Impact of Board Composition on Pension De-Risking Strategies

Pension de-risking strategies have been widely adopted by firms with defined-benefit (DB) pension plans to reduce pension risk. This paper investigates the influence of board composition on pension de-risking strategies within the UK, focusing particularly on three strategies: changes to pension asset allocations, switches from DB to defined-contribution (DC) pension plans and pension buy-ins and buy-outs. Our findings suggest that firms with larger boards and more independent directors are less likely to invest their pension assets in equities. Survival analysis shows that firms with larger boards are slower to switch from DB to DC pension plans. This is consistent with stakeholder theory, in that firms with large boards or more independent directors are more likely to protect employees’ benefits when de- risking their DB pension plans. However, firms with more female directors are faster to switch fully from DB to DC pension plans and slower to engage in pension buy-in and buy- out transactions. This suggests that female directors encourage to fully switch DB pension plans while they are concerned with the significant costs of pension buy-in or buy-out. This research provides clear evidence that pension de-risking strategies are influenced by board composition. UK pension trustees play a key role in determining switches from DB to DC pension plans mitigating the impact of independent directors