The Pensions Regulator Diversity Action Plan

The Pensions Regulator (“TPR”) has published an action plan setting out steps it will take to “encourage and support trustees to recruit diverse candidates and create a culture of inclusion”.

Research commissioned by TPR on diversity on pension trustee boards concluded that “trustees have a long way to go towards embracing the importance of diversity and inclusion. The status quo is not acceptable” (David Fairs, Executive Director of Regulatory Policy Analysis and Advice at TPR). David also says, “Trustee boards that are not diverse risk knowledge gaps, entrenched ideas, biased thinking and poor decision making which puts savers at a disadvantage”.

TPR recognises that more people than ever are saving into a workplace pension – and these people come from an increasingly diverse workforce. It’s not a stretch to see that trustee boards that better represent the people whose pensions they look after, are likely to do a better job of looking after those pensions. In TPR’s words, “a diverse pensions governing body made up of people who have a broad range of characteristics, backgrounds, life experiences, expertise, and skills will tend to lead to wider discussion and better decision making”, and TPR aspires to “deliver good and fair outcomes for all savers”.

Diversity on boards is important across all industries of course, but it is particularly pertinent in defined benefit (DB) pensions, an area known for being male-dominated. In terms of scheme membership, DB schemes were in their heyday at a time when the workforce itself was male-dominated. As the modern-day workforce has become increasingly diverse, DB schemes have been closing to new members. For member-nominated trustee elections, the diversity of the pool of candidates can therefore be limited, and this can be a barrier to achieving diversity of people on trustee boards.

Whilst working towards achieving diversity of people, it is still possible to aim for diversity of thought amongst the people you have. I have suggested some steps that boards (pension trustee or otherwise) can take in pursuit of that aim.

• Undertake training on unconscious bias. How a person thinks can depend on their life experiences, and this sometimes results in beliefs and views about other people that might not be right or reasonable (from www.acas.org.uk). Although by definition this bias is ‘unconscious’, it is less likely to occur if effort is made to be more aware of it.
• Be aware of decision-making biases too. Behavioural finance is particularly relevant to those who make investment decisions and training on this may prove helpful. “Anchoring” is a common bias – making decisions by adjusting from an existing position rather than thinking afresh.
• Effective chairing. The role of Chair should not be underestimated; an effective Chair ensures a range of views are heard when making decisions. On any board, those who speak the loudest are not necessarily those whose voices need amplified! I would encourage those holding the position of Chair to reflect on how they run meetings, seek feedback, and consider participating in periodic board effectiveness reviews.
• Diversity in advisers. The advice boards receive is likely to play a key part in the decisions they make. To avoid an ‘echo chamber effect’, trustees could periodically consider seeking training from non-advisers, to hear different perspectives from others in the industry.
• Company nominated trustees – not restricted to scheme membership, these can usually be chosen from a wider field of candidates and so create an opportunity to add different voices to the trustee board. Often they are not subject to election dates and terms, so there is more flexibility to make timely changes. Trustees should engage with their sponsoring employers to ensure their views on the benefits of diversity on the board are heard.

While we wait for TPR to make good on their diversity action plan, why not get a head start on yours?