Diversity, equality and inclusion (DEI) in pension scheme boards

DEI is important from a covenant perspective, both in terms of identifying long-term sponsor risks, and for good trustee decision-making relating to the security of members’ benefits.

Cardano, in partnership with Mallowstreet, recently commissioned research in response to The Pensions Regulator’s (TPR) calls for the industry to improve DEI. The aim of this research was to gather data to assess the level of awareness of DEI issues among trustees, raise awareness of the importance of DEI in the pensions industry and identify areas of improvement that can be made.

This research identified four key findings:

Firstly, Pension trustee boards remain overwhelmingly white, male, over the age of 45, and with a tertiary education. More specifically:

• 75% of respondents sit on boards where over 60% of members are male;
• 2 in 5 sit on boards where half the board are 46-60 years old;
• 70% say that four out of every five board members have tertiary education (e.g. university); and
• People from ethnic minorities, people with disabilities, LGBTQ+ people and non-binary people represented less than 20% of trustee boards for over 90% of respondents

Secondly, in contrast to traditional pension scheme boards, the research found that Professional Trustee (PT) firms appear to be generally more diverse, particularly in terms of age and gender. One in five PT firms surveyed reports that over 40% of board members are below the age of 45. And over a third of PT firms surveyed reports that more than 40% of their trustees are female.

Thirdly, whilst most trustees (63% of those surveyed) recognise the benefits of good DEI, progress has been slow. The lack of DEI in the industry is mainly attributed to the following factors:

• DEI being a low priority on the agenda compared to other
  governance issues;
• a failure to attract diverse talent; and
• the risk of virtue signaling or DEI becoming a box-ticking exercise.

Collecting and storing DEI data, and which benchmarks to follow, were also challenges identified; for example, 68% of respondents do not follow any major DEI standards.

Fourthly, education is the first step towards DEI best practice. PT firms are leading from the front in terms of driving DEI training and implementing zero tolerance policies. Over half of PT firms (54%) have conducted or are planning to arrange diversity and inclusion training as part of their efforts to improve DEI. Meanwhile 38% have established a formal zero-tolerance
policy for harassment or bullying.

The report set out the following recommendations for trustees:

• Develop a DEI knowledge base before setting policies and KPIs by focusing on understanding DEI issues and learning from experienced providers and sponsors.
• Follow best practice guidance from resources like the Diversity Project and National Equality Standard.
• Work with PTs to improve DEI, especially if resources are limited.
• Simpler and more inclusive communications for members.
• Start collecting data to monitor your progress on DEI; and
• Keep an open mind, and actively encourage, diverse views for better governance and decision-making.

Read the full Covenant Quarterly Q2 2023 which also includes the following articles:

• Datawatch: Long term trend shows insolvency cases are on the rise
• Ask the Analyst: How could collective defined contribution (CDC) schemes impact the pensions landscape?
• Regulatory developments: TPR’s 2023 Annual Funding Statement