The Gender Impact of Pension Reform

During the past two decades, new multi-pillar systems have developed to make the plans more financially sustainable and beneficial for economic growth. These systems have been sweeping Latin America, the transition economies of Eastern and Central Europe and the former Soviet Union, as well as many OECD countries. The new systems contain two separate mandatory "pillars" or financing arrangements: a privately-managed defined contribution (DC) funded plan that handles workers' retirement saving and a publicly-managed defined benefit (DB) plan that is reduced in size compared with the old one and has the objective of redistributing and diversifying retirement income. In the defined contribution plan, the contribution is specified and placed in the worker's individual account but benefits are uncertain a priori--they depend strictly on contributions plus investment earnings that accumulate through the workers' lifetime. The fact that these accounts are funded, owned by workers, invested in financial markets, and don't carry a promise of a large tax-financed old age benefit relieves the government of a future financial obligation. However, critics argue that these plans will produce lower pensions for women, who have worked and contributed less than men. In contrast, supporters argue that the new systems remove biases in the old systems that favored men and discouraged work by women. They hypothesize that separating the redistributive function from the earnings-related saving function results in more transparent and targeted redistributions from which women will benefit.