1 The Gender Impact of Pension Reform—What Is It and Why? By Estelle James

2 What is the impact of pension systems and pension reform? What is the impact of recent pension reforms on women versus men? Does close linkage between benefits and contributions in DC plans hurt women? We studied this empirically in Chile, Argentina and Mexico, which have adopted multi-pillar systems that include a private DC pillar + a public pillar (like Kazakhstan) Policy implications are generalizeable to Europe, Asia and the US.

3 Our methodology We constructed work histories of representative men and women using household survey data that give wages and work experience Applied rules of new and old systems to simulate benefits for each type of person. Major questions: Who gained more—men or women? Which design features are responsible for these results? What are the trade-offs and who should get priority access to public funds?

4 Why the gender difference in pensions? (1) Low labor force participation rates, more household work –Women work only half as many years as men, on average Low wages –By mid-age, women earn 2/3 as much as men –This is partially due to lower labor force attachment So if benefits depend on contributions and contributions depend on wages and work, women get low benefits.

5 Why gender differences (2) Demography: women live 3-5 years longer than men and are younger than husbands. –survivors’ benefits very important –Early retirement rules exacerbate difference –Women often allowed to retire 5 years before men—tempting but means they accumulate less retirement savings and pension credits

6 Major findings about new Latin American systems: (1) Men accumulate larger retirement savings and monthly annuities than women in private DC pillars. True in any system that links benefits to contributions But public pillars redistribute to low earners (minimum pension or flat benefit) Husbands are required to purchase joint pensions that transfer to women via widow’s benefit Women keep joint annuity + their own benefit –in many old systems women must choose between own benefit and survivors’ benefits, so work is discouraged Therefore women get redistributions (benefits > contributions) and higher rates of return than men

7 (2) Female/male pension ratios in new Latin American systems Own-annuities: 30-35% But: –Public pillar transfers to low earning women –Joint annuity transfers to married women –This raises lifetime female/male ratio to 70-80% For married women who work as much as men, female/male pension ratio is 100%--higher in new than in old systems. Low earning married women are biggest gainers from pension reforms in Latin America

8 Transition economies (ECA)— different Relative wages and work experience of women was higher in ECA in past but is now declining Reforms made public pillars less targeted toward low earners (notional DC not redistributive) Policies re survivors’ benefits and joint annuities not yet clear New systems link benefits to contributions—to discourage evasion, make fiscally sustainable Old systems were more generous toward women (child care credits, easy eligibility, widows) But new systems + new behaviors increase gender inequality in pensions

9 (2) Example from Polish simulations (Chlon) Women will get 45% as much as men if gender-specific mortality tables used 57% if unisex tables used—small gain 73% if retirement age & work are equalized—large gain Remaining gap is due to wage differential Joint annuity and redistributive public pillar not yet there

10 Key design features that determine gender outcome (1) Targeting public pillar to low earners benefits women. More targeted in Latin America than ECA Eligibility conditions—Don’t exclude women by requiring many work years for public benefit –High requirements increase incentives to work and pay taxes, but leaves poverty gaps—important trade-off –Eligibility easier in ECA because of higher female lfp Price indexation maintains real value of pension for very old women. Ambiguous in ECA and LAC Equal retirement age means higher pensions, less leisure for women. Controversial in LAC & ECA

11 (2) Joint annuities important Husband bears cost of widow’s benefit, in return for past household services provided by wife Helps widow maintain living standard after husband’s death, without imposing fiscal burden. If women can keep own annuity + joint annuity, this reinforces work incentives, maintains income But doesn’t help single (and divorced?) women Used in LAC, potentially usable in Kazakhstan and NDC countries, could be adapted to DB also For joint annuities, unisex and gender-specific mortality tables yield similar lifetime benefits so avoids controversial unisex issue

12 (3) Survivors’ benefits more problematic if financed by taxpayers Since wives outlive husbands, survivors’ benefits important to maintain widow’s standard of living but have been reduced in ECA Should public benefits be targeted by marital status or income? Who gets priority public funding?—middle class widows and mothers or poor women generally? Should women have to give up own-benefit to get widow’s benefit? This economizes on public money but penalizes working women. These issues are resolved if husband rather than taxpayer pays, by reducing his own-benefit to cover spouse—as in joint annuity or joint DB.