The Gender Gap in Pension Savings

Working Paper 2022-624

Abstract

This paper studies the gender pension savings gap in a system based on individual retirement accounts (IRA). We exploit randomly selected samples of individual administrative pension fund records in Peru, collected between 2005 and 2019. The results show a gender gap in favor of men at each percentile of the distribution of pension funds. The unconditional gender gap decreases along the percentiles until it reaches a form of “glass ceiling”, and then increases substantially. Older cohorts show larger gender gaps in pension savings because of the capitalization process. Importantly, we find that awareness about pension fund risk management—used as a proxy for financial literacy—increases the dispersion of pension savings over the distribution, therefore increasing inequality and the gender gap. This situation is aggravated by the fact that Peru has very low levels of financial literacy. Our results could be useful to other countries with IRA systems, or countries that are considering increasing the relative importance of these systems in their pension models. These systems are conceived to improve the incentive alignment between individual contributions, labor supply and retirement savings, but one danger is that of exacerbating gender pension gaps.

Authors: Javier Olivera, Yadiraah Iparraguirre.