Issue, No.1 (March 2017)

Occupational pensions – data evidence of gender gaps

by Jörg Neugschwender, LIS

Nowadays, in many societies pension entitlements are built up from various schemes that are regulated and administered by the state (first pillar), employers and trade unions (second pillar), and/or financial institutes (third pillar). Researchers in the field have systematically analysed the development of multipillar pension systems and the variety of institutional arrangements between the policy actors over time (Arza and Kohli 2008; Ebbinghaus 2011; Natali et al. 2017). Building on national country case studies, in comparative contributions the scholars grouped together countries with similar institutional approaches in order to better contrast the main pathways and implications for the redistributive outcomes of such systems.

Besides the common analytical approaches of pension pillars and income tiers, two main archetypes of pension systems have been conceptualised: Bismarckian social security systems were founded mostly on one main public system that secure the elderly against poverty (first tier of income) and maintain the living standard (second tier of income). In contrast to the Bismarckian approach, in Beveridgean systems the state restricted its role mostly to protect the elderly against poverty. Additionally, the state might be involved in joint regulation with employers and trade unions setting up complementary pension schemes. Alternatively, the state might increase incentives to take up personal pension plans with financial institutes through favourable tax treatment and subsidised contributions. Typically Beveridgean systems are also classified as multipillar systems.

Ebbinghaus and Gronwald (2011) analysed the main pathways of pension system development. In Bismarckian systems, occupational (second-pillar) and personal (third pillar) pensions have been typically crowded out, as the contribution-based pension income by the state already served to maintain the living standard. It is particularly the multipillar pension systems which crowd in a variety of alternative solutions that may even partly or fully substitute the public system. Following up on the policy brief by Natali and Pavolini in this newsletter issue, this article will try to shed some more light on the relevance of occupational pensions in the pension income mix around the world.

Occupational welfare solutions set the scope for various outcomes: How employers and employees share contributions to occupational pension plans. Whether or not, individuals in case of job change can transfer their rights to the new employer. But also whether or not, individuals are allowed to cancel their accumulated rights from occupational welfare at any point in time during their working career. In contrast to this, personal pensions with financial institutes might protect two very distinct groups, the ones earning above income ceilings, and the ones who do not have sufficiently access to occupational pensions respectively for whom personal pensions are more suitable than employer-based solutions. Therefore, it is important that during the data collection phase a clear distinction in the income sources public vs. occupational vs. personal pensions respectively nature and type of current pension savings contracts is made.

In general, the Luxembourg Income Study (LIS) Database tries to distinguish between various pension income sources/LIS variables:

  • employment-related public pensions
  • old-age/disability/survivors universal pensions
  • old-age/disability/survivors assistance pensions
  • occupational pensions
  • voluntary individual pensions

For various LIS datasets from the early 2010s a split in all three pension income sources public vs. occupational vs. personal is available. The presented graph concentrates on the relevance of occupational pensions in the pension income mix and its cross-national variation. The numbers below the graph show the weighted percentage of elderly persons (here defined as persons aged 65 or older) receiving occupational pension income. In order to focus on the pension income mix of retirees and to reduce the influence of partial pensions in the pension income mix, for the presented income shares, the sample of the elderly (65 and older) has been further restricted to those elderly, whose individual pension income is the main income source (pension income larger than 50 % of total individual labour income). Further breakdowns by three income groups and by gender offer additional insights in the spread of occupational pension income and its redistributive impact among the elderly in current societies.

Among the analysed economies, in the Bismarckian countries such as Luxembourg, Italy, Greece, and mostly in Germany, occupational pensions are barely contributing to the pension income mix. Although Germany and the United States show a similar pattern in recipient rates, occupational pensions are relatively more important in the United States due to the lower generosity of the public earnings-related pension system. In general, in the Beveridgean pension systems of Ireland, the United Kingdom, and the Netherlands, there is a strong variation of relevance of occupational pension in the income mix across the income groups. As occupational pensions, particularly for high-skilled workers, function at the same time as fringe benefits, a comparatively higher relevance of occupational pensions in the upper end of the income distribution could be expected.

The separate analyses by gender reveal in most of the countries a strong gender gap. Ireland shows the highest difference between men and women regarding the spread of occupational pensions among the elderly population. The gender divide is also particularly high in the Netherlands, where women due to a high relevance of part-time employment careers collect substantially less contribution-based entitlements; furthermore, the public residence-based pension income is intertwined with the payment from occupational systems. Note that the various Finnish occupation-based pension schemes are a hybrid between public and occupational pensions, as they are legislated by tripartite agreements; for this overview the various Finnish contribution-based pension schemes have been reclassified from public to occupational pensions.

Arza, C., and Kohli, M. (eds.) (2008a). Pension Reform in Europe. Politics, Policies and Outcomes. London/New York: Routledge.
Ebbinghaus, B. (ed.) (2011a). The Varieties of Pension Governance: Pension Privatization in Europe. Oxford: Oxford University Press.
Ebbinghaus, B., and Gronwald, M. (2011). ‘The Changing Public Private Pension Mix in Europe: From Path Dependence to Path Departure’, in B. Ebbinghaus (ed.), The Varieties of Pension Governance: Pension Privatization in Europe. Oxford: Oxford University Press, 23-53.
Natali, D. and Pavolini, E. with Vanhercke, B. (2017), Occupational Welfare in Europe. Risks, opportunities and social partner involvement in pensions and unemployment protection, ETUI, Brussels, forthcoming.