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Women and Pensions

Women are More Likely Than Men to Face Poverty in Retirement

Women over 65 half as likely to receive pensions;
 Those who do, get only half as much as men

By: Unknown
Institute for Women's Policy Research, May 22, 2002

It is generally conceded that older women have lower incomes and fewer economic resources than their male counterparts, but the difference in income from pensions is especially pronounced.  In the 65 plus age group, women are only about half as likely as men to receive income from pensions (including from their husbands’ pensions).  And the half who do, get about half as much as men.

Among today ’s workingwomen, women are participating in pension plans in greater numbers.  For women who work full-time, near equality in participation rates has been achieved.  Part-time workers, who are disproportionately women, however, are much less likely to participate in employer-sponsored pension plans.  And over their lifetimes, women spend more time out of the labor force than men. This also contributes to the lesser likelihood of older women receiving pension income.  And because women still earn less than men, their pensions will continue to be smaller.

In recent years, a growing number of pension plans offered by employers are defined contribution plans (like 401ks),rather than defined benefit plans.  Defined benefit plans generally pay out only at retirement and, then, only to workers who are vested (usually after three to five years of participation in the plan).  Furthermore, spouses have to consent to any payout plan, including one that would exclude them from receiving benefits.

Because defined contribution plans allow workers to receive lump sum distributions when they change jobs before retirement, they are more portable.  Because women move in and out of the labor market more frequently than men, the portability of defined contribution plans tends to benefit women.  But the impact of portability on men and women is very different.

Both men and women are likely to spend, rather than re-invest, a pre-retirement “lump sum distribution ” of their pensions, but women do so even more than men (only 27 percent of women compared with 36 percent of men roll their lump sums over into another investment earmarked for retirement).  Moreover, once a lump sum is distributed in a non-annuitized form, spousal consent is no longer required as to how it is allocated.  Thus, over time, the shift to defined contribution plans may jeopardize women ’s access to pension income more than men ’s.

These findings are from a newly released study by the Institute for Women ’s Policy Research (IWPR) in Washington, D.C., funded by the U.S. Department of Labor, The Gender Gap in Pension Coverage: What Does the Future Hold?, co-authored by Lois Shaw, Ph.D., and Catherine Hill, Ph.D.  Analyzing data from the Census Bureau ’s Survey of Income and Program Participation (SIPP), IWPR found that, overall, 44 percent of older working women do not expect to have a pension in retirement from any source compared with 36 percent of working men.

The study has a number of public policy implications.  Dr. Heidi Hartmann, IWPR ’s president and CEO says, “Extending pension coverage to more part-time workers and shortening vesting periods should anchor a women ’s agenda for federal pension policy.”

Defined contribution plans depend on market returns and require workers to play an active role in investment decisions.  Educating the public on the differences between defined contribution and defined benefit plans is paramount.  “Particularly, public education on the importance of re-investing these funds is a real concern.  We also need regulations to protect spousal rights after lump sum distributions,” Hartmann says.

Understanding differences in men’s and women’s use of lump sum distributions before retirement is an increasingly important area.  Hartmann believes that IWPR ’s research on the pre-retirement use of lump sums has implications for the public debate on the creation of “individual accounts ” within Social Security.  “Over time, pressure to allow pre-retirement access to these new individual accounts might develop if Social Security were partially privatized.  Our analysis has implications for a wide range of important policy debates in addition to its contribution to the scholarship on pension coverage.”  Hartmann adds, “Enron employees would have stood a better chance of keeping their retirement income had everyone —male and female —had the benefit of a defined benefit pension plan.”

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