Fieldfisher pensions partner Jeremy Harris
On 1 December 2022, The Pensions Regulator (TPR) published its action plan ‘Promoting high standards of diversity and inclusion among our regulated community’.
This is in the context of recent research which found that on average 83% of UK pension scheme trustees are male, 25% of trustee boards are all male and one third of scheme trustees are over age 60 (2016 Pensions and Lifetime Savings Association annual survey) and that the average UK pension scheme trustee is male, 54 years old, with a university degree and only 2.5% of scheme trustees are under age 30 (2016 Aon research ‘Mapping the Trustee Landscape').
UK pension scheme trustee boards are not currently, on average, diverse in composition and are generally less diverse than the boards of directors of FTSE 100 companies, many of which are sponsoring employers of large occupational pension schemes.
This has potential consequences for the quality of pension trustee decision-making. With auto-enrolment, pension scheme members are becoming increasingly diverse as they grow in number. In TPR's view it is important the diversity of pension trustee boards should reflect that of the scheme membership.
Diversity in this context should be seen not only as reflecting the protected characteristics under the Equality Act 2010, such as sex, age, disability or sexual orientation, but also other wider factors such as socio-economic background, education, working style and family or care responsibilities.
As TPR commented in its July 2019 consultation ‘Future of Trusteeship and Governance', diversity on a pension trustee board should result in a trustee body having a range of diverse skills, points of view and experiences and should facilitate robust discussions, which stand up to scrutiny and are less likely to be challenged by scheme members.
Conversely, a less diverse trustee body may not be open to fresh thinking and may fail to recognise issues that affect the scheme membership. There is a greater risk with a less diverse body of knowledge gaps on the trustee board and the board becoming over-reliant on a particular trustee or adviser. Ultimately, TPR sees greater diversity as improving benefit outcomes for scheme members. This would most clearly be the case with a defined contribution scheme, rather than with a defined benefit scheme where the employer has designed a pre-determined formula for computing pension benefits.
The regulator intends that the achievement of greater diversity on pension trustee boards be an ongoing gradual process of good practice rather than there being a defined target. Steps along the way include trustee boards assessing the range and types of diversity of their scheme membership, issuing communications to scheme members to promote the benefits of becoming a trustee to encourage diversity in candidates to be member-nominated trustees and engaging with sponsoring employers to recognise the benefits of the trustee role in the personal development of employees, to the benefit of the business. Once recruited on to a trustee board, it is important to encourage newcomers to contribute to board discussions.
There are limits to what pension trustees can achieve by themselves. Diversity among member-nominated trustees (MNTs) on pension trustee boards will depend on there being diversity among the candidates standing to be MNTs and will be subject to the election process by scheme members. Diversity will therefore depend in part on trustee boards encouraging a wide range of candidates to stand. Many pension schemes seem to be having difficulty getting sufficient MNTs on board altogether. Further, diversity among MNTs may only affect one third of the trustee body. Achieving diversity on the trustee board will usually be in the employers' hands as it regards up to two thirds of the trustee body.
Jeremy Harris is pensions partner at Fieldfisher
