OREANDA-NEWS. March 12, 2013. Women’s earnings lower by 30 per cent on average and time away from work to be with children and the resulting lower financial capability casts the size of women’s pensions in the future in an uncertain light.

“Largely, women lose out in terms of the first pension pillar, since time at home with children cuts into years worked, on which the calculation of the size of the state pension is based. Comparing a woman making a mean wage in Estonia with no children to a woman with one child, the difference between their first and second pillar pensions is 2.8 per cent, amounting to 44.8 and 42 per cent, respectively, of their last pre-pension income. If a woman has to raise more than one child, the replacement rate drops below 40 per cent,“ said Indrek Holst, Chairman of the Management Board at SEB Elu- ja Pensionikindlustus.

The EU social code provides that the minimum pension should amount to 40 per cent of a citizen’s last income before retiring; the mean replacement rate in the EU amounts to approximately 65 per cent. Over the past decade, social policy in Estonia has undergone ad hoc cosmetic changes to avoid pension gaps between various groups in society. Yet as indicated by SEB’s analysis, pensions of parents (predominantly women in our society) barely reach a 40 per cent replacement rate.

In terms of the size of their future pensions, parents in the earning bracket above the Estonian mean will be losing out as well. For example, a parent raising one child whose income is twice the Estonian mean may expect that her/his pensionable age income out of the first two pension pillars will be approximately 37 per cent of her/his last income. Raising two children, however, the percentage declines even further – dipping below 35 per cent. Rhetoric of the latest amendments to the Pension Act notwithstanding, there are some harsh facts to be faced: children are a further drain on first and second pillar pensions.

According to SEB’s statistics, the outlook on the supplementary or third pillar pension accumulated by women and men is also ominous. Statistics indicate that, on average, women begin to accumulate pensions later than men, which may be due to preferences when addressing issues but also to a lower financial capability.

“On the one hand, the fact indicates that children have grown up, and that is an opportunity to save. Furthermore, also loans and leases may be paid off by then, providing more means to secure one’s future. On the other hand, as a result women have significantly fewer years during which to set aside money for their pensionable age. Men, who begin supplementary accumulation sooner, are able to accumulate higher amounts over a longer period as a result of the difference in pay. Looking at the amounts of women’s third pillar pensions, these are 13 per cent below the contributions made by men. The gap in the accumulation amounts for the third pillar is particularly wide between our female and male customers in their 20s to 40s, with the difference in the amounts being as much as 62 per cent,” Holst said.