No Match Found
The latest pension fund statistics published by the Swiss Federal Statistical Office (“FSO”) indicate a significant gap between the occupational pension plan benefits received by men and women. What are the reasons behind this gap and what is its impact? Should companies do anything to address it?
The FSO attributes the major differences between occupational benefits for men and women primarily to the way their careers differ. Studies show that there are several root causes for this phenomenon, all of which are related to the segregation of the professional world along gender lines. Women still work disproportionately in low-wage industries, are more likely than men to work part-time, and more often interrupt their careers after having children. In addition, pay equality – that is, equal pay for equal work – still has a long way to go. This combination of factors means that, on average, women’s wages end up significantly lower than those of men. As a result, the average woman’s savings contributions during her working life are lower and the value of her pension at retirement is inferior.
Let’s take a brief look at three factors: maternity leave, part-time work and pay (in)equality in a bit more detail.
Maternity is one of the main reasons why some women take a longer break or decide to work part-time. This can impact their earning capacity far beyond the actual maternity leave ‒ if, for example, they go back to work on a part-time rather than a full-time basis. The net result is that their contributions to the pension fund are lower and paid over a shorter period of time.
The differences between part-time employment between men and women are obvious: in Switzerland, three out of four part-time workers are women (74.3%). More than half of women work part-time (59.0%), but only one in six men work part time (17.6%).
Looking at the part-time and full-time employment ratios by age group, one can see that for men part-time work is most common aged 20-29 and over 60, whereas for women part-time work is most common aged 30-59 This suggests that, for men, part-time work serves to combine studies with work at the beginning of their careers or a pre-retirement cool down. However, for women in this age group, part-time work has the advantage of enabling them to reconcile work and family life.
Another relevant factor in addition to part-time paid work is unpaid work: on average, women still take on a lot more of the burden of unpaid work (for example domestic responsibilities and unpaid care work) than men – and the gap has only widened during the pandemic.
Gender inequality in terms of pay further contributes to the gender gap in pensions. It’s important to note that there are several forms of discrimination that could lead to women being paid less than men. For instance, women with the same qualifications have lower chances of being hired, fewer opportunities to continue their education, and lower chances of being promoted and given more demanding tasks. A lower salary leads to lower saving contributions during their career and accordingly a smaller pension fund for retirement.
There are multiple factors in a pension scheme that can have a gender bias, such as the threshold over which the insured person must pay contributions to the 2nd pillar as well as the coordination deduction.
Occupational pension schemes under the Swiss law (LPP) are subject to certain requirements regarding the income insured – the “coordinated salary”. In most pension funds, this is equal to the gross annual income minus the “coordination deduction”, which equals CHF 25,095.- (as of 2022).
Let’s look at an example to see the effect this has. A man and a woman both start out working the same job and earn CHF 100,000.- each. With the coordination deduction running at CHF 25,095.-, they each have a coordinated salary of CHF 74,905.-. What happens now if the female employee decides to work 50% to have more time for her child? When she brings down her rate to 50%, her gross salary is reduced to CHF 50,000.-, but the CHF 25,095.- coordination offset is still deducted from it. This gives her a new coordinated salary of CHF 24,905.-. She now earns half of the amount she used to earn, but the coordinated salary on which she pays savings contributions for retirement benefits is only around one third of what it was before.
An adjustment of the coordination deduction is currently being discussed in the LPP reform.
The combination of maternity, unequal pay and part-time work is compounded by the coordination deduction effect: not only do women earn less during their working life, but the amount of the pension accrued from this work is also lower. The long-term implications are serious: we are already seeing immense inequalities between women and men with regard to accessing economic resources in old age, with women running a greater risk of living in poverty after retirement.
As we’ve seen, the pension gender gap reflects the interplay of a number of different factors ‒ primarily maternity leave, part-time work and pay (in)equality ‒ that combine to leave women with fewer pension assets available to them on retirement. Therefore, it makes sense for companies wishing to address the problem to approach it from different angles.
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