Pension Rankings 2020

My daughter lives in Australia and my wife has family in the USA so I thought after reading the report on how pension funds are doing I would share what the three countries are doing in this area.

Canada’s Pension ranked 9^th out of 39 pension systems studied by the Mercer CFA institute Global Pension Index 2020

Canada's retirement income system comprises a universal flat-rate pension, supported by a means-tested in-income supplement; an earnings-related pension based on revalued lifetime earnings; voluntary occupational pension schemes (many of which are defined benefit schemes): and voluntary individual retirement savings plans.

The overall index value for the Canadian system could be increased by:

·        Increasing the coverage of employees in occupational pension schemes through the development of an attractive product for those without an employer-sponsored scheme

·        Increasing the level of household savings and reducing the level of household debt

·        reducing government debt as a percentage of GDP

·        Increasing the labour force participation rate at older ages as life expectancies rise

The Canadian index value increased slightly from 69.2 in 2019 to 69.3 in 2020 due to several improvements in the sustainability sub-index which were largely offset by the decrease in the adequacy sub-index with reductions in the net replacement rates published by the OECD

Australia is ranked 4^th out of 39 pension systems studied by the Mercer CFA institute Global Pension Index 2020

Australia's retirement income system comprises a means-tested age pension (paid from general government revenue); a mandatory employer contribution paid into private-sector arrangements (mainly DC plans); and additional voluntary contributions from employers, employees or the self-employed paid into private-sector plans.

The overall index value for the Australian system could be increased by:

·        Moderating the assets test on the means-tested age pension to

·        increase the net replacement rate for average income earners

·        Raising the level of household saving and reducing the level of household debt

·        Introducing a requirement that part of the retirement benefit must be taken as an income stream

·        Increasing the labour force participation rate at older ages as life expectancies rise

·        Introducing a mechanism to increase the pension age as life expectancy continues to increase

The Australian index value decreased from 75.3 in 2019 to 74.2 in 2020 primarily due to a reduction in the net replacement rates published by the OECD.

The United States is ranked 18^th out of 29 pension systems studied by the Mercer CFA institute Global Pension Index 2020

The United States’ retirement income system comprises a social security system with a progressive benefit formula based on lifetime earnings, adjusted to a current dollar basis, together with a means-tested top-up benefit; and voluntary private pensions, which may be occupational or personal.

The overall index value for the American system could be increased by:

·        Raising the minimum pension for   low-income pensioners

·        Improving the vesting of benefits for all plan members and maintaining the real value of retained benefits through to retirement

·        Reducing pre-retirement leakage by further limiting the access to funds before retirement

·        Introducing a requirement that part of the retirement benefit must be taken as an income stream

·        Increasing the funding level of the social security program

·        ' Expanding coverage by providing access to retirement plans on an institutional group basis for workers who don't have access to an employer-sponsored plan

The American index value decreased slightly from 60.6 in 2019 to 60.3 in 2020 due to several small reductions in the sustainability subindex.

 

 

 

Canada Pension Plan is it sustainable?

In an article written in March 2021, called Public Pensions: Steady as they Go, the author Yan Barcelo asks the question: Are Canada's pension plans as sustainable as they seem?

 A legitimate question and the first couple of paragraphs lead the reader to consider the idea that these funds are not sustainable.

In the article Yan states:

Canada’s public pension programs appear robust in the long term; retirees can be confident of receiving their monthly pension cheques for 50 more years. However, the programs are subject to stresses that could ultimately affect retirees’ revenues.

Yan goes on to say, “Let’s start with the largest of the pension providers, the Canada Pension Plan (CPP). In the last 10 years, the reserve has grown by $235 billion at an average nominal yearly rate of 9.9%. The fund has done well in the coronavirus market crash and recovery. It closed the 2020 fiscal year (ending March 31, 2020) with a gain of 3.2%, and has made 16% by end of 2020, increasing its asset base to $476 billion.

So far, this reserve has not been used to pay pension benefits, which were entirely covered by employer/employee contributions representing 9.9% of salary, explains Alexandre Laurin, director of research at the C.D. Howe Institute. However, “benefits should surpass contributions in 2022 and then we will start cashing out assets. Still, with returns and contributions combined, the reserve should continue to grow.” The fund should reach $3 trillion (or $1.6 T after inflation adjustment) by 2050, predicts the CPPIB’s 2020 annual report.”

Just when the reader is starting to feel comfortable with the fund's liquidity Yan asks “Is it Enough?” and gives the answer least expected by the reader which is:

Not quite, notes the Parliamentary Budget Officer (PBO) in its November 2020 Fiscal Sustainability Report: Update, which asserts that the CPP is not sustainable over the long term. “Under the current structure, projected contributions and benefits are not sufficient to ensure that, over the long term, the net asset-to-GDP position returns to its pre-pandemic level. Increased contributions, or reduced benefits, amounting to 0.1% of GDP ($1.3 billion in current dollars, growing in line with GDP thereafter) would be required to achieve sustainability.”

Scary thoughts, but here are some questions, what does it mean by “that the CPP is not sustainable over the long term.”  Is the long-term 2050, 2070 or later?

It appears the long term means 2070 or later and in his article, Yan compares the Old Age Security program which is funded by current government revenue, to the Canada Pension Plan which is funded by investments and contributions.

The sustainability of Canada’s public pension programs hinge on many underlying hypotheses which are expected to hold steadfast for 50 to 60 years. A case in point, in its projections for the OAS programs, OSFI calculates that the expected slide back to 2.63% of GDP depends on a lower growth of inflation compared to the growth of salaries and GDP.

 

Really? For the CPP and QPP, projections consider levels of immigration, unemployment, of life expectancies. If any one of these projections varies even slightly, it could significantly change results 50 years down the road – negatively as well as positively.  This is of course true but does not consider the idea that if projections vary then investment strategy will change as well.

 

For example, a key variable is average real annual rates of return (after inflation), which Canada’s chief actuary sets at 3.95% for the CPP. Those are very reasonable assumptions. If ever the CPPIB continues generating a real rate of return close to 8.1% as it did over the last 10 years, then sustainability will cease to be an issue. But not if returns fall below their expected thresholds.

The underlying assumption in the last paragraph appears to be that the Canada Pension Board will not adjust their investment strategy over the next 50 years, Of course, they will as they have done so since inception.

The best news in the article is left until the end. In the article, Yan states that “Comparing 39 pension programs across the world, the Mercer CFA Institute Global Pension Index is arguably the most extensive and in-depth of its kind. Based on three criteria – adequacy, sustainability and integrity – the index ranks Canada’s programs in 9^th position with an overall grade of 69.3%, or B+, behind the top programs of the Netherlands, Denmark, and Australia, but ahead of Germany, the U.K., the U.S. and France. 

On the sustainability sub-index that accounts for 35% of the country score, a key question focuses on the total level of pension assets as a percentage of GDP each country holds. On that count, Canada and Demark alone score a perfect 10. However, for the whole sustainability sub-index, which takes into consideration features like life expectancy, labour force participation rate, recent GDP growth, Canada comes in with a 64.4% score or a C+ note.” What the article does not say is that 64.4% gives us the rank of sixth in the world just below, Denmark, Chili, Australia, Israel and the Netherlands, which is pretty good. So should we as pensioners be afraid, my thought is no, but we should be vigilant and make sure our Canada Pension continues to be one of the best in the world.

 

How did corporate pension plans do in 2019?

Do you have a corporate pension plan in Canada, then you may be interested in a report Liabilities mostly offset high returns around the globe, posted in Pension and Investments on January 20th? This report goes into great detail about many countries so if you are not Canadian, you may want to go to the link and read up on your country. 

A pension plan with a traditional 60/40 mix — composed of 20% in Canadian equities, 40% in global equities and 40% in "Canadian universe" bonds, rebalanced monthly — would have enjoyed a 15.7% return, but the lowest long-term bonds yields in more than 60 years offset much of those gains by boosting pension liabilities as well, said Andrew Kitchen, a Toronto-based managing director, institutional Canada, for Russell Investments Canada.

For the year, the solvency ratio of Canadian defined benefit pension plans only improved to 94% from 92% the year before, he said.

All-time lows for Canadian bond yields in 2019 led to all-time highs for corporate defined benefit pension obligations, with a 15% jump in liabilities over the past year alone, said Andrew Whale, a Toronto-based principal in Mercer Canada's financial strategy group in a review of corporate DB plans over the past year.

The median solvency ratio for Mercer's corporate pension clients in Canada rose to 98% from 93%. By Mercer's estimates, a typical balanced pension fund in 2019 would have delivered a 17.4% investment return.

Consultants at both Russell and Mercer said the boost in pension liabilities on the balance sheets of companies with DB plans has left corporate executives focusing more on options such as pension buyouts or pension risk transfers. The cost premium of settling DB obligations by purchasing an annuity over keeping that DB obligations on the balance sheet have shrunk and "we have seen their appetite for annuities increase tremendously," said Mercer's Mr. Whale.

Russell's Mr. Kitchen said risk transfers won't be the appropriate solution for all plan sponsors, with those seeking other ways to manage DB asset volatility now boosting allocations to alternative assets and private market exposures.

Negative interest rates and Pensions

If the interest you receive from your investments is lower than the rate of inflation, you are receiving a negative interest rate on your return. This means you are losing money by staying in that investment. Around the world, central banks have been, in order to boost economies lowering interest rates. One of the unintended consequences of this decision is on pension funds around the world and the impact these policies have on pensioners.

The following is from a story published online on the Saltwater Network, Going Dutch? Low interest rates rattle 'world's best' pension system written by Toby Sterling

The European Central Bank's (ECB) stimulus policies, which have helped drive interest rates into negative territory, are blamed in part for the impending cuts in the Netherlands and have triggered a fierce debate over how the funding of pensions should be calculated.

At the heart of the Dutch debate is a technical question over how to calculate the cost of future pension payouts while the central bank policies keep interest rates low.

Actuaries make assumptions about how long pensioners will live, count up the future payments that have been promised to them and then use an assumed interest rate to "discount" how much must be put away to pay them.

The lower this interest rate, "rekenrente" in Dutch, the more conservative the accounting, and the more it costs to meet future liabilities.

The rekenrente is derived from government bond yields -- which have turned negative across Europe as interest rates steadily fell this summer.

Each 1% fall in interest rates have led to roughly a 12% fall in the coverage ratio between assets and liabilities in pension pots, the Dutch central bank says.

That has led several funds and some experts to argue that the rekenrente, which is around 0.3%, should be raised instead. Many blame ECB policy and see its effects as temporary.

Increasing the rekenrente to 2% or 3% would restore the funds to full solvency. Corien Wortmann-Kool, the chairwoman of the 456 billion-euro ABP civil servants fund, told Reuters she opposes pension cuts as "unnecessary" for now.

Increasing the rekenrente to 2% or 3% would restore the funds to full solvency. Corien Wortmann-Kool, the chairwoman of the 456 billion-euro ABP civil servants fund, told Reuters she opposes pension cuts as "unnecessary" for now.

"We believe we can achieve good returns, now and in the future," she said, estimating a 4% return over time is achievable despite low-interest rates.

The Dutch pension coverage ratio first fell through a 95% "critical" level, below which pensions should be cut to ensure a fund has enough assets to meet its liabilities, in July. It fell to 88.6% in August before recovering to 91% in September.

But Dutch Central Bank President Klaas Knot, the country's top pension regulator, says the rekenrente is "integral" to the system.

"We will continue to adhere to the risk-free rate of interest," Knot told journalists this week.

His approach is supported by a group of 10 academics who this week wrote to parliament arguing against a change.

"Imagine you took the risk-free rate of return and raised it by 2%. Then the coverage ratio would increase at a typical fund by up to 30%. It sounds too good to be true -- and it is. Pensioners get that money paid out now, but the assets pot will be a little emptier each year, and that would go on each year for years," the letter said.

One reason the Dutch system is considered so strong is its rigorous accounting. Another is its reliance on several different sources of pensions. Its first tier is the basic state pension that is funded by current workers on the "pay as you go" a basis that is the heart of systems in France, Italy and Germany.

The Dutch system relies more heavily than most on a second tier, supplementary employer-run pension funds, the ones preparing cuts. The Dutch fight will be closely watched in the United States and Britain, which have similar tiered systems but funds sometimes use less stringent accounting rules.

The Organisation for Economic Co-operation and Development (OECD) calculates that Dutch retirees get about as much, all told, as their after-tax income while they were working.

But for Dutch pensioners, cuts estimated at up to 8% next year make no sense, given assets in Dutch pension funds have doubled since 2008 to more than 1.5 trillion euros.

This represents the most of any major industrialized nation as a percentage of GDP, as up to 90% of Dutch workers are enrolled in funds to which they and their employers contribute.

Myths about the Canada Pension Plan

The Canada Pension Plan has a website that debunks the myths many of us have about the plan. To read more go to the link and check the sources. Back in the late 1990s, there were serious concerns about how long the CPP would be able to continue paying benefits. Indeed, the Office of the Chief Actuary of Canada projects the CPP Fund is sustainable for the next 75 years.

Hard work was done to fix this, including the creation of the CPP Investment Board to invest contributions. But 20 years later, a majority of Canadians still believe the CPP Fund is running out of money and won’t be there for them.

Public trust has stayed low and people’s perceptions remain 20 years behind the times.

That’s troubling and CPP Investment Board’s public awareness effort, which includes this website as well as some digital and television advertising,   aims to help demystify some common misconceptions.

So, let’s look at a few of those more common myths:

Myth – CPP is bankrupt, or will be soon.

Reality – Two decades ago, the CPP was unsustainable. But federal and provincial governments made changes, including creating CPP Investment Board, to fix that. Today, the CPP is sustainable and secure for future generations.

Myth – The government tells the CPP Investment Board how to invest.

Reality – In fact, CPP Investment Board operates independently of government on an arms-length basis. Our investment teams make decisions about what goes in our portfolio based on the CPP Investment Board’s statutory mandate, which requires us to invest in the best interest of CPP contributors and beneficiaries.

Myth – CPP contributions can be used by the government for purposes other than CPP.

Reality – The money you pay into CPP can only be used to fund the CPP and pay CPP benefits. It cannot be used for any other purpose, such as building roads or funding cultural programs.

Myth – CPP will pay for my whole retirement.

Reality – Right now, CPP pays up to about one-quarter of an average worker’s salary – and in coming years, that will increase to one-third. In 2016, federal and provincial governments decided to enhance the CPP to create a stronger foundation for Canadians’ retirements. 

As the investment manager of the CPP Fund, the CPP Investment Board is responsible for prudently investing the additional contribution amounts arising from the enhancement to the CPP. Other government pension sources include Old Age Security and Guaranteed Income Supplement. Personal savings, including Registered Retirement Savings Plans and Tax-Free Savings Accounts, as well as workplace pensions, are the other most common sources of retirement income.

Seniors and Pensions

I had an interesting talk, a few days ago with a young senior who was talking about her work in Ontario, a few years ago. The problem is that for the government in BC and in Ontario Senior issues are pushed to the back of the bus. Not because these issues are not important, but because seniors do not speak as one voice on many issues. The young senior talked about how she had worked with her organization to focus all of the various senior groups on the issue of income security for seniors. 

She said there was great interest and after a few years, there was growing support being formed around the issue, and the government was finally starting to listen as this group represented over six million seniors. As the momentum started to grow, petty politics started to grow as well. One group thought there was more attention being paid to another groups wishes, and that attitude of "my way or the highway" slowly took over and the momentum that was building collapsed as in-fighting grew in the member organizations.

The reality is that seniors are going into debt at a faster rate than other groups and sinking into poverty at a faster pace than in the previous decades. We are facing many crises with our seniors, crises of long term care, health care, housing, isolation, and poverty are just a few of the issues seniors face. 

Each of these issues are multi-layered and complex and are expensive. Senior groups form to protect the interest of their members, and teachers have different issues then doctors, who have different issues than rail workers. This means that senior groups do not coalesce around one issue, which is how governments like the situation as this way the government can study the issues and not act on any issue.

The issue of income security for seniors becomes more complicated because it gets mixed in with the issue of income security for all, minimum wage, liveable wage, are thrown in and the issue becomes confusing. My experience with confusing issues is that most people will walk away rather than take the time to think through to a solution. Thinking about complex issues is hard work, many of us do not have the time, energy, desire or understanding to know where to start, and then through up our hands when we realize that in all of these issues there is more than one right answer. 

The issue of income security also becomes complicated, because some have defined payment pensions, which they paid for when they were working, while others have defined contribution pensions, while others have only Old Age Security and/or Canada Pension. The problem is that many with no pension are encouraged by the press and governments to find ways of taking away pensions from those who paid into their plans while they were working. As a result the issue of jealousy makes it hard for seniors to work together on this issue.

In Canada we are lucky because we have the Canada Pension Plan which all workers contribute to over their working career. We need, as seniors to find a way to strengthen this program and raise the contributions so that the payout at the end will give recipients a living wage. Once we have this done, then we can look at ways to increase people who rely on only Old Age Security and the Guaranteed Income Supplement and raise that source of income to a living wage. 

I think we as Canadians believe that every senior should be able to live in dignity. But workplace pensions simply don’t provide for everyone, and they don’t recognize time spent on caregiving or the wage gap faced by Canadian women. They also exclude persons with disabilities who can’t work or who find their careers disrupted by episodic disabilities.

That’s why public pensions and income supports for seniors are a fundamental part of our social contract – they ensure that everyone has access to a dignified retirement. And that’s why we need to ensure that our public programs for seniors remain universal – because no one deserves to fall through the cracks.

Senior groups need to set aside the petty politics that separate them and focus on making sure that all seniors in Canada receive a pension that provides them with a living wage. This is, I realize, just a wish, and one that will not come true, in my lifetime.

Canada Pension Plans do well. 19 ranked in the top 300

Reports on the pensions industry can be dull and they are usually overlooked. One such study published last week attracted few headlines yet offered wonderful insights.

The world’s 300 largest pension schemes, a study put together by Towers Watson, allowed interesting conclusions to be drawn on who owns the world’s retirement wealth – and what that says about how each country will meet future pension costs.

Canada’s Pension plans do well, we have 19 in the top 300 plans. Canadians who are in the following plans should be happy that their pensions are doing well compared to the rest of the world. 

There is debate on what to do with the Canada Pension Plan, I think, as the Canada Pension Plan is the 8^th ranked plan in the world, we should be expanding this plan.

The Canada Pension Plan is described by Towers Watson as one of a number of Sovereign Pension Plan. Sovereign Wealth Funds (SWFs) are pools of assets owned and managed directly or indirectly by governments to achieve national objectives. 

They may be funded by: i) foreign exchange reserves; ii) the sale of scarce resources such as oil; or iii) from general tax and other revenue. There are a number of potential objectives of SWFs, which are not always easy to attribute to a particular fund; and some funds may have more than one of the distinguishable objectives. Some of these are: i) to diversify assets; ii) to get a better return on reserves; iii) to provide for pensions in the future; iv) to provide for future generations when natural resources run out; v) price stabilisation schemes; vi) to promote industrialisation; and vii) to promote strategic and political objectives.

These funds have raised concerns These funds have raised concerns about: i) financial stability, ii) corporate governance and iii) political interference and protectionism.

Public Pension Reserve Funds (PPRFs) have a more specific objective At the same time governments have formed other large pools of capital, in particular to finance public pensions, which are generally referred to as Public Pension Reserve Funds (PPRFs). There are two such types of funds: those set up and owned directly by government (Sovereign Pension Reserve Funds, or SPRFs) and those belonging to the social security system (Social Security Reserve Funds, or SSRFs). SPRFs may be considered a type of SWF with an exclusive mandate to finance future public pension expenditures. On the other hand, not all SSRFs may be considered SWFs. Some are legally independent of government and their balances are not integrated for national accounting purposes into the government accounts.

The Sovereign Wealth Fund Institute (SWFI) is a global organization designed to study sovereign wealth funds, public pensions, superannuation funds, central banks and other long-term public investors in the areas of investing, asset allocation, risk, governance, economics, policy, trade and other relevant issues

Pension plans ranks are below:

Rank Pension Name              Country      Assets (in Millions)

Key Questions for Retirement Planning Canada

The following is from the Ontario Ministry of Finance and is an interesting starting point to discuss what is going on in the area of Pension reform in Canada. To start the discussion we need to understand the system. Canada’s Retirement Income System: uses “The Three Pillars Approach”

• Canada’s pension system consists of three pillars:

1. Universal government benefits for seniors (PILLAR 1)
2. Canada Pension Plan (PILLAR 2)
3. Employment Pension Plans and Individual Retirement Savings (PILLAR 3)

PILLAR 1: Universal Government Benefits

• Federal seniors benefits include:

1. Universal Old Age Security (OAS)
2. Guaranteed Income Supplement (GIS)
3. Spouses Allowance (SPA)
   Ontario (and other provinces and territories) supplement federal benefits to low-income seniors

PILLAR 2: Canada Pension Plan

• Federal government and Provinces are joint stewards of the CPP
• Provides retirement, survivor, and disability benefits
• Universal coverage of all workers in all industries
• Employees and employers make equal contributions (4.95% each – 9.9% combined) on earnings up to annual maximum of $47,200 (2010)
• Defined Benefit – up to 25% of the average wage
• Fully portable
• Inflation-indexed to CPI
• Actuarially sound for the next 75 years
• CPPIB invests assets of $123.9 billion

PILLAR 3: Employment Pension Plans (EPPs/RPPs) & Individual Retirement Savings

      1. Employment Pension Plans (EPPs/RPPs)

• Voluntary plans sponsored by an employer or union
• Defined Benefit (DB), Defined Contribution (DC) or Hybrid
• Maximum DB pension accrual is $2,494 per year of service (2010)
• Subject to federal or provincial pension benefits standards legislation
• Contributions are tax deductible and investment income is tax deferred
• Benefits are taxable
• Traditional DB coverage has been gradually declining

PILLAR 3: EPPs/RPPs and Individual Retirement Savings

2. Registered Retirement Savings Plans (RRSPs) / Registered Retirement Income Funds (RRIFs)

• Contributions to RRSPs are tax deductible
• RRSP withdrawals and RRIF income payments are taxable
• In 2006, federal RRSP tax expenditure was estimated at $10 billion (plus Provincial tax expenditures)

PILLAR 3: EPPs/RPPs and Individual Retirement Savings

3. Other Savings

• Total savings rates in Canada are very low by historical standards
• Average family savings of $1,332 per year
• Savings are accumulated and then dispensed over a person’s life cycle 
• Savings can be held in non-pension financial assets (including the new TFSA) and non-financial assets

Canadian Retirement Income System (CRIS): Strengths

Strengths

• The CRIS has worked well for many Canadians
  • Dramatic declines in senior poverty since 1970s
• Diversity of the CRIS is a strength

Canadian Retirement Income System: Challenges

Challenges

• Market downturn in 2008 and low long-term interest rates
• Declining coverage in traditional pension plans
• Pillar 2 (CPP/QPP) provides lower benefits than in most other developed countries
• Questions about the ability of the existing system to deliver for tomorrow’s seniors
• Research suggests that 1/4 to 1/3 of Canadians may not be savings enough for their future retirement.

Canadian Retirement Income System: Defining the Challenge

• Ontario research identifies the challenge for tomorrow’s seniors:
  “The status quo is an option.  However, it is an option that may leave a significant minority of people with moderate to high earnings facing a decline in their standard of living in retirement, and force many people to rely on sub-optimal pension and retirement savings institutions.” - Bob Baldwin
  
  “There is… some evidence that not all working Canadians are saving enough… Further study is needed to determine the degree of saving inadequacy.  - Jack Mintz

Canadian Retirement Income System: Government Response

• Expert Commission on Pensions
  • Review funding of DB pension plans and related matters
• Bill 236, Pension Benefits Amendment Act, 2010
  • First major pension reform in Ontario in over 20 years
• Premier McGuinty calls for National Pension Summit
• FPT Working Group on Retirement Income Adequacy
  • Ontario research by Bob Baldwin
  • Federal research directed by Jack Mintz

Canadian Retirement Income System: Key Options

• Major stakeholder proposals for reform:

1. Expansion of public pensions (CPP)
2. Supplementary DC pension plans
3. Pension Innovation
4. Reforms to Tax Assistance

The following were identified as Key Questions for Discussion, which you should be having with your elected officials as they move into an election campaign

• Why do we need to strengthen Canada’s retirement income system? 
  • In your view what research or evidence demonstrates that people are not saving enough for retirement? 
  • How would you define “enough”, and how much weight should be placed on personal choice?
• What are some of the possible options or combination of options that the government should consider in strengthening Canada’s retirement income system for tomorrow’s seniors?
• How would your preferred options or proposal be implemented?
  • How would your proposal work?
  • What do you think it might cost?
  • How would costs be allocated among employees, employers, etc.?
  • Would it be voluntary (e.g. opt-out) or mandatory?
  • How might other stakeholders be affected?

The socio-economic impact of pension systems

Back in 2011 the European Commission  took a look at pension issues called "The socio-economic impact of pension systems on the respective situations of women and men and the effects of recent  trends in pension reforms” it is interesting reading and can be downloaded here (PDF file). The main highlights are below. What is interesting is that the pace of progress on reform is moving at a very slow pace; it must be sped up to meet the needs identified.

The purpose of the study is to enhance our understanding of the socio-economic impact of  pension systems on the respective situation of women and men. The goal is to present a picture  of what takes place within the 27 Member States, the three EEA/EFTA countries and the three  candidate countries (Croatia, Former Yugoslav Republic of Macedonia and Turkey). The information considered in this report was provided mainly by the national experts of the EGGSI network of experts in gender equality, social inclusion, healthcare and long-term care supplemented by a wide-ranging review of the literature and comparative data available.

The study analyses contributory and assistance (non contributory) old-age pensions, focusing on the situation of women and men (both EU and non-EU nationals), and taking into account the challenges resulting from demographic change in terms of adequacy and gender equality, as well as the gender impact of recent pension reforms. Focusing on gender inequalities, the study places pension adequacy at the centre of discussion. 

Some findings:

• Gender differences in demographic and labour market trends affecting pension income 
• Increasing demographic pressures and socio-economic changes have forced since the 1990s  European countries to reform their pension systems in order to improve their sustainability in  the long run, with significant effects on their capacity to contain poverty risks in old age and reduce gender and inter-generational inequalities.

The main factors affecting pension systems can be summed up as follows: 

a. the demographic

challenge, as, on the one hand, the first cohorts of baby boomers have started retiring, while on 

the other hand Europe's working-age population is shrinking due to declining fertility rates. 

Moreover, as life expectancy increases, future generations will have progressively more years to live through in retirement on average; 

b. the changing structure of labour markets, with the 

increasing share of part-time and flexible employment and inadequate pension rights 

portability, often resulting in short and insufficient period of contributions, affecting women in 

particular; 

c. societal change with increasing differences in household patterns, such as single or 

cohabiting households, and growing divorce or family separation rates, posing further 

challenges to pension systems based on family or derived rights.

These factors entail heavy consequences on the sustainability of pension systems, on the one

hand, and on the adequacy of pension income on the other, affecting women in particular as the gender differences observed in life expectancy, in employment and in household patterns, imply that women are likely to have lower pension entitlements than men in old age and that different 

categories and generations of women are affected in different ways.

Poverty concerns older women more than older men

Income from pensions is the major source of income for women in old age, but the pensions 

women receive are lower than the men’s. The main causes for the pension gender gap, according to the literature, are that women earn less than men on average, work more often in part-time jobs and atypical contracts. More frequently than men, moreover, they tend to work in the informal labour market, have interrupted working careers and retire earlier. All these conditions have an impact on their lifetime earnings, influencing the duration and level of contributions to their pension records and the type of pension schemes they have access to. As a consequence, income levels for elderly women across Europe are significantly lower than for the rest of the population: despite the long-term improvement in contribution-based pensions and the existing old-age allowances, in most countries ageing women continue to experience higher poverty risks than their male counterparts, especially when over the age of 75. 

The increasing challenges posed by migration trends on pension system on pension systems

Another demographic aspect to be taken into consideration is migration trends, as labour 

migration is the main source of population growth in the European Union. The challenges it 

poses in host countries are increasing, as migrant men and women present lower employment 

rates, greater proportion in insecure jobs and the informal economy, exposing migrant workers 

to more serious risks of social exclusion and poverty than the resident population, and this is 

reflected in pension entitlements. 

The issue of social protection for migrant workers is particularly relevant both for men and for 

women, but for women the situation is even worse than that of men as undocumented but also 

legal migrant women are more exposed than men to working in the informal sector of the host 

country. The choice of many migrants to go back home after reaching pensionable age 

represents an additional challenge to the European countries pension systems, involving the 

issue of the pension portability rights – an issue which has not yet received adequate attention 

on the part of policymakers in European countries.