Address pensions DEI through ‘trustee board effectiveness’ review

As we highlighted last week, diversity, equity, and inclusion - or DEI - is fast becoming a critical focus for those managing pension schemes. This month Pensions Age announced DEI as its year-long special focus, aiming to highlight its growing importance in governance and member outcomes and highlighting its importance in trustee board effectiveness. We’ll ask a pensions expert about conducting board effectiveness reviews.

Pensions Age cites findings from The Pensions Regulator’s (TPR) Trustee Diversity & Inclusion Survey, published in March 2024. It found that 84% of trustees believe diverse boards lead to better decision-making, while 83% say diversity improves governance. 85% believe diverse and inclusive boards deliver better outcomes for members. But despite this widespread recognition, the makeup of trustee boards remains largely unchanged – just 24% of trustees are women, only 9% are under 45, and the vast majority come from similar backgrounds. As the report makes clear, while there is progress, many schemes still struggle to turn DEI awareness into meaningful action.

The Pensions Age report highlights a key issue, namely, that while trustee board diversity is recognised as critical for good governance, many schemes are not integrating DEI into their decision-making structures. So, despite having DEI strategies in place, 45% of trustee boards admit these strategies have had no impact on their hiring decisions and almost a third of boards still don’t consider diversity when selecting a new chair or planning for succession – a key factor in long-term governance effectiveness.

This lack of progress has prompted greater scrutiny from regulators. TPR’s General Code of Practice now encourages skills audits for trustee boards, ensuring schemes assess the experience, backgrounds, and decision-making capacity of their trustees more rigorously. TPR’s March 2024 survey found that schemes with professional or corporate trustees were significantly more likely to take action on DEI than those with only non-professional trustees.

So, how can trustee boards improve effectiveness? Pensions expert Christina Bowyer has been working closely with trustee boards and HR Directors on this, conducting what she describes as a ‘board effectiveness review’. So how does that work? I put that question to her: 

Christina Bowyer: “The way in which board effectiveness review works is an independent party comes into the board and works with the board on how their meetings are run, how their decisions are made and considers that from a completely independent point of view, and what their thought processes are behind that and some of that then through surveying the trustees, surveying the advisors, doing interviews, completely independent interviews, with the advisors and the trustees. Some of the feedback from that will mean that the lack of diversity, or the gaps in the board, will rise to the surface and then they can start to address some of the things that they haven't already got on the board through the different ways of picking up diversity, i.e. through advisors, etcetera.”

Joe Glavina: “TPR’s guidance came out in March last year but the general Code was published much more recently, in March of this year, and I noticed TPR has included in the Code a number of high-level EDI expectations for trustees which rather underlines the significance TPR is placing on EDI. So I guess trustees should, at least, read the guidance?”

Christina Bowyer: “Yes. The guidance on EDI is not particularly long. Some of it's a bit repetitive, but it's not particularly long and the trustee should know TPR’s guidance and then they should start to think about, with their advisors, well what are we going to do next? What are our first steps on the road to complying with this guidance? They've got a lot on their plate at the moment, trustees, there are lots of things that are coming out. There's been a lot of guidance from The Pensions Regulator under this umbrella of the general code but EDI is one of those things they will need always to pick up.”

Joe Glavina: “Finally, Christina, in a word, what are the next steps for boards?”

Christina Bowyer: “I think next steps for boards, really, please can you just do something. Put it on your agenda, pick up the guidance, make sure you understand it and then start to formulate a plan of how you're going to take action to comply with it.”

If you’d like to read the Pensions Age article you can. It’s called ‘Pensions Age 2025 special focus: Why DEI?’ and we’ve included a link to it in the transcript of this programme for you.

- Link to Pensions Age article