Pensions system leaves women lagging behind

It is sometimes said that pensions were invented by men for men. Lower pay, broken career paths and part-time employment have meant that women typically build up much lower pension funds, with the result that they are more vulnerable to poverty in retirement than men.

The pensions gender gap means that, out of a workforce of two million people, 900,000 people do not have a private pension and 500,000 of these are women.

While some 54.2 per cent of working men have a pension, just 47.5 per cent of working women do. And outside urban areas, pensions coverage among women falls again, partly due to their higher rates of employment in the pensions-shy farming, retail and hospitality sectors.

Recent figures from the Pensions Board show that women are also lagging behind when it comes to taking out Personal Retirement Savings Accounts (PRSAs). Only 37 per cent of these portable pensions, which were introduced, in part, to give "atypical" workers such as part-time workers and homemakers access to low-cost private pensions, have been taken out by women.

One of the largest players in the PRSA market, Irish Life, says 34.5 per cent of its PRSAs have been opened by women, with female PRSA-holders contributing almost 20 per cent less than men, putting in an average of €224 a month compared to the average male contribution of €277 a month.

The company is starting a Women's Pensions Awareness Campaign on Monday and has produced a new guide on pensions for women.

The average contributions made by women to PRSAs and other pensions are lower than men even after adjusting for differences in their incomes, the Pensions Board said in its National Pensions Review.

With the pensions benefits in defined benefit occupational schemes linked to pay, women are automatically at a disadvantage when it comes to retirement savings.

Under defined benefit schemes, the pension paid by the employer depends on the employee's length of service and their final salary.

Women are paid 16 per cent less than men, according to an Economic and Social Research Institute (ESRI) report published last November.

Gaps in pay among male and female graduates open up within three years of graduation, the ESRI found, meaning women are on target to receive lower pay and pensions even before factors such as career breaks to take care of children are considered.

Those career breaks mean that women often have shorter service than men, so the loss of income during that time will continue to be felt long after their children have grown up.

But defined benefit schemes are slowly dying out, with defined contribution pensions becoming more popular in their place. Under these schemes, the employer does not promise any set level of benefit to its staff.

The value of the pension under a defined contribution arrangement depends on the performance of the stock market and, crucially, on the prevailing annuity rates.

Annuities guarantee an income for life in exchange for a lump sum payment. Defined contribution scheme members must purchase an annuity from an insurance company on retirement, with annuity rates depending on the long-term yields on gilts and life expectancy.

Because women live longer than men, insurance companies require them to spread their pension fund over a longer period - a woman retiring now at age 65 can expect to live to the grand old age of 84, while a man retiring at the age of 65 is expected to reach 81.

The differences can be quite extreme: a woman who buys an annuity at age 65 could receive a monthly retirement income that is around 20 per cent lower than a man in the same situation.

Insurance-based annuities therefore compound the likelihood that women will receive a lower income in retirement.

Unlike defined contribution occupational scheme members, PRSA holders don't have to buy an annuity and can instead invest their pension in an Approved Retirement Fund (ARF).

Unless they have a guaranteed pension income of €12,700 per annum, ARF holders must set aside €63,500 in an Approved Minimum Retirement Fund (AMRF) until they reach 75. But women will still be at a greater risk of exhausting their funds before they die, putting greater stress on the need for women to start their pensions early and make additional voluntary contributions (AVCs) during their working lives - as long as they can manage to stretch their salaries to do so.

Women who have not contributed to an occupational scheme, personal pension or PRSA must rely on their spouse's benefits or State pensions. But four out of every five women don't believe they would be able to survive on the State contributory pension of €193.30 a week when they retire, according to a survey by the Pensions Board. If women haven't built up enough social insurance (PRSI) contributions, they won't even qualify for the State contributory pension.

If their husband or partner is eligible for a contributory pension, they may also be paid an additional "qualified adult" allowance of up to €149.30. But as this money is not paid directly to the qualified adult, it has been criticised for increasing women's financial dependence on men.

According to various trade unions, Opposition parties and the National Women's Council of Ireland (NWCI), the social welfare system reinforces the old male breadwinner model.

The NWCI wants homemakers re-entering the workforce to receive a "re-entry" credit, which would mean more would have enough PRSI credits to secure independent entitlement to a contributory pension.

Since 1994, homemakers can disregard up to 20 years spent caring for under-12s when calculating their yearly average contributions. The NWCI wants this scheme to be backdated to 1973.

In the meantime, incentives to take out pensions, such as the valuable tax relief on contributions, have so far been aimed at those in the workforce.

The new incentive on Special Savings Incentive Account (SSIA) money rolled over into a pension is one exception - the bonus of up to €2,500 is not linked to earnings.

Mandatory pensions, if they are ever introduced, will be aimed at paid workers. But the Pensions Board has also recommended that the State pension would eventually rise to 40 per cent of gross average industrial earnings, a significant boost from the current 33 per cent.

And under the Towards 2016 national agreement, there is a commitment to increase the qualified adult pension allowance to the same level as that of the non-contributory State pension, a means-tested payment that currently pays a top rate of €180 a week.

The Government has also committed to pay all qualified adult payments directly to the qualified adult, rather than to the person in receipt of the pension.

With the pensions system designed at a time when most women had no financial independence, no income to replace during retirement and no official "retirement" age either, it is perhaps no great surprise that the European Commission found last year that Irish women are more at risk of poverty than their counterparts in any other EU state.

•The Pensions Board's guide Women and Pensions is available on its website, www.pensionsboard.ie, or by calling 01-6131900. The Irish Life guide, Looking to the Future - A Guide to Pensions Just for Women, is available on 1850-356200.