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Why are pension schemes frozen, and how does a freeze affect the Employer's risk?

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  • Zhao, Zucheng
  • Sutcliffe, Charles

Abstract

Defined benefit (DB) pension schemes involve substantial risks and costs for employers. So employers have frozen (or closed) their schemes. Using data on firms in the FTSE 100 index, we study the characteristics of employers who hard froze (no new members or accruals) their DB scheme, and the effect of this on the employer's risk. We find that the probability of a hard freeze is a negative function of employer size, operating cash flow and unionization; and a positive function of a previous soft freeze (no new members). We also find that a hard freeze reduces total, unsystematic and credit risk; and increases systematic and asset risk.

Suggested Citation

  • Zhao, Zucheng & Sutcliffe, Charles, 2024. "Why are pension schemes frozen, and how does a freeze affect the Employer's risk?," International Review of Economics & Finance, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:reveco:v:94:y:2024:i:c:s105905602400385x
    DOI: 10.1016/j.iref.2024.103393
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    More about this item

    Keywords

    Pension scheme; Freeze; Close; Employer risk; Defined benefit;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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