Gender Gap - The retirement impact
Looking at some recent research, I found a study that outlined that women in the EU receive 40% less in pension payments than men do. What alarmed me with this is that this is a much bigger gap than the often talked about gender pay gap, but it is the gender pay gap that is the main cause for the pension pay gap in Europe. The study stated that the gap is also expected to rise as more and more pension schemes move away from the older defined benefit schemes to schemes based on employment contributions. This study concerned me as KiwiSaver, our NZ retirement savings scheme is an employment based scheme where the more you earn, the more contributions go into your retirement savings account, both from an employee and employer perspective.
Assuming a continuous gender pay gap in NZ, we could have the same results at retirement for NZ women. Germany and the Netherlands who have similar retirement savings schemes are already seeing this gap but it could be potentially worse in NZ as our paid parental leave and child care support is not as favourable as those countries.
Considering statistically women live longer than men, this potential inequity in retirement funding becomes more of an issue. To compound this, there are some rather patronising comments from ‘experts’ stating that women are less likely to undertake investment risk leading up to retirement. Anecdotally I would say my clients, once educated about investment, are reasonably similar in their risk appetite regardless of gender. I believe that the difference may be in the likelihood of women seeking investment education and/or their access to it, but that is a separate discussion I will tackle in another article. In my personal experience, I feel both genders understand that where affordable, higher exposure to growth assets leading up retirement is beneficial.
I strongly encourage all women to seriously consider increasing their KiwiSaver contributions even if it is only slightly to help offset the lower amount they will potentially be paid over their lifetimes with their potentially longer retirement years they will enjoy.
I’m aware some of my current clients may jump up yelling and screaming at me for this, so I’m stating this needs to be a considered decision prioritising debt repayment over additional KiwiSaver contributions. Often when I work with my married (female) clients, we often plan on that disparity in contributions being corrected by joint assets and of course, separation statistics mean this is not always a guaranteed fix either.
The obvious and most sensible solution to this pension gap is to work towards removing the gender pay gap in New Zealand. Alternatively, I propose that the Government could legislate so that women get greater employer contributions than men to KiwiSaver but I am not sure that was one of Winston Peters’ bottom lines!
This is an opinion piece and is not to be taken as financial advice. A copy of my disclosure statement is available on request.
New Zealand’s gender pay gap is unlikely to be going anywhere anytime soon and the impact of earning less over a lifetime has an enormous effect on a woman’s immediate and future financial security. This is compounded by a lower level of workplace participation, a tendency to seek part-time casual work and bear the bulk of caring responsibilities for children and other family members. So how can women bridge the gap? Here are some tips on how to build wealth and make positive steps towards pay equity and financial independence despite and in spite of the hurdles women face.