Do women benefit from pension reform?

 

“Pension gap”. This is a classic political battle cry that obscures more than it sheds light on things. What the term means is that women have lower pensions on average than men. Thanks to a higher life expectancy, women receive their pensions on average about three years longer than men for the same retirement age, and until now the lower retirement age has also been a factor. Life expectancy is not the reason for the gender difference in annual pensions, however.

According to federal statistics, in 2022 the average pension for new male pensioners in occupational pension schemes (second pillar via pension funds) was 2,656 francs per month. Women received an average of “only” 1,611 francs, almost 40 percent less. The average amounts for men are also significantly higher for capital payments. The gender difference is particularly large among married people; there, however, it is not very significant because pensions for married people (should) actually benefit both spouses. Among single people, the gender difference is much smaller at around 7 percent.

Whoever pays more gets more

But such nuances rarely find their way into the megaphones of federal politics. The Left in particular portrays the “pension gap” as something of a scandal. But men on average receive higher pensions simply because they paid in more beforehand. In the second pillar, you are essentially saving for yourself: those who pay in more will receive a correspondingly higher pension later. So there is naturally a “pension gap” between people who paid in more and those who contributed less.

Anyone who thinks that’s unfair should also demand that you can’t get a better piece of furniture in a furniture store for 10,000 francs than you can for 2,000 francs. And that a SBB general travelcard can’t cost more than a regional travelcard. And that you can’t buy a longer flight with 2,000 francs than you can with 200 francs. And, and, and.

There is a simple reason why women pay less into pension funds than men: the insured wage is on average significantly lower for women. The most important factor is the lower labor force participation. On average, women are less likely to work than men, and among those in employment, the proportion of women working part-time is much higher. This has a lot to do with the traditional gender roles when it comes to childcare. However, couples can freely shape this role distribution according to their preferences.

Even among people living alone and without children, the employment rate is slightly higher for men than for women, and the part-time employment rate is much lower for men.

In addition, there are wage differences for comparable workloads. In 2022, the median wage for women was 9.5 percent lower than that of men. This is due, among other things, to differences in industry, hierarchy level, professional experience and job profile. The extent to which gender discrimination plays a role is an old unresolved controversial issue.

The gap is getting smaller

But here is the good news: The proposal for pension fund reform should reduce the percentage “pension gap” between the sexes. The reform has two core goals: firstly, a reduction in the statutory minimum pension in order to reduce the hidden cross-subsidization of employed people to pensioners; this is relativized by pension supplements for 15 transitional years as “compensation” for the reduction.

The second core element is the expansion of insurance protection in the compulsory occupational pension scheme (BVG) for lower annual incomes, including part-time employees. Firstly, annual wages of 19,845 francs or more would be mandatorily insured in the future, instead of 22,050 francs as before. According to the federal government, this would mean that around 70,000 additional people would be included in the compulsory scheme.

What is far more important is that a higher proportion of the annual salary would have to be insured. 80 percent of the annual salary up to 88,200 francs would now be compulsorily insured – instead of the current annual salary minus a fixed amount (“coordination deduction” of 25,725 francs). The lower the annual salary, the greater the expansion. For an annual salary of 30,000 francs, for example, 4,275 francs were compulsorily insured; the new figure would be 24,000 francs. For a salary of 80,000 francs, 54,275 francs were previously insured; the new figure would be 64,000 francs.

If a larger proportion of the salary is insured, this leads to higher wage deductions (wage contributions) in absolute terms, with unchanged contribution rates. At the same time, however, the reform also changes the percentage contribution rates. Previously there were four different rates depending on age, but now there are two: 9 percent for 25 to 44 year olds and 14 percent for 45 to 64 year olds. This increases the percentage wage contributions up to age 34 and reduces them thereafter.

Redistribution via surcharges

In addition, there are pension supplements for the transitional generations. These supplements do not result in any pension increases on balance, but only in (further) cross-subsidization from young to old and from top to bottom. The pension supplements will in fact be paid for by those in employment – for example by reducing the interest on pension capital and later correspondingly lower pensions. But because lower incomes benefit far more from pension supplements than higher incomes, the supplements also result in a net redistribution from men to women.

The overall impact of all reform elements depends heavily on the circumstances of the individual case. Since the majority of insured persons are insured well beyond the current mandatory level, the reform would not have any major direct impact on most of them and only relatively modest indirect effects. The estimated 10 to 30 percent of insured persons who are only covered by the mandatory level or slightly beyond it would be more severely affected. This is likely to be a disproportionate number of women.

One trend within this group is clear: the lower the annual salary, the more likely the pension is to rise. Pensions are more likely to rise for women than for men because women are disproportionately represented at lower annual salaries. For example, according to the federal government, in 2023, a good 72 percent of all part-time workers were women.

Many cash registers make more

Most pension funds insure higher salary portions than the BVG minimum. According to the latest industry survey by fund provider Swisscanto, in 2023 only 11 percent of the pension funds surveyed used the coordination deduction according to the BVG minimum. The others have a variable deduction depending on the salary, weight their deduction according to the level of employment or have no coordination deduction at all (and thus insure the full salary). Simon Tellenbach of the consulting firm VZ Vermögenszentrum estimates that almost 20 percent of pension plans have not yet made any adjustments to expand insurance for part-time employees.

But the changes being discussed can also be desired for such a minority. A study by the consulting firm BSS on behalf of the women’s organization Alliance F estimates that around 15 percent of insured persons would be directly affected by the reform. According to the estimates, pensions would increase by around 10 percent and decrease by around 5 percent. According to the estimates, the ratio would be much more favorable for women than for men: around 275,000 women’s pensions would increase and 67,000 would decrease, while there would be more pension reductions than increases for men. Because of these results, Alliance F is fighting for a yes vote to the BVG reform.

However, the study also reveals the downside: wage contributions would rise for almost all women directly affected. This almost has to be the case – if you want to expand insurance coverage for women and not introduce new cross-subsidies.

In principle, employers must pay at least half of the wage contributions. However, research literature suggests that employers will sooner or later pass on a significant portion of the increase in non-wage labor costs to employees – for example, by reducing gross wage increases and cutting employment. A large portion of the remainder is passed on to prices – which also places a burden on employees as consumers.

But because such transfers are often diffuse, come with a time delay and do not fully apply to every individual employee, some may hope to benefit somehow at the expense of others.

The trend is that the low-wage groups are likely to be net winners, mainly because of the design and financing of transitional pensions. Women belong to this group in a disproportionately high proportion.

Hypocritical criticism

Nevertheless, the left, which is supposedly particularly interested in the welfare of women, rejects the reform. One of the left’s criticisms in the context of the women’s issue is that the reform does little for women. Instead, women would have to “pay even more for even less pension”. This is typical misrepresentation. Overall, women would have to pay more for more pension, and the balance is probably positive.

For those who constantly criticize the “pension gap” but reject a reform that would reduce the gap (even if it is far from eliminating it entirely), one thing is particularly true: the criticism of the “pension gap” is not serious. The critics complain that women have to pay the costs of higher pensions themselves – without mentioning that men have also paid more for their higher pensions.

Beyond the smokescreens, the left’s resistance to the reform should be understood as a fundamental criticism of occupational pensions – of the principle of “saving for yourself”. Hidden cross-subsidies from top to bottom and from employed persons to pensioners also exist in pension funds, but in the AHV this is much easier and possible to a much greater extent.

The EL problem

Left-wing criticism also includes the argument that some women would not benefit from a higher pension because their supplementary benefits would fall in return. Such cases are likely to exist. Due to a lack of data, there is no estimate of the extent of this.

The rate of supplementary benefits (EL) to old-age pensions in 2023 was just under 10 percent for men and 14 percent for women. But the criticism is riddled with hypocrisy. In the context of the discussions about the expansion of the AHV, the same circles had brushed aside references to the targeted EL, pointing out that some people did not want to go to the state to ask for supplementary benefits out of shame. But now a reduction in women’s dependence on state EL is suddenly supposed to be a nuisance. Anyone who takes women seriously will not want to argue like that. According to the logic of the critics, one would also have to reject a policy for higher employment because this would reduce the payments of unemployment benefits.

For those voters who do not want to abolish the second pillar, another question should be at the forefront when assessing the BVG reform from the perspective of the gender debate: Do they want an expansion of compulsory insurance, which could bring higher pensions to several hundred thousand women at the cost of higher wage contributions?