The Mad Hatter's tea party would not have been as brilliantly bonkers if the characters were not so diverse. Could pension schemes be managed better if they were more diverse, or is the Pensions Regulator (TPR) just as mad for promoting the need for change? If it is your birthday, unbirthday or any other day of the week, please read on for a comment on trustee board diversity.
People will be tweedle-ing their thumbs for TPR's response to its recent consultation, the "Future of Trusteeship and Governance" (the Consultation) to understand how TPR plans to build on the existing practices of the pensions industry relating to scheme governance structures and what its plans are to encourage more diversity on trustee boards. After peeking through the looking glass of the Consultation, this blog considers the diversity challenges facing pension schemes, and what trustees and sponsoring employers may need to consider when filling vacancies in the future.
TPR notes from the PLSA Annual Survey 2016 "on average, schemes had more than 8 in 10 (83%) male trustees, with one quarter of trustee boards being all male. Only 5% of schemes reported that 50% or more of their trustees were women." TPR also highlights that "around half of chairs and a third of trustees are over 60 years old, which does not reflect the profile of savers of most schemes."
TPR's comments on the lack of diversity in the composition of pension scheme boards does not come as breaking news, but TPR's own role is open to debate. Under s149 of the Equality Act 2010, TPR, as a public body, must eliminate discrimination and advance equality of opportunity between persons who share a relevant protected characteristic and persons who do not share it. TPR is acting upon this obligation, but is unclear, at this stage, whether it should take a step further than simply promoting diversity. TPR asks, for example, whether there should be a new legal requirement for schemes to report on actions to achieve diversity.
Why is diversity important? As Wonderland challenges Alice's perceptions of the world, diverse trustee boards offer different perspectives and help challenge the established thought processes of decision making. Involving people from diverse backgrounds can influence overall decision making and alter a group's behaviour. People are more likely to test each other’s views, remain unprejudiced and re-evaluate circumstances. In other words, the trustees become fully engaged, unlike the dormouse who drifts in and out of sleep at the table.
TPR notes that a lack of diversity could act as a "...barrier to success. Unconscious bias can also lead to an environment which stifles fresh thinking or approaches and a failure to properly recognise issues that have a real-life impact on savers' outcomes". Having boards where the trustees have similar ages, backgrounds and skills could prevent new thought processes developing.
TPR is of the view that trustees should consider diversity when filling Member Nominated Trustee positions in the future. It explains in the Consultation that this could result in an improvement in the range of skills including negotiation, influence and communication, and could broaden the age demographic and levels of experience on the trustee board. In addition trustees could, of course, have a dialogue with the sponsoring employer in terms of any skills gaps that could be filled when vacancies for company appointed trustees arise.
Improving diversity is not a fast or easy process, and for some schemes this may not be the right focus at present. There is no right or wrong answer as to what makes a perfect trustee board and many pension schemes are managed effectively with (seemingly) non-diverse boards. TPR explains in the Consultation that it does not intend to introduce a quota on trustee board composition, as this is not "...desirable or practical." It further explains that its intention is to encourage schemes to select potential trustees from a wider pool of individuals – not to scream "off with your head!" to skilled trustees and remove them from their post…
Pension trusteeship requires a high level of commitment; it is often undertaken by unpaid volunteers and potential personal liability is a concern. Although TPR aims to encourage greater diversity, it is possible that trusteeship will still appeal more to certain "types" of individuals and factors such as age and lack of experience will continue to act as barriers.
If you want to have your say, don't be late! The Consultation closes on 24 September 2019 (a very important date!).
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