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The Actuary The magazine of the Institute & Faculty of Actuaries

Conflict of interest proven

A paper published recently by two London Business School researchers has raised questions about pension scheme governance. The abstract follows:

This paper studies the governance of defined benefit pension plans in the United Kingdom. We construct a governance measure, equal to the proportion of trustees of the pension plan who are also executive directors of the sponsoring company. Our findings indicate that pension plans of indebted companies with a higher proportion of insider trustees: (i) invest a higher proportion of the pension plan assets into equities, (ii) contribute less into the pension plan, and (iii) have a larger dividend payout ratio. This evidence supports an agency view, whereby insider trustees act in the interest of shareholders of the sponsoring company, and not necessarily pension plan members.

You can find this paper at: www.london.edu/assets/documents/PDF/pensions.pdf.