There is universal acceptance that the labour market patterns of men and women are different. The pension system is based on the traditional family model: an uninterrupted working career – resulting in male-breadwinner households. Gender differences render it more difficult for women to save for retirement than men. Amongst the challenges women face are:
- Women work fewer years as they exit the labour market to raise a family or to support elderly relatives. In Malta, the average contributory history for women is 27 years.
- Women stay at jobs for a shorter period and work part-time or on reduced hours more often to meet their family responsibilities. Thus, they are likely to have a lower pension income as they pay a lower contribution than would otherwise be the case if they worked full-time.
- Life expectancy for women in Malta is 84 years – five years longer than men. A woman is likely to outlive her savings and, hence, is at a higher risk of living below the poverty line.
- A married woman who did not join or left the labour market to take care of the family and does not qualify for a pension of her own will receive 5/6 of her husband’s pension income upon his death.
Traditionally, these gender differences were not incorporated directly into the pension system design. Over the years, however, there has been increasing recognition that the pension system is gender discriminate and counter measures were recently introduced. Two are of particular relevance.
The first is the credit system introduced for child rearing: the unconditional allocation of four years contributory credit for every child up to a maximum of three children. A further two years credit for the fourth and further children is conditional, subject that the person re-enters the labour market for a similar amount of time. This measure is complemented by the credits for human capital development and lifelong learning for people following formal qualifications. Although these reforms are gender neutral they benefit women mostly – in our culture, it is the woman who tends to opt out of a career to raise a family and more women than men follow tertiary education.
The allocation of these credits, therefore, allow a woman to bridge the average 27-year contributory history gained from employment with the 40-year contributory accumulation period that a person born on and after 1962 must meet to qualify for a full pension.
What few may know is that a social security pension accrues as a legal title to an individual who is in employment and cannot be alienated from such a person. Thus in the ‘male breadwinner pension model’ this right rests with the male – so much more so in Malta where in the overwhelming majority, it is the male who is the main bread winner. The main benefits resulting to the female member is a derived and inherited right to a widow’s pension in the event of the death of the husband before retirement age or a survivor’s pension where the surviving female succeeds to 5/6 of the husband’s pension.
The second important reform proposed by the Pension Strategy Group to render equalisation between males and females to pension entitlement, and which was accepted and announced by the Government in the 2016 budget, is the introduction of a concept where the pension of the male spouse moves in full to the female spouse in the event that a woman qualifies for a pension in her own right.
The question of derived rights is primarily tested when the household/family is dissolved due to separation or divorce. This necessitates a division of rights and entitlements, which in most legal systems implies a clean separation/divorce – including the pension. The natural course the division of the pension income takes depends on the principles guiding the pension system. This issue does not occur with regard to voluntary pensions. Most jurisdictions treat voluntary accumulated pension entitlements as property: the position taken is that paid and unpaid work are of equal value in all cases, in that the households earning potential is attributable to the efforts of both partners.
The issue becomes, however, complex when applied to the social security pension. This results from the nature of the pension entitlement. In state pensions systems, pension income depends on a magnitude which may be unknown at the time of divorce or dissolution – given changes in salary, changes in the maximum pensionable income and changes in the social security contribution paid.
A review of pension systems overseas shows that countries adopt one of three categories when divorce or dissolution occurs. The first model applies no specific pension rules for divorce. The second model requires some form of sharing or splitting of pension entitlements at the time of the divorce. The third model awards specific benefits to the divorced spouse.
Malta currently is in the first category. The treatment of a pension in the event of the divorce or dissolution of a household is a real concern – and one raised many times by non-government organisations representing women. This blog underlines that the issue of pensions and divorce requires attention and a formal national consultation process on this matter should be embarked upon.