The Gender Impact of Pension Reform: And Which Policies Shape This Impact

Abstract:     
Pension systems may have a different impact on the two genders because women are less likely than men to work in formal labor markets and earn lower wages when they do. Recent multi-pillar pension reforms tighten the link between payroll contributions and benefits, leading critics to argue that they will hurt women. In contrast, supporters of these reforms argue that women will be helped by the removal of distortions that favored men and the better targeted redistributions in the new systems. In order to test these conflicting claims and to analyze more generally the gender impact of alternative pension systems, this paper examines the differential impact of the new and old systems in three Latin American countries - Chile, Argentina and Mexico. Based on household survey data, we simulate the wage and employment histories of representative men and women, the pensions that these are likely to generate under the new and old rules, and the relative gains or losses of the two genders due to the reform.

We find that women do indeed accumulate private annuities that are only 30-40% those of men in the new systems. However, this effect is mitigated by sharp targeting of the new public pillars toward low earners, many of whom are women, and by restrictions on payouts from the private pillars, particularly joint annuity requirements. As a result of these transfers, total lifetime retirement benefits for women reach 60-80% of those for men and for "full career" married women they equal or exceed benefits of men. Also as a result, women are the biggest gainers from the pension reform. For women who receive these transfers, female/male ratios of lifetime benefits in the new systems exceed those in the old systems in all three countries. Private intra-household transfers from husband to wife in the form of joint annuities play the largest role. Women who work no longer have to give up their own annuity to get this widows' benefit, as they did in some old systems.

Working Paper Series