Diversity in Trusteeship is not about a tick box – it is more important than that!
15th February, 2021
Many will argue that efforts to increase diversity and inclusion in the pensions industry have only ramped up within the last few years, with our sector being stubbornly behind various others.
Although aided by a number of legislative provisions, the latest being the series of Lloyds judgements on GMP Equalisation, diversity is not tantamount to just the lack of discrimination which those provisions are meant to eliminate.
It is especially vital to ensure diversity among individuals managing trust-based pension schemes; not just for the benefit of our industry but, most importantly, for the benefit of pension savers.
According to Aon’s recent research , the average UK pension scheme trustee is male and middle-aged, with only 20% of trustee roles filled by women and 2.5% by under 30s. While little data is available on the trustees’ ethnicity, representation from BAME individuals is also likely to be very low. Did I say we were stubbornly behind?
This clearly does not reflect the membership of UK pension schemes, especially with the introduction of automatic enrolment in 2012 meaning that more of the workforce than ever have a pension. Unfortunately, the consequences of this lack of diversity on trustee boards are much more serious than it may seem.
Ensuring best member outcomes as a trustee board
A pension scheme trustee’s most important duty is to act in the best interests of scheme members. To achieve this, trustee boards should be able to put themselves in the savers’ shoes. Having a board which can relate to the sponsor’s workforce can help them better understand the savers’ financial needs and priorities, which will generally lead to better outcomes.
Another factor to consider in managing a pension scheme is unconscious biases. We may not like to admit it but they are out there and they vary significantly, depending on our age, gender, ethnicity, sexuality etc. Trustees have to make decisions regarding individual savers’ benefits on a regular basis. A board composed of a number of very similar individuals is likely to mean that those individuals share the same unconscious biases which will impact their decision-making. In contrast, a board containing a diversity of people from different walks of life will allow for different perspectives, likely leading to more impartial decisions. Of course, this also works for higher-level decisions, from setting a default fund for DC savers to devising an ESG-focussed investment strategy for an ethically-minded workforce.
There will be sponsors who might struggle to recruit diverse trustee boards, mainly due to a lack of enthusiasm from their staff – being a pension trustee, is, after all, a huge responsibility. Those companies may want to consider taking the savers’ views into account in other ways, e.g. pension roadshows, surveys etc.
Trusteeship as a career
At present, the professional trustee industry still has a lot catching-up to do with regard to its own diversity and inclusion goals. While many UK pensions companies have D&I policies and committees, being a professional trustee, as Aon’s research shows, remains the domain of industry veterans with little variety in background. That can and must change.
Putting young pensions professionals from different parts of the industry on the path to trusteeship is an effective way to diversify our ranks and ensure that younger people’s voices are being heard.
A good example is the use of technology – millennials and Generation Z are likely to have a smartphone app for anything and everything, ranging from banking, to taxi ride-sharing services, to grocery deliveries. Even from my experience, I can attest that engaging with my workplace pension is made much easier when I can access everything with just my fingerprint! Being able to relate to the younger demographic and their needs is an invaluable asset when trying to increase savers’ engagement in a part of financial services famously seen as ‘boring’ by those below middle age.
People who enter the trusteeship career from a younger age are also likely to be more attuned to the financial needs of a wider range of employees, as their membership ages with them.
What’s next for diversity on trustee boards?
Undoubtedly, there is still a tremendous amount of work to be done to ensure that trustee boards and professional trustees are more diverse and inclusive. I am happy to say that Dalriada hopes to spearhead these efforts by hiring a wide range of pensions professionals from various ethnicities, age groups and backgrounds. We have a programme to bring in graduates into our industry with a plan to stream some into career trusteeship. However, to complement this, employers should try to ensure that their trustee boards consist of both lay and/or professional trustees that reflect the circumstances, needs and diversity of their pension scheme’s savers.