Pay gap to pension gap - FutuRes research shows persisting inequalities

Inequalities can influence societies' resilience. The "pay gap" is widely known, but how about the pension gap? How equal will our bank accounts be as we age? 

In their research, Alexia Fürnkranz-Prskawetz, Miguel Sánchez-Romero and David Zettler (the FutuRes team at Vienna University of Technology) use mathematical simulations to examine this question. 

Societies in Europe are increasingly heterogeneous with respect to people’s working lives, family constellations, wealth and housing situations. This raises the question whether our social, educational, family and labour market policies are still working for everybody. In particular, do our social welfare systems offer equal support when people experience shocks and disruptions, like unemployment or health issues?

In their on-going research for the FutuRes Project, Alexia Fürnkranz-Prskawetz, Miguel Sánchez-Romero, and David Zettler examine how shocks such as unemployment and health disabilities affect people’s pension benefits in Europe. The researchers analysed[1] four countries (Austria, Germany, Italy, and Poland) that have different pension systems[2] with varying degrees of generosity.[3] 

To investigate how these pension systems treat different socioeconomic groups, the researchers looked at the individual level, by gender, skill level and number of children. 

Their findings show clear patterns of inequality when it comes to pension benefits between countries. 

In Italy and Poland, labour market conditions combined with the pension system result in greater inequality in pension benefits compared to Austria and Germany. Within countries, the analysis shows a significant gender gap in pension benefits. In all four countries, women receive between 32 (Germany) and 42 (Poland) per cent lower pension benefits than men on average. The estimated gender gap in pension benefits is much larger than the unadjusted gender pay gap[4] in the four countries. 

Indeed, data from the European Commission show that the highest unadjusted gender pay gap is 18 percent in Austria, followed by Germany, Poland and Italy.[5] 

The difference between the gender gap in pension benefits and the gender pay gap is due to the lower employment prospects of women[6] relative to men, which is caused by childbearing and (unpaid) caregiving responsibilities, as well as persistent gender discrimination in the labour market. The results from the research also illustrate that higher-skilled workers receive, on average, close to 1.5 times higher pension benefits than lower-skilled individuals across all four countries, with higher-skilled men receiving disproportionately higher pension benefits compared to both women and lower-skilled men. 

Reasons for this include that higher-skilled individuals enjoy higher incomes, more stable employment, and better health throughout their lives, while lower-skilled individuals, especially women, face more challenges in terms of employment, income, and health. Higher-skilled individuals may also have fewer caregiving burdens because they have smaller families and their partners are, on average, also healthier.

As demonstrated by this FutuRes research, inequalities are perpetuated by pension systems. To reduce inequality throughout individuals’ lives, and to build resilience on a societal level, we need to adjust our welfare programmes, for example in health, education and care, for populations today and in the future.

References and further reading:

[1] The analysis was based on a micro-simulation model developed by the researchers, that includes demographic, economic and institutional structures.

[2] Italy and Poland have a Notional Defined Contribution (NDC) system, while Austria and Germany have a Pay-As-You-Go (PAYG-DB) system. For more information on how these systems work, please see: OECD (2019). Pensions at a Glance 2019 - OECD and G20 Indicators; 4. Architecture of National Pension Systems. https://www.oecd-ilibrary.org/docserver/66b65776-en.pdf?expires=1730114516&id=id&accname=ocid57015174&checksum=2BA872F7E9554D419B0BB2D7A62C100F

[3] For people with similar work histories, pension benefits under the NDC system are more generous in Italy than in Poland. Likewise, in the PAYG-DB system, Austria offers more generous pension benefits than Germany.

[4] Expressed as the percentage difference between the average gross hourly earnings of men and women, relative to the average gross hourly earnings of men.

[5] Please see: Eurostat (2021). The unadjusted gender pay gap, 2022: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Gender_pay_gap_statistics

[6] i.e. the higher probability of becoming unemployed, more difficulties in finding a job, and the lower number of hours worked

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