Last week I wrote about how women get the short end of the stick when it comes to retirement. When I wrote Financial Freedom for Women, I did a number of calculations to show just how seriously women are affected by living longer than men and by taking time off work to raise children.
Here are the calculations. Let us take two women - Ms A and Ms B - and these assumptions:
- Both start working at age 21;
- Both put aside an initial amount of R50 a month to fund their retirement; and
- Ms A works continuously until she retires at age 60. At age 28, Ms B takes off six years to raise a family. During those six years, Ms B makes no contributions to her pension fund. When she resumes work, her contributions start at the same level that Ms A is paying at that stage.
In effect, Ms B has reduced her working life by 15 percent. (Six years is the average amount of time women in Britain take off work to raise a family. Similar figures are not available in South Africa). These six years could reduce Ms B's retirement capital by as much as one third. In Table One, the same example is used to show how much retirement capital each will have saved with various permutations of annually compounded interest rates and salary inflation.
Now comes the next hit. Let us again assume that Ms A and Ms B use their entire retirement capital to purchase an annuity (monthly pension). This time we will also bring Mr C into the calculation and assume he has the same amount of accumulated retirement capital as Ms A in each case. We also assume that all three are in the same state of health. The results are set out in Table Two.
Taking the most likely scenario - number two - the result is that those six years that Ms B took off to raise a family have cost her dearly. Mr C will receive 26.3 percent more as a pension than Ms B.
But even Ms A, who worked for the same number of years as Mr C, now faces the prospect of an income 8.1 percent less than that Mr C will receive. Life assurance companies pay lower annuities to women because women are likely to live longer than men.
The life assurers argue that they are not discriminating against women. The total of annuities paid out to a woman will be exactly the same amount, on average, as a total amount paid out to a man.
From the calculations set out in the tables, it is clear that a single woman, without children, has to put more aside than her male counterpart because of her expected extra years in retirement.
Then you still need to take into account other limitations on building retirement capital, such as the effect of gender discrimination on earnings.
For women who take time off to raise children it is even worse.