As the Black Lives Matter protests continue, many people are beginning to wonder whether enough has been done in their sector to promote ethnic diversity. What could change look like in pensions? 

 

The murder of George Floyd by a US police officer has sparked unrest which has swept across the Atlantic to the UK and is putting a spotlight on the track record not only of the police but society as a whole – pensions included.  

 

Trustees represent millions of members from a range of backgrounds, managing trillions of pounds on their behalf. Yet as recently as 2016, an overwhelming 83% of scheme trustees were male, with a quarter of schemes having all male boards. Just 2.5% of trustees were under 30 and a third were over 60. 

 

This tendency towards 'male, pale and stale’ pension boards persists despite numerous studies showing that more diverse groups are better at avoiding biases that negatively impact investments, more innovative and overall make better decisions – all of which are likely to result in better member outcomes. 

 

The figures on trustee board composition were collected by the Pensions and Lifetime Savings Association, which in March published a guide to diversity for pension boards, the first of its kind for the industry. 

Its chairman Richard Butcher said: “Diversity in the workplace is a simple premise but one that will take time to fully implement. It is a challenge that we as an industry must embrace and now is the perfect time to take those discussion forward.”

 

 
However, the fact that there are no figures on ethnicity among trustees can itself be seen as an issue. It is not just pension organisations; many companies fail to collect data on ethnicity, says Marisa Hall, who co-heads the Thinking Ahead Institute by Willis Towers Watson.  

 

“I was a consultant for many years on the investment side of things and have been to many trustee meetings. From my experience there is not a lot of ethnic diversity,” she says, but without data, it is difficult to start to address the problem. 

 

While gender pay gap reporting appears to some extent to have focused the minds of leaders on gender equality, the government has so far shied away from introducing ethnicity gap reporting, which would require the collection of data. A consultation closed in January last year, but the government has not presented a response so far, though a petition has been started to force the issue back on the agenda. 

 

Pension funds have so far been shielded from diversity reporting requirements, but the Pensions Regulator, as part of its trusteeship improvement drive, recently decided to finally grasp the nettle. It has stated its intention to publish a guide to diversity. However, the call to join a new industry group working on this – which received nearly 80 responses – has been halted because of coronavirus. 

 

Clear standards and expectations for trustees on diversity and inclusion are necessary to ensure that members benefit from the collective intelligence of a board where members are able to challenge groupthink, says Hall. 

 

“There is no one size fits all, you have to look at the size of your trustee board,” she admits. But she proposes that boards should undertake a review of their composition, set clear objectives for diversity and ensure everyone agrees on what they mean by this.  

 

Introducing a maximum number of terms for trustees would also help to bring in fresh ideas, she suggests, stressing that this needs to be balanced with continuity of knowledge. The idea of limiting trustee terms had already been brought up at the PLSA Investment Conference in March by Sarah Smart, independent member at the Unilever UK Pension Scheme. 

 

 

Shola Salako, a trustee at Dalriada, agrees there needs to be more data, “some sort of audit” to understand where the industry stands, adding that currently, it largely fails to recognise that it has a problem. 

 

“The pensions industry presently needs to serve and communicate with all. When we get that right then we become an industry that is welcomed, is an intrinsic part of the next generation,” says Salako. “Without that, those in their twenties will continue to question the point of pensions, they will seek alternatives. 

 

Diversity is seen as crucial to reach active members and foster an interest in pensions. Norbert Fullerton, head of institutional client strategy at asset manager Janus Henderson, also says the industry will fail to engage members if boards are not representative of them. 

 

“Specifically for DC pensions, members will be looking for a very diverse group of decision-makers on master trusts, consultancies, trustees boards, etc in order to remain interested in pensions and to ensure their voices are being heard,” he says. 

 

In its DC guidance, the Pensions Regulator states that “as far as possible, trustee boards should be diverse and well-balanced" with respect to the type of trustee, skills and experience and demographic factors like race, sex, age, orientation and disability. 

 

 

Though not focused on pension funds, the McGregor-Smith review published in 2017 said that boards should reflect the make-up of their company’s workforce, noting that the ‘classic’ BAME pyramid tends to show BAME representation mainly at the bottom of the pyramid. As one of the main barriers for executive buy-in the report named “preference for the status quo”. A preference for leaving things as they are, however, puts into question how much can be achieved on a voluntary basis. 

 

“I’m not a big fan of quotas but can see that setting ‘targets’ has worked well, specifically for getting more women on boards etc,” says Fullerton. Softer approaches like mentoring – which he is involved in both at work and with charities and foundations – also works, but he says sponsoring is critical. 

 

“You can mentor all you want, but if no one is willing to support your progression from say, director level to board level, and ensure equity in the workplace, then it just won’t happen,” he says. 

 

In a pensions context, Fullerton says he wants to see black people better represented in decision-making positions, not just in pension funds and consulting firms but also within regulators, the Pension Protection Fund and the Department for Work and Pensions. 

 

TPR says 7% of its workforce identify as BAME and 80% as white. A TPR spokesperson said the regulator takes a ‘zero-tolerance’ approach to discrimination.  

 

“We review our people policies and we continually endeavour to learn, amend and adapt. We strive to ensure as an organisation our principles and values are deep-rooted into our very ways of working,” the spokesperson said, adding: “We acknowledge that within TPR there is more we can do to become a more diverse and inclusive regulator. Our new Diversity and Inclusion Committee is just one example of how we are continuously striving to improve.” 

 

The question of representation continues to haunt the sector, however, given that pension funds exist purely for the benefit of their members - who may have a variety of backgrounds.

 

One-third of a trustee board generally has to be scheme members by law. Dalriada trustee Judith Fish says MNTs are also where diversity on scheme boards tends to come from, adding that selection is a better tool to achieve this than a voting procedure. 

 

The growth of professional trusteeship is also improving diversity, she argues. “Ten years ago, professional trustees were probably post-career or early retirement. Now you get much younger people who rely on being salaried,” while previously only people who could afford to have an uncertain income would choose that path.

 

Although she says it would be difficult to legislate for diversity on boards given the small size of some of them, Fish also raises the point about member representation: “As an industry we need to make sure we encourage people from all different backgrounds to become trustees so we’re able to better represent members.”