“Not only an urgent challenge for governments and policy makers, the pensions gap should also be front of employers’ minds,” said Mandy Schreuder, Diversity and Inclusion (D&I) consultant at Mercer. “Women live longer, but with lower levels of savings they face a higher risk of retiring into poverty than their male counterparts. The gender pay gap may be a hot topic at the moment, but few of us consider the impact it has, in combination with career breaks, on the financial wellness of women in retirement. Coupled with an ageing Europe workforce this challenge will be highly relevant to companies over the coming years.
“Companies that acknowledge and work to close this gap could reap the benefits of increased employee engagement and productivity. Working to improve the financial position of its female workforce is not only key to protecting business productivity and improving female talent attraction and retention, it is also the right thing to do.”
Ms Schreuder added: “From a policy perspective we welcome the initiative of the European Commission to include a right to equal opportunities for acquiring pension rights in its recent Recommendation for a European Pillar of Social Rights.”
Under-representation of women in the workforce
Women continue to be significantly under-represented at all levels of the work force; in the EU their participation rate is 10% lower than men. The European Commission’s recent proposal for a directive on work-life balance for parents and carers, including the introduction of carers’ leave for dependent relatives, aims at addressing this under-representation. According to Mercer, a good balance of legislative and non-legislative initiatives is required to ensure women participate in the workforce as they grow older and accrue adequate pensions. For businesses this means accelerating their gender diversity efforts by implementing robust pay equity processes, supporting all employees through and on return from maternity/paternity leave, and more.
“As described in Mercer’s When Women Thrive, Businesses Thrive research, it is time for employers to take action on this topic, in different ways than have been done previously. Organisations should diagnose their current state by analysing their hiring, promotion and exit data and understanding what is helping and/or impeding their efforts. Leadership at all levels should be engaged in driving this topic, and they must take action to ensure the right practices and processes are in place to support their female employees,” said Ms Schreuder.
Lack of flexibility in current pensions systems
Most EU pensions systems are income linked which means that those earning less, working part-time or taking career breaks to care for children or older family members, accrue less pension. Though some company plans try to bridge this gap, Mercer’s research shows that less than 10% of organisations offer retirement or savings programmes customised to different working patterns.
Eve Read, Principal, Head of Proposition, DC & Financial Wellness commented: “Most retirement plans are designed for a 40-year long, continuous, full time career with few breaks, and do not reflect womens’ divergent needs. Companies should review their benefits plans and communications through a gender lens to ensure they address the specific issues and needs of the female workforce.”
Risk-aversion and lack of confidence in women’s retirement planning
Women tend to display less confidence when making financial decisions and are more cautious about taking risks than their male counterparts. This is evidenced by data from Mercer’s Master Trust showing women to be 62% more likely than men to invest in a defensive fund which has a lower expected level of growth. Though risk aversion can lead to lower volatility in the pension saved, it can also reduce the final outcome significantly.
“The root causes behind women’s risk aversion and lack of financial confidence are multidimensional and complex but action-orientated financial education should be at the heart of the solution,” said Ms Read. “We have found that benefits communication that is based on a woman’s individual circumstances is more likely to get her attention and to subsequently take positive action. Personalising the message and using language that is more engaging for women could help them make investment decisions that produce higher long-term returns that are more aligned with their needs and ambitions.”
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