Author: Michael Nagel und Claudia Veh, AIS – B&W Deloitte GmbH
The German government’s supplementary report on the Pension Insurance Report 2024 , like the previous report from 2020, indicates that women are, on average, disadvantaged compared to men in occupational pension schemes (bAV). The following discussion explores the reasons for this disparity and draws conclusions.
On average, women are less likely than men to have entitlements to occupational pension schemes (bAV). More importantly, among those with bAV entitlements, the average entitlement for women is significantly lower than that for men. This finding is highlighted in the latest supplementary report on the Pension Insurance Report 2024 (Alterssicherungsbericht), which is prepared every four years and is based on surveys of individuals, data from bAV providers, and employer surveys. The trend of women being, on average, disadvantaged in bAVcompared to men is consistent with the findings of the previous report from 2020. No short-term improvement is evident. Why is this the case?
Firstly, the prevalence of bAV remains significantly dependent on company size. Small businesses are far less likely to offer bAV than large companies. For instance, in companies with fewer than ten employees, only 25% of employees have bAV entitlements, whereas in companies with more than 1,000 employees, this figure rises to 86% [data from 2023, Old-Age Security Report 2024, p. 129, Fig. D.1.2]. Since women are more likely to work in small companies than in large ones [see, for example, KfW Research, Focus Economics, No. 236], it follows logically that more women are unable to acquire bAV entitlements compared to men.
The latest Alterssicherungsbericht shows that among employees with bAV entitlements, the average entitlement in 2023 for women amounted to a gross monthly pension of €382, while men received a gross monthly pension of €698 [Alterssicherungsbericht 2024, p. 133, Table D.1.5]. One reason for this disparity, alongside other factors—such as the higher prevalence of part-time work and/or employment in low-wage sectors among women [see the Earnings Structure Survey 2018 by the Federal Statistical Office]—is that women still earn lower salaries than men for the same work, despite having equivalent qualifications [see Federal Statistical Office, Press Release No. 088 of March 7, 2022]. Consequently, women have less opportunity for salary conversion (Entgeltumwandlung), and, as a result, can only build up smaller bAV entitlements.
Additionally, employer contributions to bAV are often structured based on salary levels (e.g., employer contributions to bAV amounting to x% of gross monthly salary or matching contributions to employee salary conversions amounting to 50% of the converted amount). In such cases, it is again a logical consequence that lower salaries lead to lower bAV entitlements —and, in relation to matching contributions, to lower potential salary conversion. Since women, as mentioned earlier, generally earn lower salaries than men, they recieve lower employer-financed contributions resulting in lower bAV entitlements compared to men.
These circumstances must be addressed to tackle old-age poverty, which predominantly affects women [see Federal Statistical Office, Press Release No. N 061 of September 29, 2022]. The issue of unequal pay between men and women for comparable qualifications and work has been acknowledged by policymakers. For example, the “EU Pay Transparency Directive (2023/970/EU, EUPTD)” includes transparency and design tools to further strengthen the principle of gender-independent pay equality.
The issue of old-age poverty could be exacerbated by the increasing number of people aged over 100. Evaluations by Statista suggest that the number of centenarians in Germany exceeded 20,000 for the first time in 2020, after fluctuating between 14,000 and 17,000 individuals since the start of the observation period in 2011. For the years following 2020, the evaluation indicates a continued upward trend. While the number is very small compared to the overall population, the trend indicates the direction in which we seem to be heading.
In light of the aforementioned disadvantages faced by women in bAV, it is important to note that the majority of individuals in this age group are women. At the beginning of the observation period in 2011, women accounted for 87% of centenarians, and although this proportion has steadily declined, it still stood at 78% in 2023.
Implications for Occupational Pension Schemes
As outlined above, women generally have lower entitlements from occupational pension schemes than men and are more frequently at risk of old-age poverty, making this development particularly significant.. Two clear implications emerge:
- Longevity protection must be given high priority. A lump-sum payment can only partially address this risk. Lifetime pension promises (annuities) through private insurance solutions and occupational pension schemes are of great value to beneficiaries. Combinations of lump-sum payments or partial lump-sum payments with residual capital annuitization also appear sensible to meet individual security needs.
- Women, in particular, tend to live longer. Therefore, the focus must be on ensuring longevity protection and adequate old-age pensions for women, especially since they often outlive their spouses and must then support themselves independently.
Innovative Concepts for Pension Schemes
The trend further highlights the importance of longevity protection. Structuring individual old-age security based on statistical (average) life expectancy can lead to significant under-provision once this age threshold is surpassed.
In addition to ensuring pay equality for all genders, innovative concepts for designing gender-neutral occupational pension systemsare generally needed. Various approaches, such as combinations of lump-sum payments and lifetime pensions, could be considered. Another option could be the payment of annual installments up to a certain age, followed by an annuity in a “second phase” of retirement. Additional models could include delaying the commencement of monthly pension payments, allowing for higher payouts due to longer accumulation periods and shorter average payout durations compared to pensions starting at the onset of retirement.
There are many possibilities, but balancing risks within a collective populationand over time—core features of insurance solutions—seems particularly important. Alternative product providers, such as investment companies, can also offer tailored solutions for building capital and withdrawal plans. Diverse combinations with insurance solutions to cover longevity risks are conceivable. In any case, greater flexibility in pension products and pension schemes appears necessary, complemented by the overarching goal of gender-independent pay equality.
[1] Ergänzender Bericht der Bundesregierung zum Rentenversicherungsbericht 2024 (Alterssicherungsbericht)
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