Gender Pension Gap — what you should know

The pension gap has narrowed noticeably, but women still receive significantly less money than men.

The Gender Pension Gap, i.e. the pension gap between women and men over the age of 65, has narrowed in recent years. While it was still 53 percent in 2017, it was already 7 percentage points smaller in 2021 at 46 percent. Nevertheless, it is still one of the highest within the European Union (EU). Here you can find out the main reasons for this. We also take a look at the countries where the gender pension gap is much smaller. And: we give tips on how women can make up for this gap.

What’s behind the pension gap?

There is a clear link between income and pension provision: those who earn more pay more into statutory, company or private pension schemes — and are better protected in retirement. According to the Federal Statistical Office, women in Germany earned on average 18 percent less than men in 2021.

Around three quarters of this difference in income can be explained by the fact that

that women more often work part-time or have marginal employment than men,
that they work more often in lower-paid industries, or
that they are less likely to become managers.

But even with a comparable qualification or in a comparable job, women in Germany still earn about six percent less than men. Gender is therefore the reason for different levels of pay for the same work.

As a result of this disparity, Germany ranked last in the OECD’s country comparison in 2021, with a gender pension gap of 46 percent. Although the gap has narrowed in recent years, it was 53 percent in 2017 and 49 percent in 2019.

This is how high the pension gap is between men and women in Germany

This was preceded by the fact that the wage gap between men and women among today’s pensioners was also larger before. In addition, the model of the male family breadwinner was particularly widespread in western Germany. There, women have only entered the workforce to a greater extent in recent decades, while in eastern Germany women have traditionally been and still are far more likely to work.

A study by the Hans Böckler Foundation’s Institute of Economic and Social Research describes the consequences for pensions: in 1992, the gender pension gap was 73 percent in western Germany and 39 percent in eastern Germany. By 2019, these gaps had narrowed to 55 percent in the west and 23 percent in the east.

The pension gap is significantly higher in the west than in the east

How is the gender pension gap calculated?

To calculate the gender pension gap, one relates the personal retirement incomes of all women in a region or in an age group to those of all men in the same region or in the same age group. The relative difference is expressed as a percentage.

In Germany, income from company pensions and private pension plans is generally included in the calculation in addition to income from statutory pension insurance.

Men’s employment biographies are becoming more unstable

A study by the German Institute for Economic Research in Berlin shows: In the coming decades, the pension gap will narrow. For women and men born between 1966 and 1970, it will be around 15 percentage points smaller than for women and men of the war generation, i.e. those born between 1936 and 1945.

But there is a big but: According to the researchers, the gap is not only narrowing because women receive higher pensions. But also because men receive lower pensions. Partly responsible for this trend are more frequent interruptions in employment, with longer periods of unemployment for younger men, longer periods of training, and the increasing importance of part-time work.

EU comparison: Estonia has the smallest gender pension gap

Nowhere in Europe is there pension equality: the smallest gap, most recently 0.5 percent, currently exists in Estonia. Denmark is in second place with 12.4 percent. So Estonian and Danish women also receive lower pensions than their male counterparts. Incidentally, the pension gap is 25 percent on average across Europe. This also means that EU women are generally more at risk of old-age poverty than EU men.

Let’s first look at Estonia: There, women who receive pensions today were predominantly employed full-time — as was also the case in other Eastern European countries and in eastern Germany. But their pensions averaged just under 600 euros a month in 2021. Accordingly, men in Estonia received a few euros more in pensions last year.

Danes receive a tax-funded basic pension

The situation is quite different in Denmark: Here, pension payments are generally higher than in Germany and therefore women as well as men are much closer together in terms of their retirement benefits. This was not always the case. The Danes reduced their pension gap between 2010 and 2012: they raised women’s pensions by 17 percent and lowered men’s by an average of 3 percent.

This adjustment was possible because the Danish pension system works differently than in Germany, where there is a tax-funded basic pension for everyone. It depends only on how long someone has lived in the country, not on the level of his or her income. Other components are added, such as a mandatory company pension above a certain income and tax benefits for private provision.

Preventing old-age poverty

In view of the persistently high pension gap and the steady decline in statutory pensions, economic experts advise women of all ages to definitely look into the issue of pension provision. This is because they are still significantly more affected by old-age poverty than men.

They recommend that all women, whether single or in a partnership, take care of their own retirement planning to avoid a pension gap. Since many women tend to provide for others first before thinking of themselves, they advise a healthy dose of self-protection and mindfulness to safeguard their personal future.

The statutory pension now takes child-rearing periods into account. However, this hardly reduces the pension gap. On the one hand, because many mothers take longer off work than the additional pension points could compensate. For another, fathers who work during this time continue to pay into the pension scheme. So the gap between the partners does not narrow as a result.

Checklist Gender Pension Gap: Pension provision is also a matter for women

The pension gap shows how important it is for women to make timely provisions to maintain their own standard of living in old age. Our checklist will help you do just that:

Set aside money for yourself — that is, in your own name — that is earmarked for your private retirement provision. In the event of separation or divorce, you will only receive a fraction of your ex-partner’s pension income.
Start NOW with your old-age provision! And do it month by month. Even if it’s a small amount you can save each month, it will help.
Invest your money earmarked for retirement in a way that will generate a high enough rate of return. The checking account or fixed-income investments such as the savings account or the overnight deposit account are not suitable for generating a total return above the rate of inflation.
By the way, setting aside money every month is always worthwhile to be covered in old age when you can no longer do certain things yourself and have to rely on help.

The pension gap will continue to narrow in the coming years — but it’s not a foregone conclusion.

Interview with Dr. Gabriele Widmann Deka economist

Dr. Widmann, the gender pension gap has narrowed by 7 percentage points over the past three to four years (depending on the basis of calculation). That’s actually cause for celebration — isn’t it?

Dr. Gabriele Widmann: The fact that the structural gap between women’s and men’s pension incomes has noticeably narrowed is, in my view, very good news. However, in this case in particular, «better» is still far from being «good. The declared goal must remain to close the still very large gap in the long term. It must not be the case that women are more at risk of old-age poverty because, for social reasons, their entitlements to statutory pension insurance are systematically lower than those of men.

What has contributed to this development?

Currently, the average age of retirement is around 64. This is when people retire who were born at the end of the 1950s. In this generation, the proportion of women who have been working has slowly increased. They have therefore acquired more entitlements to the statutory pension scheme than the cohorts before them.

This is particularly true for women in the new federal states, who were much more likely to have been employed during the period when Germany was divided than those in western Germany. Incidentally, this difference between the new and old federal states in terms of women’s employment is not quite as great today as it was in GDR times, but it is still clearly visible.

What are the central reasons why the pension gap is still so large?

The old-age pension is calculated on the basis of how much money one has paid into the pension insurance system during one’s working life. This in turn depends on how long you have worked and how much you have earned. From this, the answer is easy to deduce: Women often take career breaks during their lives so they can take care of family — raising children or caring for elderly family members. Often, they go back to work only part-time after the time off.

As a result, they also have fewer careers. And then, on average, women also choose professions in which they earn less than in typical male professions. All of this means that, on average, women’s gross incomes during their working lives are significantly lower than those of men. This large difference has narrowed somewhat over the past decades due to women’s increasing employment, but not by much.

Other EU countries perform better than Germany — why is that?

In part, this is because women’s employment is traditionally seen as more «normal» in these countries. Take France, for example, with its many crèches. There, childcare is much less complicated than in Germany. In the Scandinavian countries, professional equality (also in terms of pay) is fundamentally more advanced than in Germany. And the Central and Eastern European countries have a comparable post-war development to the former GDR — in the socialist countries of the time, the involvement of women in working life was much stronger and more equal than in West Germany.

However, one should not be blinded by the statistics: Often, country comparisons only use the values of pension recipients. In Spain, Italy or Austria, the pension gap between women and men is only apparently much smaller than in Germany. If the calculations for these countries include the many women over 65 who do not receive a pension at all, the differences between men’s and women’s pensions there are even higher or similar to those in Germany.

Do you think that the German pension gap will continue to narrow in the coming years?

Yes, I firmly believe it will. Because in this country, more and more women are working and they are taking less time off to raise a family. Their wages are also coming more into line with those of men. In this respect, a look at the current data for the federal states in Germany gives us hope. In many eastern German states, women’s old-age pensions are on average equal to or even slightly higher than those of men.

But none of this is a foregone conclusion. It’s up to us to make sure that our men are also required to take care of the family — and that we actively work to ensure that women are paid the same as men for comparable jobs. This requires a will to assert ourselves. But it’s worth it, because we’re doing something for our financial independence and our own prosperity in old age.