The formula for pension benefits is often constructed on typical lifelong fulltime careers. However, atypical employment, career interruptions and phases of unemployment or part-time work are increasing and common among women. Following theories of “cumulative stratification”, gender inequality throughout the life course affects financial resources and retirement decisions (e.g. O’Rand and Henretta
1999; Raymo et al.
2010; Finch
2013). Several studies related family aspects and career interruptions to retirement timing. However, the direction of this relationship is not consistent. One reason for this inconsistency may be the role of pension income. While some features of the employment history (e.g. interruptions, part-time phases) lead to lower income and thereby the need to work longer to achieve a decent pension income, the same features may lead to earlier retirement due to lower labour market attachment. Therefore, two different notions have been postulated and will be described in the next sections.
The status maintenance hypothesis
Long and constant work careers may lead to higher retirement age, according to the “status maintenance” argument (Hardy
1991). Some studies found affirmation of this viewpoint whereby women with more stable and longer labour market participation and fewer or shorter interruptions (Pienta et al.
1994; Finch
2013), as well as women who remain employed during their childbearing years (Henretta et al.
1993; Pienta
1999), are more likely to work longer. This is explained by higher work orientation and more rewarding careers (Finch
2013). A French study found that women who had low attachment to the labour market with long periods of non-employment more often exit the labour market before the age of 60 years (Collet et al.
2013).
Marital status and children are often used as a proxy for lower labour market attachment. A study by Hank and Korbmacher (
2010) found a higher likelihood for mothers and married women to retire early compared to their childless or unmarried counterparts. Comparing fathers to childless men, on the other hand, this relation is the reverse. This finding is interpreted with a weaker labour market attachment for mothers and with higher breadwinner responsibilities for fathers.
The compensation hypothesis
Contrary to the status maintenance hypothesis, an economical argumentation can be found in the literature. It is argued that certain career characteristics—often reflecting family responsibilities—lead to later retirement ages since preferred work positions and status may be achieved later (Raymo et al.
2010) and since they decrease pension income (Bardasi and Jenkins
2002; Evandrou and Glaser
2003,
2004). Career interruptions (Raymo et al.
2010; Yabiku
2000; Pienta
1999), part-time work (Lanninger and Sundstroem
2014) and atypical employment (Hinrichs
2012) were found to decrease pension income. These considerations may increase the risk of necessity-driven late retirement. Since these characteristics are more common among women’s careers, due to care responsibilities, the compensation hypothesis may be more relevant for women to compensate for accumulated “opportunity costs” (Pienta et al.
1994). Following this notion, career histories were found to have a higher explanatory power for women’s pension income compared to men’s (Möhring
2015). However, evidence for this hypothesis regarding retirement timing is scarce. A study on West-German women directly investigated the effect of years in the labour market on the retirement timing and found that longer careers up to age 50 years induced earlier transitions to retirement (Hank
2004). A Swiss study found a link between later retirement and family responsibilities, long-term interruptions and part-time periods (Madero-Cabib et al.
2016). The study by Finch (
2013) from the UK found that the duration of employment in combination with working part-time affects extending working lives. If women worked longer than 25% of their careers in part-time positions, they were more likely to extend work beyond state pension age. In this study, even men were more likely to prolong their work life if they had been working part-time.
Different pension systems have the potential to counteract accumulated losses. In the following section, the most important features and changes of the pension systems shall be discussed with regard to their relevance for the compensation hypothesis. Both pension systems developed from the Beveridge model with basic flat-rate pensions and consist today of three pillars—the state pension, the occupational pensions and private pensions (Sjögren Lindquist and Wadensjö
2011; Andersen
2011). However, they differ in several aspects related to replacement rates, basic pensions, early retirement options and actuarial concepts. All in all, the Danish pension system is more protective towards lower lifetime earnings and early retirement compared to Sweden. In Denmark, replacement rates for low-income workers are comparatively high. Hence, the public pension has a strong redistributive element. This is less the case in Sweden where replacement rates are more similar across the income distribution (OECD
2013).
Both countries provide basic pensions which are comparable with regard to the total amount. However, the full amount of the basic pension in Denmark is only reduced if earnings exceed 75% of average earnings. In Sweden, the basic pension (Swedish: garantipension) is only available as income-tested top up pension for those who earn less than 35% of average earnings. Furthermore, whereas pension withdrawal is possible now already at the age of 61 years in Sweden, the basic pension can still only be withdrawn at age 65 years. Hence, early retirement in Sweden is financially difficult when relying on the basic pension. Eighty-eight per cent of Danish pensioners receive the basic pension and 42% of Swedish pensioners (OECD
2013). A study by Möhring (
2015) shows that the impact of career histories on women’s pension income is less strong in pension systems with basic pensions. Following this notion, the generosity of the Danish basic pensions may prevent women from compensating lower career attachment.
In addition to broad basic pensions in Denmark, a rather generous early retirement scheme (Danish: efterløn) was still available at age 60 years after the reforms until 2014 when the entry age started to increase gradually (Beskæftigelsesministeriet
2016). The “transitional benefit program” (TBP, Danish: Overgangsydelse) granted even earlier benefits starting as early as 50 years, but it was only available in the early 1990s (introduced in 1992 and abolished in 1996) (Jensen
2004). In Sweden, disability pensions are a major pathway to early retirement, especially for lower-educated workers and women. However, throughout the reforms, eligibility for this kind of pension was restricted. The so-called 58.3 pensions described the situation until 1991 when a worker who became unemployed at the age of 58 years and 3 months could go into early retirement by a combination of unemployment benefits and disability pensions (Delsen
1996; König and Sjögren Lindquist
2016). Until 1997, disability pensions could still be granted on a combination of medical and labour market grounds. Afterwards, labour market reasons were abolished and medical reasons became stricter (Hamblin
2013). Hence, workers who could still leave early with this kind of pension until the late 1990s have to remain longer at their jobs or accept more severe pension cuts after reforms. Concurrently, occupational pensions gained importance which may pose a threat to low-income workers. Data from the Social Policy Indicators Database (SPIN
2015) show that replacement rates for state pensions dropped from 69.6 in 1990 to 43.4% in 2010 in Sweden for a standard production worker (own estimations). Hence, occupational and private pensions obtained greater importance. This strong drop cannot be observed in many other countries, including Denmark where replacement rates dropped only about 6 percentage points from 54.9% in 1990.
A report on the reformed pension systems in Europe (Natali and Stamati
2013) argues that career interruptions due to childcare and shorter unemployment periods (up to three years) are comparatively well protected in Sweden. Pension entitlements in Sweden are also linked to sickness, unemployment or parental benefits (Anxo et al.
2012). However, the reforms changed the calculation of pension benefits in the new system, starting in 1994. While it was previously calculated on the basis of 15 years of highest earnings, it is now calculated on entire lifetime earnings. Hence, incentives are given for retiring later and interrupted careers are penalized. A Swedish study (Sjögren Lindquist
2011) suggested that after controlling for income at age 60 years, Swedish women retire later in order to accumulate more benefits to make up for career interruptions. Furthermore, according to the report “Part-Time Work in the Nordic Region”, the pension system in Sweden is more actuarial compared to Denmark. Pension losses due to part-time work are relatively small in Denmark but higher in Sweden (Lanninger and Sundstroem
2014). Looking at old age poverty risk rates in nine European countries, the study by Ebbinghaus and Neugschwender (
2011) finds the largest gender differences in Sweden, where the risk is twice as high for women. Therefore, I expect the compensation hypothesis to play a role for Swedish women, especially regarding part-time work.
The changes in the pension system may increase the financial need to continue working. Hence, among retirees who are affected by these changes, the compensation hypothesis may be more relevant. All in all, this situation should be more severe in Sweden, where the reforms were more drastic compared to Denmark.