Is There a Child Penalty in Pensions? The Role of Caregiver Credits in the French Retirement System

Abstract

The effect of motherhood on women’s labour supply has been the focus of a large body of economic literature over the last decades. Since the mid-1990s, increasing attention has been paid to the “family pay gap” or the “motherhood wage gap”, i.e., the differential in wages between women with and without children. As for the long-term effects of children on pension entitlements, the empirical evidence is limited. Nevertheless, different countries have introduced pension caregiver credits into their pension systems in order to compensate parents—especially mothers—for the impact that children can have on their careers and, ultimately, on their retirement benefits. Whether or not these caregiver credits achieve this objective is still an unresolved issue. We deal with this question in the French case, as the French pension system includes the widest range of caregiver credits compared to other countries. We first compute the family pension gap at given ages for women born between 1950 and 1966, initially while ignoring caregiver credits. This gap increases with the number of children. We then show that caregiver credits do fulfil their role of compensating women for the impact of children on their pension entitlements. Taking these benefits into account offsets almost completely the difference in pension entitlements among women, whatever the number of children. For men, children have almost no impact on their pension entitlements, and caregiver credits play a minor role with the one exception that they favour the fathers of at least three children.

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Fig. 1
Fig. 2

Source: Inter-Scheme sample of Contributors (EIC 2005) matched with the Permanent Demographic Sample (EDP)

Notes

  1. 1.

    This has been the case in Germany since the reforms of 1999 and 2002, in Sweden since 1998, and in the UK since 2002.

  2. 2.

    The argument in favour of the sustainability of pension systems is used by those who advocate a closer link between retirement pensions and number of children, both in France (Bichot 1994) and elsewhere (Demeny 1987; Cigno and Werding 2007).

  3. 3.

    Beginning in 2011, the minimum age gradually increased for cohorts born after mid-1951; it reached 62 for cohorts born in or after 1955. Simultaneously, the age required for the full rate gradually increased for the same cohorts and reached 67 for cohorts born in and after 1955. For simplification, our presentation maintains the ages 60 and 65.

  4. 4.

    In 2017, the household income could not exceed 24,404 yearly € with one child, + 5632 € per extra child.

  5. 5.

    For private sector employees, a quarter is not actually defined as a period: a worker acquires a quarter as soon as she has contributed on a wage corresponding to 200 h (150 since 2014) at the minimum wage.

  6. 6.

    Our reasoning is based on the number of children individuals have had. We do not know whether parents actually raised their children after birth (in the event of divorce, for example). Similarly, we do not know how many stepchildren people have raised in the context of stepfamilies, although these children may also have had an impact on pension entitlements.

  7. 7.

    Specifically, we excluded from our analysis workers who have more than 12 quarters outside the General Scheme by age 39. Our sample represents 73% of women (between 71 and 76%, depending on the cohort) and 64% of men (between 61 and 72%).

  8. 8.

    Graphs for the other two cohorts are available on request.

  9. 9.

    Due to the trend towards postponing motherhood, childless women or those with only one child at age 39 may have different characteristics, depending on their cohort. Thus, the same analysis based on completed fertility (which the oldest cohorts are closest to at age 39) could lead to slightly different findings for cohorts born in the 1960s.

  10. 10.

    Comparing the pension gap at the same age across cohorts leads us to consider individuals who may (on average) be at different stages of their careers, depending on their cohort. In particular, younger cohorts entered the labour market at a later age (see, e.g. Rapoport 2012) and therefore the career length they reach at age 39 will be shorter on average than for older cohorts. This difference in the observation window of different cohorts may create gaps between cohorts.

  11. 11.

    The effects (in percentage terms) are positive and appear to be very high among women born in 1966 (comparison of childless women and mothers with one child). This results from the low level of the initial gap (41€).

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Acknowledgements

The authors would like to thank Virginie Andrieux for her fruitful collaboration in an earlier version of this paper. We are grateful to Anna d’Addio for her helpful comments and to the DREES (Ministry of Labor and Social Affairs) for providing data and for their remarks on an earlier draft of this work. Benoît Rapoport thanks the iPOPs Labex from the heSam Pres (reference ANR-10-LABX-0089) for financial support. We also thank two anonymous referees for their comments and suggestions. The usual disclaimer applies.

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Appendices

Appendix 1: Effect of caregiver credits on average pension, depending on the number of children and birth cohort, men

see Figs. 3, 4.

Fig. 3
figure3

Effect of caregiver credits on average pension, depending on the number of children and birth cohort, men. Note age is on X-axis; pension level on Y-axis. Measure A: pension level before caregiver credits; Measure D = Pension level including all caregiver credits. Source: French Contributor Inter-Scheme sample (EIC 2005) matched with the Permanent Demographic Sample (EDP)

Fig. 4
figure4

Source: Inter-Scheme sample of Contributors (EIC2005) matched with the Permanent Demographic Sample (EDP). Interpretation: all things being equal, the expected annual pension at age 39 for two-child fathers of the 1950 birth cohort is roughly 1100 euros higher compared to childless men (Measure A). When considering Measure D, which includes all caregiver credits, the bonus is increased for fathers of three children or more. The gap reaches roughly 1500 euros

Marginal effects of the number of children on pension entitlements at age 39, according to birth cohort (in constant 2006 euros, annual). Note the number of children is at age 39; childless men are the reference category. We control for level of education, pension entitlement at age 20, number of children at age 20, age at entry into the labour market, age at the first stable job and birthplace.

Appendix 2: Breakdown of the Effects of Caregiver Credits on Pension Calculation

The Impact of Caregiver Credits on the Contribution Period

When no caregiver credits are included, the graphs for the number of quarters by age and number of children are fairly similar to those for pensions (Fig. 5). However, from a certain age—which increases with the number of children—the differences between contribution periods stabilize regardless of the number of children, reflecting the fact that after a certain age women increase their contribution periods at the same pace, regardless of how many children they have. Thus, at age 55, the contribution periods of women in the 1950 cohort had reached 117, 99, 86 and 70 quarters for mothers with one, two, three and four or more children, respectively. Having at least a child results in a contribution duration that is shorter by about 2.8 years on average. The gap is similar at age 39. When AVPF (old-age insurance for non-working parents) is taken into account (Measure B), differences in duration are virtually netted out at all ages. For example, at age 55, mothers in the 1950 cohort had acquired 119, 106, 112 and 113 quarters with one, two, three and four or more children, respectively. The gap is therefore much smaller, but it still persists for the mothers of two children who could not fully benefit from the AVPF, which was introduced in 1972 (such mothers were 22 years old in 1972, and some of them already had two children). In the 1966 cohort, the number of quarters at age 39 is the same for all women regardless of the number of children, except for mothers of four or more children who have slightly fewer quarters of contributions. Since AVPF already significantly reduces differences in quarters according to the number of children, taking MDA (contribution years for mothers) into account (eight quarters per child) (Measure C) completely reverses the order of the curves and transforms the initial penalty into a bonus: the number of quarters of contributions at a given age increases with the number of children.

Fig. 5
figure5

Source: Inter-Scheme sample of Contributors (EIC 2005) matched with the Permanent Demographic Sample (EDP)

Different measures of contribution years, according to birth cohort and number of children (at age 39), women. Note age is on X-axis; contribution years on Y-axis.

The Impact of Caregiver Credits on the Reference Wage

The effect of caregiver credits on the reference wage is less striking. AVPF (old-age insurance for non-working parents) reduces the differences in reference wage that appear relatively early and tend to increase over time, but it does not offset them completely (Fig. 6). In particular for the 1966 cohort at 39 years of age, the reference wage of childless women is equal to that of mothers of one child (Measure A). And compared to the reference wage of mothers with one child, that of mothers with two children is 10% lower; that of mothers with three children is 30% lower; and that of mothers with four or more children is 43% lower. AVPF reduces these differences. Indeed, the reference wage of mothers with three or more children is “only” 10% lower than the reference wage of mothers with one child when AVPF is taken into account. For the 1950–1962 cohorts, the impact of AVPF is less significant. For the 1950 cohort at age 39, differences in the reference wage without AVPF are quite similar to those of the 1966 cohort (although they are slightly higher between mothers with one or two children and childless women). With AVPF, the differences remain significant: on the order of 20–25% for mothers of three or four or more children (compared to childless women).

Fig. 6
figure6

Source: Inter-Scheme sample of Contributors (EIC 2005) matched with the Permanent Demographic Sample (EDP)

Earnings measure (in constant 2006 euros), according to birth cohort and number of children (at age 39), women, with and without old-age insurance for non-working parents (Measures A and B). Note age is on X-axis; earnings measure on Y-axis.

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Bonnet, C., Rapoport, B. Is There a Child Penalty in Pensions? The Role of Caregiver Credits in the French Retirement System. Eur J Population 36, 27–52 (2020). https://doi.org/10.1007/s10680-019-09517-0

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Keywords

  • Pension
  • Gender
  • Caregiver credits
  • Family pension gap
  • Gender pension gap