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Decent pensions for women

Report | Doc. 12274 | 02 June 2010

(Former) Committee on Equal Opportunities for Women and Men
Rapporteur :
Ms Anna ČURDOVÁ, Czech Republic
Reference to committee: Doc. 11713, Reference 3491 of 3 October 2008. 2010 - Third part-session


The Committee on Equal Opportunities for Women and Men recommends revising traditional pension systems which favour the linear career paths of men and are disconnected from the realities of present-day society. Measures must be taken to resolve the main problems responsible for the pension gap between women and men, on the one hand by eliminating the wage gap between women and men during their working lives and on the other by reforming pension schemes in order to eliminate inequalities.

The committee asks for positive measures in favour of women, in order to take into account career breaks and the different career patterns of women and men, such as guaranteeing a personal pension entitlement. It underlines the relevance of public pension systems which are more favourable to women, perform a redistributive function to help the lower paid and offer credits for caring for children and elderly persons.

It asks for a greater solidarity between women and men when earned pension entitlement is insufficient, including positive measures to help elderly persons, such as granting a minimum pension or an overall income which should be at least equal to the national poverty threshold.

A Draft resolutionNote

1. There is generally an appreciable difference between women’s and men’s pensions in Council of Europe member states. Many elderly women are poor because they have no pension or their pension is insufficient. Women have frequently played a role in raising children and caring for dependent persons and these periods are not, or only partially, taken into account in calculating pensions. Furthermore, in particular due to difficulties in gaining access to the labour market, the obligation to accept part-time jobs and slow career advancement, women have, on average, lower personal incomes than men, which leads to small pensions.
2. The Parliamentary Assembly notes that traditional pension systems favour the linear career paths of men and are disconnected from the realities of present-day society. Furthermore, with the increase in the number of divorces, remarriages and single-parent families headed by mothers, the system of survivor’s pensions (paid to the surviving spouse) is becoming obsolete.
3. The Assembly calls for fair and equitable pensions offering every man and woman a reasonable standard of living. For the sake of social cohesion and human dignity, it is convinced of the need for measures to resolve the main problems responsible for the pension gap between women and men, on the one hand by eliminating the pay gap between women and men during their working lives and on the other by reforming pension schemes in order to eliminate inequalities.
4. The Assembly therefore urges the Council of Europe member states to apply as soon as possible its Resolution 1715 (2010) on the wage gap between women and men in order to end discrimination against women on the labour market, and calls on them in particular to ensure that:
4.1 the right to equal pay for equal work is written into their domestic legislation if this is not already the case;
4.2 employers are obliged to comply with this right and incur penalties if they fail to do so;
4.3 employees are able to initiate judicial proceedings to secure recognition of this right without any risk of losing their jobs.
5. The Assembly asks member states to revise their pension laws in order not only to prohibit discrimination between women and men but also to provide for positive discrimination in favour of women, by means of measures taking into account career breaks and women’s and men’s different career patterns by:
5.1 guaranteeing a personal pension entitlement and, as a transitional measure, to ensure a fair and equitable splitting of pension entitlements between couples on the breaking up of relationships;
5.2 taking into account the principle of equality between women and men in pension reforms, emphasising in particular the importance of public pension systems which should be favourable to women, perform a redistributive function to help the lower paid and offer credits for caring for children and elderly persons;
5.3 granting an adequate allowance for family responsibilities or for supporting dependent persons to individuals who play a role in raising children and caring for dependent persons;
5.4 granting credits to cover certain periods in respect of which there is no pension entitlement (unemployment, parental leave, part-time work, etc);
5.5 establishing adequately paid parental leave shared between both parents;
5.6 providing affordable, good-quality services to look after children and dependent persons.
6. The Assembly asks member states to take measures, as part of their pension policy, to ensure greater solidarity between women and men when earned pension entitlement is insufficient, including positive measures to help elderly persons by:
6.1 providing for the systematic award to elderly persons of a pension or an overall income which should be at least equal to, or higher than, the national poverty threshold;
6.2 considering the introduction of a mixed pension scheme under which any person usually residing in the national territory would benefit (following modalities fixed by the country), which would include a fixed part related to residence and a variable part in proportion to his/her income;
6.3 establishing alternative or additional benefits, in cash or in kind, such as coverage of medical expenses or other expenses such as electricity or heating;
6.4 ensuring that austerity plans and current pension reforms by no means affect women in a discriminatory or disproportionate manner.
7. Lastly, it calls on member states to:
7.1 establish effective mechanisms to monitor the implementation of legislation and propose necessary improvements;
7.2 include a gender perspective in the reform and future evaluation of pension schemes, in particular by ensuring balanced participation of women and men in negotiation bodies.

B Draft recommendationNote

1. Referring to its Resolution ... (2010) on “Decent pensions for women” and to the principle of equality between women and men in the implementation of social policies, the Parliamentary Assembly reiterates its commitment to eliminating the inequalities and discrimination suffered by women in both their private and their working lives and welcomes the fact that the Committee of Ministers is working to this end.
2. The Assembly asks the Committee of Ministers of the Council of Europe to instruct its competent committee to:
2.1 compile gender-disaggregated data on old people’s pensions and income, analyse the problem of the income gap between elderly women and men and propose appropriate solutions;
2.2 assess the positive and negative effects of radical reforms of pension systems on women’s pensions, such as the conversion of public pension schemes into systems based on private savings.
3. It calls on the Committee of Ministers to raise awareness in the member states of issues relating to the viability of national pension systems and the gap between women’s and men’s pensions, both at political level and at the level of civil society.

C Explanatory memorandum by Ms Čurdová, rapporteur

1 Introduction

1.1 Preparation of the report

1. Ms Čurdová was appointed rapporteur for this report on 5 December 2008, following a motion for a resolution initiated by her on 19 September 2008, which was referred to the Committee on Equal Opportunities for Women and Men for report. As part of the preparation of this report, at the rapporteur’s suggestion, the committee appointed an expert, Dr Vít Samek of the Czech Republic, who submitted his reportNote on 30 November 2009. Subsequently, on 25 March 2010, at its meeting in Paris, the committee held an exchange of views with two experts, Dr Samek and Dr Jay Ginn, a consultant from the United Kingdom, who each made a PowerPoint presentation in support of their analysis.Note
2. Given the technical nature of the subject, the rapporteur, who is convinced, for the most part, of the validity of the experts’ analysis and the solutions they propose, will refer both to the expert paper prepared by Dr Samek and to the two PowerPoint presentations.

1.2 The issues involved

3. There is generally an appreciable difference between women’s and men’s pensions in the Council of Europe member countries. Dr Samek states that women’s personal pensions represent only 30% to 60% of men’s, although the difference may be partially offset by transfers of public money. Married women who work receive only 70% to 80% of what men receive over their lifetime.Note
4. Many elderly women are poor because they have no pension or their pension is insufficient.Note On average, younger women have much lower personal incomes than men, which leads to small pensions later in life. In other words, the wage gap between women and men is passed on in the form of a gap between women’s and men’s pensions. Furthermore, women have frequently played a role in raising children and caring for dependent persons. These periods are not, or only partially, taken into account. Traditional pension systems, based for the most part on uninterrupted career patterns and therefore primarily designed for men, are accordingly obsolete because they are unsuited to present-day requirements.
5. Studying pensions therefore means considering and comparing the incomes of elderly women and men. What income should be taken into consideration? In line with the approach recommended by Dr Ginn,Note the rapporteur proposes focusing on personal income – which gives a better idea of each individual’s personal situation – rather than on household income.
6. A look at poverty rates shows the higher degree of poverty among women.Note In the 27 European Union countries, with the exception of Hungary, women are poorer than men. In Estonia, Latvia and Lithuania, for example, the poverty rates for women/men over 65 years of age are respectively 39%/21%, 39%/22% and 38%/15%, that is, roughly twice as high among women as among men. The gap is smaller in other countries, but almost exclusively to the detriment of women.
7. A study of income by ethnic category in the United KingdomNote has shown that women are significantly poorer in the Pakistani-Bangladeshi communities, with greater differences of income between women and men, the difference being less pronounced in the Black community.
8. More detailed, gender-disaggregated data on old people’s pensions and income would provide a clearer understanding of the problem and at least raise awareness of it both among politicians and in civil society.

2 The desire to retain viable pensions in Europe

2.1 Diverse pension systems in Europe

9. The design of pension schemes differs greatly among countries around Europe. How pension schemes and pension benefits look like depends crucially on choices made about system elements, including membership criteria (voluntary vs. mandatory), management of the scheme (public vs. private), possible income policy or other social goals embodied in pension systems (insurance and equivalence vs. redistribution), the financing method used (funded vs. pay-as-you-go) and procedures for determining the size of a future pension benefit (defined benefit vs. defined contribution schemes). As most national pension systems are comprised of more than one tier, combinations of system elements are found in many cases.

2.2 The desire to retain adequate and viable pensions

10. All member states of the Council of Europe have highlighted the challenge of an ageing population and its implications for the maintenance of adequate and sustainable pensions. To avert the worst far-reaching implications of this process, they try to safeguard the capacity of current pension systems to meet their social objectives, to maintain their financial sustainability and to meet changing societal needs. The aim of pension financial sustainability is in very tight relation to a broader societal objective of financing people’s right to decent (that is, above poverty line), adequate (that is, in line with working lifestyle) and predictable (that is, political consensus, clear rules and benefit formula and security) pensions so as to ensure social cohesion and equity.
11. National strategies on pension reforms mostly ensure that most people earn pension rights and provide a minimum level of income to older people who earned insufficient pension entitlements. An important achievement of pension systems is that old age is no longer synonymous with poverty. Particularly in those member states where poverty risks remain high, a broad range of measures to improve minimum income guarantees and various benefits in cash and in kind are being introduced.
12. In order to avoid all discrimination based on gender, the objective of retaining viable pensions in European states should accordingly be combined with that of avoiding all discrimination against women.

3 The causes of insufficient pensions for women

13. The employment history of elderly women, whether or not they worked mainly full-time, and their socio-economic and marital status have an influence on the receipt and amount of public (state), occupational and personal pensions. However, even elderly women who worked full-time with few career breaks may be disadvantaged in pension terms if their income is compared with that of men. This finding reflects the many different factors and the complexity of the causes explaining the pension gap between women and men.
14. The gap between women’s and men’s pensions is mainly accounted for by two major categories of factors.

3.1 The wage gap between women and men

15. As already stressed by the rapporteur in her report on “Discrimination against women in the workforce and the workplace”,Note women earn less on average than men in their lifetime and thus they receive smaller pensions when they retire. The rapporteur also refers to Mr Wille’s excellent report of 2 February 2010 on “The wage gap between women and men”,Note which highlights the existence of discrimination against women as the main factor contributing to wage differences.
16. There are several possible explanations for this phenomenon: women work less during their lifetime (periods of maternity leave and part-time work) and women have less of a career, as they are often discriminated against when it comes to promotions to higher-earning posts: this is usually called “vertical occupational segregation by sex”. As the ILO points out: “Women’s lower educational attainments and intermittent career paths are not, contrary to conventional belief, the main reason for gender differentials in pay. Other factors, such as occupational segregation, biased pay structures and job classification systems, and decentralised or weak collective bargaining, appear to be more important determinants of inequalities in pay.”Note
17. Apart from women’s lower pensions, it is important to see the tight interrelation of female length of life and feminisation of poverty: since women live longer, for some period of their life, they share their pension with their partner; however, when he dies, they are left to live on their pension which is usually much lower than their living standards. One example connected to women’s pensions is pension insurance – as women live longer and although they generally earn less, to attain a final sum similar to men they are expected to pay higher sums for their monthly pension insurance.
18. Finally, economic recessions often affect women more than men as far as unemployment is concerned (many companies unfortunately still believe that it is more important to keep a male “breadwinner” in employment) and women’s needs or the determination to keep on working therefore leads them to accept levels of pay not consonant with the principles of equality and fairness or dissuades them from reporting cases of discrimination for fear of losing their jobs.

3.2 A pension system unsuited to women’s career patterns

19. Current pension systems take little or no account of the career patterns of women who, in addition to periods of maternity leave, bear the bulk of the responsibility in the home for domestic tasks and caring for children and elderly relatives. Traditional pension systems are mainly consistent with an uninterrupted career, that is, they are tailored primarily to men’s careers.
20. For example, where the birth of children is concerned, a study of the median earnings of women by life course stage shows that income decreases between the birth and the 4th birthday of a child. Having children has a limiting effect on lifelong income.Note
21. Many couples separate and single-parent families are often headed by mothers in serious financial difficulty.
22. Women are often forced to work half-time either because conditions on the employment market are such that they cannot find a full-time job or because they have to look after children if there are no appropriate childcare facilities.
23. Similarly, with high rates of divorce and remarriage, survivors’ pensions are disconnected from the changes in society. These pensions have been abolished in the individualised Swedish systemNote which is based on the personal award of a pension to the individual, irrespective of marital status. It is an individual right allowing everyone to obtain appropriate pension entitlement.
24. Furthermore, some pension system reforms carried out in the European Union countries between 1995 and 2005 were to the detriment of women. For example, 19 countries raised the age of entitlement to a state pension, 15 reduced the amount of the pension, 14 increased the contribution rate, 12 increased the minimum number of years of contribution to be eligible for a full pension (which is more difficult for women to obtain), six reduced the cost-of-living adjustment (to the detriment of women, who live longer). Most countries changed to privately funded pensions (the risks of which weigh more heavily on women, who have smaller pensions).Note
25. In general, national pension systems based on universal coverage through public earnings-related schemes (first pillar), private occupational schemes or private saving schemes (second pillar) and individual retirement provision (third pillar)Note provide good opportunities for most Europeans (able to pay the relevant contributions) to maintain their living standards after retirement. As a result, and in combination with other tax-benefit policies for pensioners, older people, in most member states, generally may achieve a fair, and in some member states even relatively high, living standard (more in so-called “old member states” of the European Union, less in the new ones and in the other member states of the Council of Europe).
26. However, Dr Ginn draws attention to the higher poverty rate in Great Britain and Ireland compared with Luxembourg,Note noting that in the first two countries the state pension rate is only 40% while it is considerably higher in Luxembourg. From this she infers a correlation between the poverty rate and the proportion accounted for by the state pension in the total amount of the pension. The larger the share of the state pension in the total amount of the pension, the larger women’s pensions will be and the lower the poverty rate.
27. Younger women are marrying later, having fewer children (later) and are employed longer. However, labour market inequalities persist. Pension reforms involve cuts to the value of state pensions, thereby eroding their redistributive function, and the shift to privately funded pensions are favouring the “masculine life course”. Changing family forms with more and more women raising children on their own and increases in the number of divorces are rendering survivors’ pensions obsolete.
28. The rapporteur believes that these systems are obsolete and will need to be revised to take account of present-day requirements. In particular, account will have to be taken of the fact that private pensions funded by a fixed contribution are unfavourable to women because there is no redistribution to help the lower paid and there are no credits for caring for children and elderly people. If, in addition, these pensions were to be voluntary, they would be smaller for women, who would not be able to contribute as much, and would leave individuals exposed to market risks. Dr Samek in fact showed that in the Czech Republic, if the ongoing reforms lead to the setting up of a fully private system, the system would very quickly reach its limits, increasing not only the pension deficit but also the inequalities between women and men.Note Reforms to pension systems in the transition economies of the countries of central and eastern Europe have increased pension inequalities to the detriment of women because the wage gap is widening, there is less state aid for the lower paid, survivor’s pensions have been reduced and the method of calculating years of pensionable service is still unclear. In addition to this, the number of single or divorced women is increasing.Note

4 Recommendations

29. As we noted earlier, gender inequality of income in later life is linked to inequality in earlier employment, to its forms and working conditions and, first of all, to differences in remuneration between women and men, but also to the nature of national pension systems, the role and the balance of public, occupational and personal pensions. In addition to women’s lower earnings, their diverse patterns of employment, in terms of the timing of periods of full-time, part-time and non-employment, may affect both state and non-state pension income.
30. As stated in Recommendation 1700 (2005) on discrimination against women in the workforce and the workplace, discrimination against women with regard to pension rights will not disappear as a matter of course. Nor can we rely on market mechanisms by themselves to end the problem. If it is to be ended it will require the involvement of all the parties concerned, as part of a well thought out, deliberate and coherent policy over a sufficient period of time.
31. The rapporteur is convinced that female poverty and the pensions gap that women suffer are not inevitable. There is no single solution because the pension situation varies according to country, the labour market and the state of pension reforms, but certain general lessons emerge from the foregoing analysis.
32. The rapporteur therefore invites her colleagues to support her strong political commitment to dealing with this problem because there are certain reforms of the labour market and pensions systems and other measures that can help to achieve greater equality between women and men in the pensions field.

4.1 Better access to the labour market and equal pay

33. As the Assembly stated in Resolution 1715 (2010) and Recommendation 1907 (2010) on the wage gap between women and men, and Recommendation 1700 (2005) on discrimination against women in the workforce and the workplace, eliminating pay differentials and improving women’s access to employment are key to ending discrimination against women.
34. The rapporteur is convinced that this will go a long way towards ending the discrimination that women suffer, both in their working lives and when they enter retirement.
35. The first step is to reduce the gap between the pay of women and men by ensuring equal access to education, including that of migrant women and women from ethnic minorities.
36. Adequately paid parental leave shared between both parents would involve men in this process and help to secure more equal pension entitlements. In Sweden, for example, both parents are entitled to parental leave paid at 78% of their previous earnings.Note
37. Following breaks in their working lives, employees should have the right to go back to their previous employment, if necessary with flexible working hours.
38. Finally, greater gender parity among those occupying leading positions in economic and social decision-making bodies would lead to better economic governance and offer women more interesting career prospects.Note

4.2 A mixed and balanced pension system

39. The rapporteur first wishes to point out that the financial sustainability of pension systems is a necessary precondition for an adequate provision of pensions in the future. Failure to ensure the financial sustainability of pensions systems in the long term will seriously jeopardise the adequacy of public and private pension systems and would have other adverse economic consequences as well. Over the past years, member states have recognised the urgency of making pension systems financially stable in view of the limited time that exists before the ageing population takes effect.
40. In particular in the period of the current financial and economic crisis, an approach based on raising employment rates, reducing public debt levels and reforming pensions systems in member states is urgently needed. Long-term fiscal sustainability of public and private pension systems should be a major issue in all member states of the Council of Europe.
41. For the sake of social cohesion and human dignity, retirement pensions should be sufficient to offer everyone a reasonable standard of living. In the interests of fairness, how pensions are calculated should take account of individual circumstances and be based on more than one factor. They should include a minimum element determined by the country of residence and also be partly proportional to income, though there should also be universal eligibility for state pensions based on the redistribution principle. At all events, the total pension should be at least equal to, or higher than, the national poverty threshold. Retirement pensions should be indexed-linked to the general cost of living.
42. The rapporteur is convinced of the need for solidarity to overcome disparities between women and men.
43. To avert poverty in old age for both women and men, member states have to save current strong redistributive elements into their first-pillar pension schemes, notably in the form of minimum pension guarantees or credits for certain periods without pensionable income (for example, unemployment, parental leave, etc.). This has contributed to reducing income disparities among pensioners, often more than among the population as a whole. To avert poverty of women in old age, it would be very useful to add specific components of mandatory splitting of pension rights between men and women after the divorce in the current public pay-as-you-go pension schemes and, where these do not exist, both based on the defined benefit principle and on defined contributions as well.
44. Assuming that pensions systems only incorporate these recommendations in part or over a period of time, a number of alternative temporary measures could be introduced, including ones to ensure a minimum standard of living such as free electricity or public transport or a food allowance. Such measures could also take the form of supplements to the minimum pension.
45. Private pensions, meanwhile, widen the equality gap between the sexes and there is a need for a major reform of primarily private systems. The best way of reducing their negative effects on women would be to make certain adjustments to both contributions and pension levels.
46. Such adjustments are needed to take account of women’s particular circumstances, such as sufficient pension credits for time taken off to care for children or dependent persons.Note

4.3 Additional measures to ensure more equal pensions

47. Sharing household and childcare tasks is a factor for greater equality between women and men. Such joint acceptance of responsibility contributes to individual development, including each partner’s occupational or career development. Clearly, this calls first for awareness-raising measures to secure a change in cultures and attitudes, as was pointed out in the report of a former chair of the committee, on “Involving men in achieving gender equality”.Note
48. Finally, affordable and good quality services to look after children and other dependent persons are essential ingredients of personal emancipation, particularly that of women, who are too often left alone to tend to the care and well-being of children and elderly persons.
49. To enable women to acquire the necessary number of contribution years, if this has not been achieved by other means, employers should be banned from forcing people to retire at 60 or 65. But in any case, even if raising the retirement age enables women to increase their number of working years, this will be pointless if the number of years of work required is also raised. Moreover, women aged 50 to 60 often have to look after parents or grandchildren. In these circumstances, employers are often reluctant to offer them decent working conditions. In any case, if it were allowed there would be nothing to prevent women from working beyond the legal age of retirement.Note

4.4 The particular issue of the impact of the crisis

50. The current economic crisis has worsened the prospects for pensions equality between women and men.Note
51. The financial and economic crisis has interrupted or postponed putting in place comprehensive strategies for ensuring the sustainability of pension systems and public finances as a whole in accordance with the three-pronged strategy incorporated in the framework of the Broad Economic Policy Guidelines of the European Union, as well as budgetary consolidation and reforms of pension systems. In many countries, high debt ratios and the interest burden they entail still hamper budgetary consolidation of pension systems. Furthermore, large increases in expenditure on public pensions and financial gaps are likely to emerge. Further pension reforms are needed, in particular in those member states which have not yet safeguarded the long-term sustainability of their pension systems.
52. It is necessary to continue establishing reserve funds in public pension schemes with the aim of avoiding large increases in contribution rates, in creating better opportunities for supplementary private provision and private funding, thus reducing pressures for public expenditure increases, to evaluate positive and negative effects of radical pension reforms such as changing public pension systems to private savings (so-called “opt-out pension scenario” in Slovakia, Poland, Hungary, etc.) which, taking into account disparity between women’s and men’s remuneration, confirms prolongation of such disparity in pensions as well, or to notional defined-contribution systems (in Sweden, Poland, etc.), with the aim of stabilising contribution rates across generations and incorporating better incentives to work, thus contributing also to meet the objective of higher employment rates.
53. Reform measures to improve financial sustainability in member states of the Council of Europe have in the vast majority of cases led to the reduction of benefits and pension rights of workers, women and men. These measures have included increasing pension eligibility age (in central and eastern Europe countries through the consecutive cancelling of the difference in the eligibility age of men and women, which was protective until now of women), increasing the supply of older workers on the labour market, changes in the way wage earnings are measured to calculate benefits, change from wage indexation to price indexation, moving from defined benefit to defined contribution pension plans mentioned above to protect sponsors of pension plans against longevity and investment risks. Impacts of most of these measures are more negative for women than for men.
54. To conclude, the rapporteur calls for 1. retirement policies that are based on greater solidarity between women and men, with the aid of positive measures to assist women; 2. amendments to or the framing of pensions legislation so that it not only forbids discrimination but also stipulates clearly that there is an obligation to prevent discrimination and promote equality, with the aid of measures that take account of women’s particular circumstances; 3. taking into account gender equality during discussions on pension reforms; 4. effective machinery to ensure that this legislation is enforced.
55. The rapporteur refers to the preliminary draft resolution and recommendation found above and suggests to submit this report to the Assembly during the third part-session (21-25 June 2010).