TPR said in a statement that they hoped the guidance, developed with an industry working group, will be used by pension scheme governing bodies and sponsoring employers to improve the EDI of their scheme’s board.
Simon Lewis, Client Director, from professional trustee and governance experts, Vidett, welcomed the guidance, saying:
The recent guidance from The Pensions Regulator (TPR) on equality, diversity, and inclusion (EDI) for pension scheme governing bodies and sponsoring employers is a much-welcomed addition to the industry. This guidance serves to improve the EDI of scheme boards, legitimising what many of us in the pensions industry have been discussing with colleagues and boards for some time now.
Guidance sets clear expectations on the way forward
TPR’s recommended quick wins include advice for Chairs; having an EDI policy; enhancing board diversity; reviewing fixed-term appointments; making reasonable adjustments for candidates and trustees and ensuring inclusive communications. We believe this is a step in the right direction and will no doubt encourage more discussion and action.
However, this guidance couldn’t have come soon enough. Recent research has emphasised urgent action was needed to improve EDI on pension boards. A report commissioned by Cardano and Mallowstreet found pension trustee boards remain overwhelming male and white[i]. By contrast they found that professional trustee firms fared much better when it comes to diversity and were also leading the way in EDI training and policies relating to bullying and harassment[ii].
More concerning is the fact the survey also found that over half of respondents (58%) believe that improving EDI is low priority compared to other governance issues, in spite of the fact that 63% recognise it as a useful way to broaden a team’s skill sets as well as improve governance and decision-making for better member outcomes[iii]. There is therefore still some way to go to change the pension landscape.
TPR’s guidance clearly emphasises some good practice which is already happening in the pension industry. One good example is the Member Nominated Trustees (MNTs) selection processes being simplified and made more inclusive with plainer English being used for communications. It also echoes the indirect and direct EDI references in the General Code (formerly Single Code) in relation to the Role of the Chair and the Governing Body (Trustees), MNTs processes and the appointment and removal of Trustees, Adviser selection, communications. This is all very positive.
Moreover, updated guidance on delivering effective communications to support the DC Code of Practice is now available. Although this guidance is specifically focused on DC schemes, the best practices outlined within could equally apply to DB schemes. It would be beneficial to incorporate this guidance into the final version of the General Code. As trustees, it is key that we prioritise our members’ interests and avoid creating distance with technical language and passive communication styles. Our goal should be to communicate in a clear and concise manner that prioritises the needs and concerns of our members, many of whom will be classed as vulnerable or people with disabilities such as a proportion of DB scheme pensioners.
There are several innovative ideas and practices that warrant further consideration by boards, such as treating Employer Nominated Trustees (ENTs) selection in a similar way to Member Nominated Trustees (MNTs). Additionally, employing skills reviews that examine an individual or a board’s collective experience, characteristics, and skills beyond pensions, as well as providing reasonable adjustments for trustees when conducting their duties, are essential considerations.
Policy, objectives, and performance reviews are critical to success and embedding EDI into the Trustees’ Effective System of Governance (ESOG). While the guidance does not provide a specific definition of EDI, it encourages Trustees to consider it for themselves. This consideration should align with the scheme’s nature, size, scale, and complexity (per the General Code), as well as its membership and the sponsor’s ethos.
In terms of employer guidance, sharing these concepts with scheme sponsors can support the recruitment of ENTs and MNTs. This effort could also involve discussing the support that the sponsor could provide from their own EDI initiatives if the trustee is willing to invest more time and effort in this area.
Playing our part
The TPR guidance has two focus points; the governing body (Trustees) and how it operates in this space, with the larger emphasis on the diversity aspects, and secondly, Advice for Employers. As an organisation we’re mainly concerned with the first part, while helping facilitate the latter wherever needed.
Trustee boards and their sponsors now have a duty to consider EDI on an ongoing basis and should focus on learning, evaluation, and action. We firmly believe part of this is ensuring that it is included in the ESOG framework being developed as part of the upcoming Code, so it becomes embedded in the culture and a key part of the Trustees’ key risks and internal controls.
As a professional trustee and governance firm this equally applies to our recruitment, development, and training approach, and is something we are working hard at. As well as being trained and equipped to help current and prospective clients – our positions as independent trustees, chair and secretaries give us a wide universe of experience to draw upon. We also draw upon a pool of varied individuals on the team and access to a large pool of specialist scheme advisers which help provide a more holistic view on topics. This all helps with ensuring EDI is present on our sole trusteeship clients as well as the non-sole trustee boards we are involved with.
One point worth noting here is in the TPR guidance is that “E” stands for “equality”. At Vidett we focus more on “equity”. There is a difference, and we suggest that the literal view of treating everyone the same isn’t necessary “fair”. A better approach may be acknowledging differences and offering support where needed to give equal access and opportunity.
The practical steps set out in the guidance do allude to being equitable in places, but we suggest that perhaps this could be more up front.
Beyond the guidance
In addition to the guidelines provided by the Pensions Regulator (TPR), trustees and scheme sponsors could broaden their focus to consider other critical areas such as investments and their alignment with environmental, social, and governance (ESG) principles, ongoing work on scheme rules and valuations, and the employer covenant, even though the latter is still in its early stages.
To make progress in this area, it is essential to integrate EDI considerations into the Trustees’ day-to-day operations, rather than treating them as an afterthought or a separate governance burden. We commend the TPR and all those who participated in the discussion and made recommendations. Our goal is to transform these recommendations into concrete action.