‘Conversations can only go so far’: How the pensions industry needs to act on its diversity problem
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Diversity is a broad term and covers multiple important areas that all need to be focused on to improve the industry. As this month marks Black History Month in the UK, how are we doing with diversity of race and ethnicity?
The importance of diversity
According to a report released by consultancy Aon last year, locating credible statistics regarding BAME (Black, Asian, Minority Ethnic) or more specifically black trustees is scarce, but it is fair to assume that representation is very low.
Diversity is important for the benefit of both the industry and pension savers. According to research by consulting firm McKinsey in 2018, companies with more diverse executive boards had a 21% to 33% higher likelihood of financially performing above the national industry median. It also revealed that gender and ethnic diversity are clearly correlated with profitability, but women and ethnic minorities remain under-represented.
“If you have a board, the more minds, the more voices, the better the decisions. Pension scheme members reflect society, so the boards and trustees looking after them are better served if they too reflect society,” says Shola Salako, a trustee at Dalriada Trustees.
Having a balance of views and voices of people from different backgrounds and cultures is needed to successfully navigate the challenges that pension schemes and their members face. “We need to hear all the voices. We need to consider the people whose pension schemes we’re looking out for,” says Salako.
High awareness but slow rate of change
Earlier this year, Winmark released its annual pension chair remuneration report. From the survey, almost half of respondents agreed with the statement that effectiveness of the trustee board would be improved if it was more diverse. The majority (61%) also agreed that trusteeship is not diverse enough in terms of ethnicity. However, only two-fifths said their scheme had taken active steps to increase diversity in the past year.
“The industry moves quite slowly. However, what I think is good is professional trustees recognise that diversity is important and race and ethnicity is a part of that,” says Salako. “As society changes, the industry must change and will change. But it probably does it a bit more slowly than society.”
Consistently, respondents of the survey have said that lack of candidates is the key barrier to increasing diversity on trustee boards. Salako says one of the possible roots of the issue is awareness of the pensions industry. “One of the challenges that pensions needs to tackle is selling itself to the wider population to say, ‘Look we’re here, you can have a really good career in this,’” she says.
Salako believes a lack of awareness of the pensions industry as a career path at entry level limits the possibility of more diversity at trustee level: “You need people to come through the bottom and then when they do come through and apply, the industry needs to welcome them and have an open door.”
In addition, the rate of change could also be down to the age of trustee board members. According to Aon, nearly 7% of trustees are aged over 70 and only 2.5% under 30. “A lot of people don’t even
know there’s an industry out there, so marry that up with an industry – or at least the trusteeship side – that’s old, you can see how it’s going to be a lot slower,” says Salako.
How can we improve diversity quicker?
It appears that accessibility is one of the barriers for people of colour, and therefore contributing to lack of diversity in this area.
Norbert Fullerton, partner at consultancy LCP, says there is a huge need for change in this area: “It’s such a shame that we have such a vast variety of talent in terms of black people and people from different ethnic minorities, but there is still a difficulty in terms of funding their studies, in terms of mentorship, navigating their career, and so on.”
Part of the solution could be creating more awareness and providing more opportunities for people of colour. At the start of this month, Fullerton and Andrew Long, managing director at advisory firm Willis Towers Watson, partnered with the Institute and Faculty of Actuaries to launch the Fullerton-Long Caribbean Scholarship Fund. The scholarship aims to give opportunities to exceptional young people from the Commonwealth Caribbean, supporting them to become actuaries in the region and wider world. The scholarship is open to students at the University of the West Indies, from which Fullerton graduated.
“That is one of the avenues that a lot of companies here in the UK have not tapped into: going through other countries, and recruiting directly from universities there,” says Fullerton. “A lot of the firms seem to only be tapping into UK universities, for a variety of different reasons, I’m sure. But one of the things that we’ve been talking about in different forums is trying to get different companies to look further afield.”
Fullerton says that existing trustee boards need a shakeup and hiring independent trustees could help: “They seem a lot more clued up, more willing to change and increase the pace of change for their internal make up.”
Fullerton says that conversations can only go so far. “It’s really the action that needs to take place, but they all go hand in hand,” he says, emphasising that this conversation should be ongoing and not exclusive to the month of October.
He also points out that while industry is trying to do various things, the responsibility to effect change needs to be shared: “One of the frustrations seems to be that not a lot of people seem to be shouldering the burden or taking action. I think it’s important to really spread the load for lots of people to be taking action, otherwise 30 years from now we’ll still be talking.”
Salako says it’s good that the industry recognises it needs inclusion and diversity but needs to move quicker: “If it wants to be part of society and have the place it’s had in the next 50 years, then it needs to remember that society is made up of lots of different people and lots of different voices. Otherwise, people will just find other ways to save for retirement.”
What are some steps that schemes should take to improve diversity quicker?