Photo: Maud Lervik/Norden.org

Older adults and the pension gap

All the Nordic countries have high rates of female employment and often rank among the most gender-equal countries in the world. Nevertheless, there is a gap between the pensions of women and those of men in all these countries. Unequal pay and working conditions are also reflected in lower pensions for women. This puts women at greater risk of poverty than men and reduces their ability to support themselves after retirement.

The pension gap between men and women varies greatly in the Nordic countries

The size of the gender pension gap varies considerably by country, between 28 per cent in Sweden and 5 per cent in Iceland. The main explanation for the gender pension gap in all the Nordic countries is differences in labour force participation between women and men, unequal distribution of paid and unpaid work and wage differences. However, these differences do not explain why the gender pension gap varies significantly across the Nordic countries. Rather, the key explanatory factor is the different designs of the Nordic pension systems. The main difference is between systems that are mainly income based, such as those in Finland, Norway and Sweden on the one hand, and those in Denmark and Iceland on the other, where all or significant parts of the public pension are not income financed (Andersson, 2023).

There are also significant differences in the pensions of people who have immigrated to the Nordic countries and those who were born in the Nordic countries. For example, one study shows that in Denmark and Sweden, poverty levels are much higher for immigrants than for natives among the older population (Gustafsson et al., 2022). In addition to the fact that foreign-born people often have fewer years to earn a pension and have lower incomes than native-born people, the highest non-income-financed benefits are only paid to people who have lived in the country for many years, resulting in lower benefit levels for those who have immigrated to the Nordic region in adulthood.

Below is a summary of some key conclusions from the Nordic report Gender-equal pensions in the Nordics (Andersson, 2023):

Non-income-based benefits reduce the gender pension gap
Non-income-based benefits reduce the gender pension gap in all Nordic countries. In addition, there is a correlation between the amount of non-income-based benefits and the number of women over 65 at risk of poverty. The gender pension gap is significantly lower in Denmark and Iceland, where a larger share of the total pension comes from non-income-based benefits compared to the other Nordic countries.
Compensation for care work is particularly important in income-based systems
Career breaks or reduced working hours, which are more common among women, can significantly affect pensions, especially in systems in which there is a strong link between earnings and future pensions. Women can be compensated through pension credits for loss of income due to circumstances such as childcare. All the Nordic countries offer some form of compensation for care work, although levels of compensation vary.
Measures targeting single households and survivors’ pensions are more aligned with the Nordic model than pension sharing
Different forms of pension sharing between spouses would reduce the gender pension gap. This strategy is used in other European and OECD countries but only to a limited extent in the Nordic countries. One reason for this is the risk of reinforcing traditional gender roles under which women are dependent on men, which the Nordic countries have actively worked to eliminate. However, there are rights for spouses that still play an important role in most Nordic pension systems, namely survivors’ pensions.

EXAMPLE FROM THE REGION

Denmark and Iceland have a significantly lower gender pension gap than the other Nordic countries. Unlike the other Nordic countries, Denmark and Iceland have basic pensions that are paid to all pensioners. The level of the basic pension is the same for everyone but is reduced to take account of other sources of income such as wages, income from capital gains and, in some cases, occupational and private pensions. The basic pension represents the largest share of the national pension in Denmark and Iceland. In both countries, the level of the basic pension is also comparatively high. In Denmark, the national pension and the pension supplement that most pensioners receive corresponded to 37 per cent of the average gross wage in 2020, and in Iceland the basic pension together with the supplementary pension corresponded to 50 per cent of the average gross wage in the same year.

Sweden, Norway and Finland all have some form of guarantee pension aimed at pensioners with no or low incomes. Many rely on this basic level of security, including about 40 per cent of all women pensioners in Sweden and Finland. A full statutory pension in Sweden and Finland corresponds to about one-fifth of the average gross salary and is thus considerably lower than the Danish and Icelandic basic pensions.

Deciding on the desired level of non-income-based benefits involves balancing incentives to work and the desired link between earnings and future pensions on the one hand, and values such as equality and protecting all pensioners from poverty on the other. However, the Nordic report comparing pension systems (Andersson et al., 2023) shows no trend for lower employment rates or increased part-time work among women in Denmark and Iceland compared to the other countries.