Family care responsibilities are a critical component to a thriving society and arguably in a family’s and country’s best interests to promote. However, under most current systems, caregivers end up sacrificing retirement savings in order to fulfil these responsibilities, either by taking time away from the paid workforce, by limiting hours worked, or by making other career trade-offs that result in lower lifetime income and retirement savings. And, of course, caregiving needs are growing for elder care alongside increased life expectancy.

In addition to the OECD’s policy proposals to make retirement plans more gender neutral, individual account systems provide the foundation to address the gender pay gap. Ensuring that every adult – even those whose primary occupation is unpaid work at some points in their lives – has an individual retirement account can build retirement savings for women, build long-term financial decision-making skills, and provide a vehicle for contributions during periods of unpaid work. In addition, to providing accountability, an individual account provides empowerment through the ability to watch one’s savings grow and compound over time. Three specific tools offer opportunities to address the gender pay gap.

• Split contributions. One tool to close the gender pension gap is to have contributions for married couples be split between their individual retirement accounts. This would be similar in legal terms to having retirement assets be considered community property (to be divided 50/50) instead of common law property (owned by whomever acquired it) throughout their marriage rather than solely in the event of separation or divorce. Splitting contributions both recognizes the critical role of each spouse and builds financial inclusion and responsibility over time.
• Voluntary contributions. Having an individual, rather than employer-centered, account, provides a mechanism for retirement savings contributions during periods of unpaid work. Some countries (among them Canada, Denmark and Japan) allow pension contributions during parental leave but rely on the employee and employer to do so. Meanwhile other countries (notably the United States and New Zealand) do not have any arrangements for pension contributions during parental leave.
• Government contributions. Some governments choose to make retirement savings contributions during family leave (be it for parental leave or elder care) similar to paid family leave during employment. A logical choice would be for a government to bear this cost as an investment into a more resilient society. Furthermore, voluntary or government retirement savings contributions both avoid the unintended consequence of discouraging the hiring of women who may take time away for caregiving.

Addressing the gender pension gap is an important component of being responsive to the changing demographic situation in the coming century. For example, in the United States, one of the few areas of bipartisan agreement is around the value of family. More than half of the fifty states have either active or pending paid family leave legislation, and President Biden’s recently announced American Families Plan aims to introduce a national paid family leave program.

Lastly, to address the issue of longer female life expectancy, what is old may become new again – namely, the use of “tontines”. Tontines are mortality pooled investment vehicles in which participants earn income during their lifetimes, and the surviving participants shares increase as other subscribers die. The concept was created in the 1600s as a means of pooling longevity risk. Although they were widely used until the mid-18^th century, they were largely discontinued once investors began finding loopholes in the structures of the time. Currently, they have been re-examined as a possible way to address the issue of longevity risk. One idea is to introduce an investment vehicle during decumulation to participants who invest a set amount in return for a payment or income stream. The initial groups can be formed through age bands (to ensure a more even distribution of life expectancies) and as each investor passes away, his or her shares can be re-allocated to the surviving members.

Up to this point, most retirement systems have failed to grow and safeguard the savings of men and women equally. But there are ample strategies to solve the problem. Eliminating the gender pension gap will improve retirement outcomes for women, giving equal access and opportunity to retire with dignity to half the global population. This is a priority that should not and cannot be ignored. As we continue this series, FCLTGlobal will next look to cover the importance of retirement savings and retirement spending.

^{1 Towards Improved Retirement Savings Outcomes for Women – OECD, March 10, 2021}