Pension risk: Do employees care?

Abstract

The literature shows that different market entities take into account the level of underfunding in the pension accounts while valuating firms. This paper analyses whether employees with a defined benefit pension scheme perceive risk to their expected income in retirement while forming their opinions about the long-term business success of their employer. Using a matched dataset of pension risk indicators for FTSE 100 companies and data from employees’ opinion in the UK, the research shows that employees do seem to care about the level of funding of their benefits scheme when comparing their benefits with other companies and the industry average. But these concerns do not seem to affect their perception of the management or their confidence in business success and commitment to the firm.