Our role in closing the gender gap in retirement

next issue no. 9: Participant engagement

The year 2022 marks the 50th anniversary of the passage of Title IX. This landmark piece of legislation has contributed massively to the workplace becoming more equitable for women. More women now attend college than men (74% to 66%), and more women work in public sector roles than men (24% to 16%), both of which have been linked to higher access to retirement savings vehicles. However, retirement planning and savings remain a major area of concern. Among pension beneficiaries at age 65+, women in the U.S. on average receive 33.7% less income compared to the average man; worse than the OECD average of 25.6%.

•   Title IX of the Education Amendments of 1972 prohibits sex-based discrimination (including pregnancy, sexual orientation and gender identity) in any education program or activity receiving federal financial assistance.

The great divide

While we have seen progress toward increased financial equity across genders, it’s too slow and unsteady to expect meaningful change. Across all genders, saving for retirement seems more difficult for American workers today than it was for prior generations.

For women, it’s even harder for a few reasons.

1. Pay. It remains the case that women, on average, earn $0.83 per $1 that a man earns.¹Women’s relative earnings have been consistently climbing since the 1970s, but have plateaued somewhat in recent years, and the gap remains a major obstacle to retirement saving as many retirement vehicles are at least in part wage-based.
2. Savings. The broader status quo is that fewer women are actively saving for retirement. Women are less likely to be covered by an occupational plan than men (48% to 42%), and of those, eligible women are less likely to participate than men (55% to 49%).²
3. Longevity. Women also take more time out of the workforce, are more likely to be primary caregivers, and when they do retire their savings produce less income than the average man’s savings. Women also, on average, live five years longer than men do.³ Meaning that their already lower savings have to last that much longer to provide throughout retirement.

Women are also more likely to be part-time employees, and are less likely to work in industries with traditionally strong retirement savings plans, which depress the amount they are likely to save for retirement.

It is important to note that this isn’t a problem unique to America. Among pension beneficiaries at age 65+, women in the U.S. on average receive 33.7% less income compared to the average man. While this is worse than the OECD average of 25.6%, the gaps in Japan and the United Kingdom are even larger than those in the U.S., at 47.4% and 40.5%, respectively.⁴

Women are less certain of their retirement savings than men. The TIAA Retirement Insights Survey found that only 21% of women are confident in their ability to plan for retirement, compared to 37% of men, while 69% of women are concerned that they are not saving enough for retirement, again compared to just 57% for men.⁵

But wait, there’s more. There is also just a fundamental financial literacy gap, with men scoring 55% on the TIAA financial literacy index, and women scoring 45%.⁶ This shows fundamental knowledge gaps that can exacerbate already extant structural issues.

But, importantly, there are also factors that have worked to narrow the gap in retirement savings plans over recent years. More women now attend college than men (74% to 66%), and more women work in public sector roles than men (24% to 16%), both of which have been linked to higher access to retirement savings vehicles to boost savings.

Building a bridge

But in an effort to not just be a source of doom and gloom, it is important to examine what can be done to help rectify these gaps.

There are reasons to be more optimistic for the future. The labor force participation rate for women continues to climb, and the median earnings number for women versus men has consistently narrowed over time. Simply having more women in the workforce, and having those women earn a closer amount to their male counterparts will go a long way toward narrowing the gaps over time. Further, the continued growth of women attaining college degrees will also further help narrow the gap over generational timeframes.

Smoothing over the gaps where women take time out of the workforce due to primary caregiver responsibilities would help lessen the significance of the gaps in savings.

We would also argue that there are certain baseline elements of retirement savings that employers should ensure they have in place in order to further level the playing field.

• Automatic enrollment, auto-save and re-enrollment: companies have to make sure that people are being auto-enrolled in the right benefits options available to them. A simple step but it ensures that people aren’t leaving money on the table. There should also be automatic increases in the savings rate of employees, say, 1% a year increase in the contribution to a 401(k) up to a maximum of 10% of pay. This option should be one that employees can opt out of, but it goes a long way to growing a retirement savings account.

  There should also be a default option that includes lifetime income guarantees as lifetime guaranteed income can help to offset the longevity risk that women’s life expectancy gives them. This is a broader story on plan design/investment menu construction but it will help close retirement savings gaps. Retirement options available in the plan should also represent a diverse range of asset classes to allow women who are actively engaged in their retirement savings to select the options that match their risk tolerance.

• Education also remains an important way to assist employees, even if automatic enrollment should be forefront. Employers should make sure that their workforce is engaged and knowledgeable. The financial literacy gap between men and women should be closed. This will also educate women on how to take age-appropriate risk, and changing that risk balance considering women might be out of the workforce for longer throughout their careers. The education speaks to the unique needs of women, including that they take more gaps from the workforce, are paid less to begin with, and ultimately live longer. These three elements have to drive financial literacy and how women approach retirement saving.
• Peer representation is another way to ensure that women feel involved and engaged with their retirement planning. Around sensitive matters such as contingency planning, emergency planning, divorce or single motherhood and safety nets, mid-and late-career women look to their peers to gain knowledge and advice. Education has to remain at the forefront of employer’s efforts. The gap in financial literacy is a structural issue that should be closed, and would help ensure that women in the workforce are taking advantage of any programs that are already available to them.

Careful consideration of work-life balance benefits must be taken into account with focus on the likelihood of women taking breaks from the workforce due to primary caregiver responsibilities, as this means that they are more likely to fall behind in retirement savings. Ensuring that there is a seamless progression in growing retirement savings vehicles through any temporary periods outside the labor force would help. These benefits can include specific provisions for elder care or child care, and working to connect those dots between the broader societal roles that women play and their roles in the workforce.

Employers need to ensure that they are communicating these benefits, and continually educating their employees as to the programs available. This needs to happen throughout the career lifecycle. As we discuss in our On The Horizon article in this edition, well-thought-out benefits and communication programs can also be a useful tool for recruitment and retention. Applying these tools across a workforce can help show to employees that a company is an engaged member of their lives, and is working hard to rectify historical and structural issues, such as those that result in women’s retirement savings being so much lower than men’s.

Connect the points

There is also a significant element of DE&I to these considerations. There is a fundamental and growing desire among employees to feel secure and valued at work. Working to ensure that women remain a valued and cared for segment of the workforce is valuable for companies, and something that broader stakeholder groups are advocating. Employees are looking for more than just a paycheck, steps must be taken to extend equity into communications around benefits offerings to create that culture of enhancing retirement confidence with the employee base.

Now is the right time to take these steps. The labor market is incredibly tight, and attracting and retaining employees has never been a more difficult task. Programs that highlight the value of saving early, often and consistently throughout a career should be considered the baseline. Further, programs that include an element of guaranteed lifetime income are well worth considering as part of an overall plan construction. As women live longer and have lower savings level, the risk of running out of money in retirement can be greatly reduced through the inclusion of some form of annuity.