutional childcare services, which need to be addressed.
Individualization of benefit entitlement accumulation and the retreat from redistribution in pension systems is advantageous to women and men with higher incomes, and hurts all workers, women or men, with lower ones. If the pension system is based on individual accumulation of pension rights and links contributions and benefits closely, then abolishing gender inequalities in the labour market and in care responsibilities becomes all the more important.
In order to achieve greater gender equality by promoting a more equal distribution of unpaid care responsibilities, and in order to uplift the social value of care work, pension systems need to ensure that carers are not penalized. The detrimental effect of caring on pension entitlements constitutes a clear disincentive for men to take over a greater share of care responsibilities. Caring credits in pension schemes are therefore important instruments of gender mainstreaming in pensions.
Regulations regarding the treatment of gender differences in life expectancies in private pensions are a central issue still to be solved in a number of UNECE member states. Separate life expectancy tables for women and men will result in lower monthly benefits for women or higher monthly contributions during her working life. In contrast, unisex life tables will lead to equal monthly benefits, but potentially higher lifetime benefits, on average. The current practice of sex-differentiated premiums or annuities in private pension insurance is attracting increasing resistance on the basis of the argument that it has to be considered discrimination and not actuarially fair risk-assessment.
For further information, please contact:
Coordinator, Beijing +10 Regional Meeting
United Nations Economic Commission for Europe (UNECE)
Palais des Nations – Office 329-1
CH-1211 Geneva 10, Switzerland
Phone: +41 (0) 22 917 16 98
Fax: +41 (0) 22 917 00 36
Phone: +41 (0) 22 917 2872
"Gender Aspects of Social Security and Pensions in the UNECE Region” - Secretariat Note for the Regional Preparatory Meeting for the 10-Year Review of Implementation of the Beijing Platform for Action (Beijing +10) - ECE/AC.28/2004/8
Report from the Regional Symposium on Gender Mainstreaming into Economic Policies,
28-30 January 2004 (fileadmin/DAM/oes/gender/documents/REPORT.pdf)