Mercer | Gender pension gap risks

Mercer | Gender pension gap risks

Failure to narrow substantial gender pension gap risks long-term problems for society and businesses

  • 6 June 2017
  • Ireland, Dublin
  • Average gender pension gap in EU reaches 40%, whereas pay gap is 16%
  • Businesses have key role to play in ensuring female employees do not retire into poverty
  • Communications targeted at women can have significant impact on savings decisions

Failure to address the EU’s substantial gender pension gap (40%), could cause long-term problems for businesses and governments alike, according to Mercer. Through its analysis, the consultancy found that the pension gap varies widely from one member state to another, however half, including Ireland, have gaps of 30% or more*. In its white paper The Gender Pension Gap – From Awareness to Action Mercer outlines the key drivers behind the pension gender gap, how it will impact companies and how they can start to address it within their workforce.

“Not only an urgent challenge for governments and policy makers, the pensions gap should also be front of employers’ minds,” said Mairéad O’Mahony, Head of DC and Financial Wellness at Mercer Ireland. “Women face a triple bind of lower earnings, more gaps in service and longer life expectancy – all of these factors mean that women have to draw from a smaller pool of assets for a longer period of time in retirement”. She added: “This means financial planning becomes even more important for women. Organisations who recognise and provide for the unique needs of women when it comes to financial planning will distinguish themselves in attracting and retaining female talent.”

Ms. O’Mahony added: “From a policy perspective we welcome the initiative of the European Commission to include a right to equal opportunities for acquiring pension rights in its recent Recommendation for a European Pillar of Social Rights.”

Under-representation of women in the workforce

Women continue to be significantly under-represented at all levels of the work force; in the EU their participation rate is 10% lower than men. The European Commission’s recent proposal for a directive on work-life balance for parents and carers, including the introduction of carers’ leave for dependent relatives, aims at addressing this under-representation. According to Mercer, a good balance of legislative and non-legislative initiatives is required to ensure women participate in the workforce as they grow older and accrue adequate pensions. For businesses this means accelerating their gender diversity efforts by implementing robust pay equity processes, supporting all employees through and on return from maternity/paternity leave, and more.

While the diversity efforts of the past several decades have resulted in some improvements in women’s participation rates and career trajectories, our When Women Thrive, Businesses Thrive research shows that we’re still decades away from true gender equality – if we keep doing what we’re doing. Organisations should diagnose their current state by analysing their hiring, promotion and exit data and understanding what is helping and/or impeding their efforts. Leadership at all levels should be engaged in driving this topic, and they must take action to ensure the right practices and processes are in place to support their female employees,” said Ms. O’Mahony.

Lack of flexibility in current pensions systems

Most EU pensions systems are income linked which means that those earning less, working part-time or taking career breaks to care for children or older family members, accrue less pension. Though some company plans try to bridge this gap, Mercer’s research shows that less than 10% of organisations offer retirement or savings programmes customised to different working patterns.

Ms. O’Mahony commented: “Most retirement plans are designed for a 40-year long, continuous, full time career with few breaks, and do not reflect womens’ divergent needs. Companies should review their benefits plans and communications through a gender lens to ensure they address the specific issues and needs of the female workforce.”

Risk-aversion and lack of confidence in women’s retirement planning

Women tend to display less confidence when making financial decisions and are more cautious about taking risks than their male counterparts. This is evidenced by data from the UK showing women to be 62% more likely than men to invest in a defensive fund which has a lower expected level of growth. Though risk aversion can lead to lower volatility in the pension saved, it can also reduce the final outcome significantly.

“The root causes behind women’s risk aversion and lack of financial confidence are multidimensional and complex but action-orientated financial education should be at the heart of the solution,” said Ms. O’Mahony. “It’s time to act differently, to address the unique needs of female employees and realise the benefit of their full participation in the workforce and in their own financial planning. Personalising the message and using language that is more engaging for women could help them make investment decisions that are more aligned with their needs and ambitions.”


Notes to Editors

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About Mercer

Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and careers of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With annual revenue of $13 billion and 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit Follow Mercer Ireland on Twitter @mercerireland.