On equal pay day, a call for pensions & plan sponsors to help women

As we discuss pay inequality, there needs to be an understanding of how it impacts women in retirement says director of pension solutions

On equal pay day, a call for pensions & plan sponsors to help women

Today is Equal Pay Day in Canada. That’s because it would take the average woman from January 1st 2023 until today, April 12th 2024, to earn what a man in an equivalent role would earn in the 2023 calendar year alone. That’s three and a half months of extra work in a year. Spread over three years it means a woman has to work for four years to earn what a man earns in three.

While pay inequality remains a glaring issue when looked at in the immediate term, it has even more chilling impacts when unequal pay is extrapolated out to retirement. Women will statistically earn less and live longer than their male counterparts. That means they will likely be entitled to smaller pension benefits while being forced to make that money last for longer. The long-term impact of wage inequality is an area of deep concern and focus for Karen Burnett, Director of Pension Solutions at CAAT Pension Plan. Burnett spoke with BPM about what plan sponsors can do to help address this inequality.

“If [women] are not able to build that income and wealth through their working career, it means that they’re so much further behind in retirement, which could compound into a financial disaster,” Burnett says. “What exacerbates this problem is the fact that women live longer, so they need more in retirement than the average man.”

The sources of pay inequality

When discussing pay inequality, Burnett seeks to address one of the core misconceptions around the issue: that it emerges largely from women taking parental leave and therefore working less. She notes that in recent years parental leave has become more equally spread out between women and men, yet pay inequality persists.

Burnett says that bias is key to understanding this inequality. Small decisions by employers and managers around hiring, mentorship, and promotions over time aggregate out to a huge gap between the career earnings of men and women. Mandatory pay equity across roles is a great start towards addressing this issue, but Burnett says it doesn’t deal completely with the role of bias in women’s careers.

Burnett cites an example from her own career. She had young children at the time and when she mentioned a promotion to her manager at one stage of her career he said to her, ‘I didn’t think that’s where your priority was, I thought it was with your family.’ Burnett challenged that manager, asking him to consider why he thought it had to be one or the other.

Managers and employers, Burnett says, need to be prompted to take a step back and reconsider their biases. Of course, everybody can have multiple priorities and raising a family should not be considered an impediment to women’s career advancement, given that it has never been perceived as an impediment for men.

How can plan sponsors help?

As plan sponsors look at the issue of pay inequality, Burnett says they can take an important first step through their benefits programs. By offering robust financial education tools and resources they can help empower their female employees. Adding tools and support that are tailored to the specific challenges of women and other diverse groups can help ensure that these specific issues are better understood.

Leaves do also play a role in long-term pension benefit access. A retooling of leave plans can help address those issues, adding structures that allow for pension contributions while on leave can go a long way to addressing the long-term impacts of a leave on pension benefits. Offering a pension plan that can deliver lifetime income could be a huge part of a wider solution to pay inequality. Burnett cites CAAT’s model, which promises a fixed cost for plan sponsors and a ‘DBplus’ benefits model as a potential solution that can help employees with lifetime income.

“If you don't have a lifetime retirement income, and you're a woman or somebody else who through no fault of their own, potentially have less retirement savings,” Burnett says. “In a traditional savings plan, you have somebody that's going to live longer, that hasn't saved enough, that now has more financial hardship, during retirement. And through a DB pension arrangement, you take that stress away.”