When UK Firms Face Pension Deficits, Women on Boards May Help Protect Workers

Defined benefit (DB) pensions were once central to retirement security in the UK. They promised workers a predictable income after decades of employment. But over the last two decades, many of these schemes have fallen into deficit, meaning the assets set aside by companies are not always enough to meet future obligations.

This has created a difficult balancing act for companies. Should they direct available cash towards repairing pension shortfalls, or continue rewarding shareholders through dividends? The decision is not just about finance. It is about how risk is shared between investors and employees.

Based on our recently published research, board composition plays an important role in how firms make this choice. 

The UK’s pension problem

The UK has one of the world’s largest pension markets, with pension assets worth trillions of dollars, and a defined benefit sector holding over £1 trillion in assets. Although many defined benefit schemes have closed to new members or future accrual, employers remain responsible for pension promises made to millions of active, deferred and pensioner members. 

Funding deficits have been a persistent feature of the UK corporate landscape. When pension assets fall short of liabilities, firms may face mandatory recovery contributions, higher financing costs, and increased regulatory scrutiny. At the same time, investors often expect stable dividend payments, particularly in the UK, where dividend culture has long been strong.

This creates an obvious tension. Dividends are discretionary, while pension payments represent contractual commitments to employees. Yet history shows that some companies continue to pay dividends even when pension schemes remain underfunded. Regulators have increasingly emphasised that pension schemes should be treated fairly relative to shareholders when firms decide how to allocate cash.

In practice, this means boards are constantly weighing two competing priorities: short-term shareholder expectations and long-term employee security.

A key decision hidden in boardrooms

Corporate boards sit at the centre of these choices. They decide how internal funds are divided between investment, shareholder payouts and long-term obligations such as pensions.

From a financial perspective, underfunding pensions can free up cash in the short term. But it also transfers risk. If pension promises are not fully funded, employees and pension protection systems may carry more of the burden later on.

This is where governance matters. The people making board-level decisions shape whether companies take a short-term approach or prioritise long-term stability.

What our research found

We examined UK-listed firms over the period 2007 to 2021, focusing on how companies balance pension funding and dividend payments.

Three key findings stood out.

First, firms with greater female representation on their boards tended to maintain stronger pension funding positions. Companies with more women directors were more likely to improve the financial health of their pension schemes.

Second, gender-diverse boards behaved differently when trade-offs became more intense. When pension schemes were underfunded or firms faced financial pressure, boards with more female directors were more likely to reduce dividends in order to strengthen pension funding.

Third, financially strong firms could often do both. Some companies maintained healthy pension funding while continuing to pay dividends, suggesting that protecting workers’ pensions does not necessarily come at the expense of shareholders when governance and financial capacity are strong.

Together, these results suggest that diversity in the boardroom shapes how firms manage the tension between shareholder returns and employee obligations.

Why gender diversity may influence decisions

A growing body of corporate governance research suggests that board diversity influences risk-taking and ethical decision-making. Studies often find that women directors bring stronger attention to long-term outcomes, risk management and stakeholder interests.

Pension funding decisions are exactly the sort of issue where these perspectives matter. Choosing to continue high dividend payments while pension deficits remain can shift financial risks onto workers who rely on those benefits in retirement.

More diverse boards may therefore approach these decisions differently. Rather than seeing pensions only as financial liabilities, they may view them as long-term commitments to employees that need to be protected, especially when firms face economic uncertainty.

This does not mean female directors are anti-shareholder. Instead, the evidence suggests they may promote a more balanced approach that considers both employee welfare and investor interests.

Why this matters for UK workers

Millions of workers and retirees in the UK still depend on defined benefit pensions. Even as the system evolves, the legacy of existing schemes means funding decisions taken today will affect retirement outcomes for decades.

The UK has spent years encouraging greater gender diversity in corporate leadership. Much of that debate has focused on fairness, representation and performance. But there may be another practical benefit. Our findings suggest that more diverse boards can influence how companies handle socially important financial decisions, particularly those affecting workers’ retirement security.

In a country where pension deficits remain a recurring concern, governance choices inside boardrooms have real consequences beyond financial markets.

A bigger question for corporate Britain

Pension funding is often treated as a technical issue reserved for finance specialists. In reality, it reflects deeper questions about corporate responsibility and how companies balance competing claims on their resources.

As economic pressures continue and firms navigate uncertainty, decisions about dividends and pension contributions will remain under scrutiny. The evidence suggests that who sits around the boardroom table can shape those outcomes.

For UK workers whose retirement depends on defined benefit schemes, board diversity may be more than a governance metric. It could be part of the solution to protecting long-term pension security.

The authors’ article ‘Do Female Directors Protect Employee Pension Benefits? Evidence on the Nexus Between Pensions and Dividends’ was published in European Financial Management.

Zezeng Li is a Lecturer in Accounting at the School of Business and Management, Queen Mary University of London.

Erhan Kilincarslan is a Reader in Accounting and Finance at the School of Business, Education and Law, University of Huddersfield.