Determinants of the Pension Curtailment Decisions of UK Firms

26 Pages Posted: 13 Oct 2009

See all articles by Paul J. M. Klumpes

Paul J. M. Klumpes

Nottingham Trent University

Mark Whittington

University of Aberdeen

Yong Li

King's College London

Date Written: 2009-04


During the last ten years of regulatory change, many UK companies have curtailed their defined benefit pension scheme. We test three competing explanations of UK corporate pension curtailments: integration, separation and risk management. We predict and find an association between the use of managerial discretion over changes in UK firms' expected rate of return on pension assets (ERR) assumptions, and subsequent decisions to curtail future defined benefit pension obligations. These findings are consistent with a risk management-based explanation, even after controlling for other factors identified by prior literature as significant in explaining pension benefit reductions. We also find that curtailments and the risk management of ERR assumptions are associated with subsequent corporate restructuring decisions. The findings support the view that pension curtailment decisions are driven by the failure to adapt to new economic and regulatory pressures and that they are ultimately determined by strategic corporate risk management considerations.

Suggested Citation

Klumpes, Paul J.M. and Whittington, Mark and Li, Yong, Determinants of the Pension Curtailment Decisions of UK Firms (2009-04). Journal of Business Finance & Accounting, Vol. 36, Issue 7-8, pp. 899-924, September/October 2009. Available at SSRN: or

Paul J.M. Klumpes (Contact Author)

Nottingham Trent University ( email )

Burton Street
Nottingham NG1 4BU, NG1 4LN
United Kingdom

Mark Whittington

University of Aberdeen ( email )

Aberdeen, Scotland
United Kingdom

Yong Li

King's College London ( email )

150 Stamford Street
London, SE1 9NN
United Kingdom

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