The days of identikit pension scheme boards are numbered. As the drive for diversity picks up pace, it’s clear that the message about the value of Diversity, Equality and Inclusion (DEI) – both for pension schemes and their members – is finally hitting home.

That sea-change is long overdue. Improving DEI within pension boards not only broadens the scheme team’s skill sets, but also improves governance and sharpens decision-making and outcomes for pension savers. A range of voices, insight and experiences at the table is a win-win for all sides.

The Pensions Regulator’s Role in Championing DEI Best Practices

Moving the dial won’t happen overnight, but The Pensions Regulator (TPR) is leading the charge. At the end of March, it released detailed guidance on DEI best practice for pension trustees, follows its earlier call in 2022 for the industry to step up its efforts in this area. The new guidelines cover everything from the role of the Chair, to creating a DEI policy and training, reviewing diversity on the governing body, and tailoring recruitment drives to bring in more diverse candidates.

Current State of DEI in Pension Boards

Cardano’s own research on DEI within pension scheme boards, published in January 2023, highlights not only the scale of the challenge, but also where progress is already being made. Commissioned in partnership with Mallowstreet, it surveyed 106 UK pension professionals to understand how DEI features in trustees’ policy setting, the obstacles they face and where the industry is falling short.

Yet there were also plenty of grounds for optimism. Professional trustee firms in particular are making real headway in increasing diversity on pension scheme boards – especially in terms of age and gender. More than a third of these firms report that over 40% of their trustees are female, and many are also driving DEI training and zero tolerance policies. Likewise, those pensions schemes with professional trustees are also reporting increasingly diverse representation. The success of these efforts is acting as a catalyst for the rest of the sector, particularly smaller firms, to follow suit.

The pension industry views on the current state of DEI

Off the back of these findings, Cardano recently convened a roundtable of over 25 industry experts, professional trustees and TPR to canvass their views on the current state of play and next steps.

Attendees agreed that top of the agenda was the need to educate those trustees still wedded to the status quo. Making, in other words, a compelling argument on the way diversity results in stronger teams, as well as more robust decision making and outcomes for pension schemes’ members.

The people who get it, get it and those that don’t, just don’t. Some trustee boards just don’t see it as an issue

David Fairs, Partner at LCP and formerly TPR

Overturning resistance amongst trustees could also involve addressing scheme members directly about what they stand to gain from having a more inclusive team running their pensions. Likewise, steering committees and scheme sponsors are in prime position to increase pressure on trustees. Initiatives such as the 30% Club and the FTSE Women Leaders Review provide stand-out examples of what can be achieved when the will is there.

The scarcity of available data was seen as a challenge. Industry organisations such as the Association of Professional Pension Trustees (APPT) is looking into intensifying efforts to collect data from firms, including on diversity of thought. The Pensions Regulator is also considering including a question on diversity in schemes’ returns to ramp up the focus. The opportunity for the Office for National Statistics to do the same as part of its annual trustee survey, was also discussed.

Quotas divided the room. Some attendees believed that quotas could be a useful driver, an area that a TPR working group is currently exploring as well as ‘protected characteristics’. Nor are DEI targets necessarily the way forward; what is needed is an accountable, consistent approach.

Decision-makers need to be diverse, otherwise the card will continue to be played.

Helen Beckinsale, Head of Relationship Management, 2020 Trustees (now Vidett)

The role of Chair is key in creating that positive culture – ensuring that everyone in the room feels welcome and valued in the broadest sense. It was suggested that DEI should be on the agenda at every trustee board meeting – and also, as one participant, Harus Rai, Managing Director at Capital Cranfield, commented,

Boards should evaluate themselves on a regular basis to ensure that all voices are heard

Harus Rai, Managing Director, Capital Cranfield

The pension industry clearly still has some way to go in establishing DEI best practice, particularly in smaller schemes. Yet the consensus amongst our roundtable audience was that the will is now there, backed by meaningful efforts to move things forward.

The next steps needed to sustain this momentum?

Engaging the commitment of sponsors at the highest level is vital, perhaps via an industry forum along the lines of the 30% Club, creating a more collaborative, data-based approach. Ensuring that DEI features on every trustee board meeting agenda as a matter of course will help with moving things in the right direction. And pension scheme boards should focus on persuading the ‘unconverted’ – stressing the commercial wisdom of having best practice DEI policies in place for the benefit of the scheme and its members alike.

We very much look forward to engaging with the industry further on this topic and how we can collectively move the dial.