Diversity for trustee boards has been on the Pensions Regulator’s (TPR) agenda for quite some time. There is now more focus for trustee boards to become more diverse and representative of their members. It’s an area that master trusts, which are already leading the way in terms of strong governance, will take a keen interest in.
There’s clear evidence that diverse groups make better and more informed decisions than non-diverse groups. In turn a diverse trustee board is likely to have stronger governance, be more effective and more representative of its members. Diversity, and regular changes of trustees, helps keeps boards fresh and enables new ideas to keep on flowing. If diversity works for company boards, it should work for trustee boards too.
TPR looked at diversity last year as part of its consultation on Governance and Trusteeship. The regulator’s 2016 research found that half of chairs and over one third of trustees were over the age of 60. In the same year, the Pensions and Lifetime Savings Association’s (PLSA) Annual Survey found that 83 per cent of trustees were male, with one in four trustee boards being totally male. This compares to just under 70 per cent of FTSE 350 company directors, being male according to the 30% Club. Trustee boards have a long way to catch up.
What does diversity actually mean for trustee boards? There are many aspects to a diverse board, it can include a mix of gender, race, age, sexual orientation, religion or beliefs or disability. It can also mean having a mix of professional trustees with proven skills in pensions such as lawyers, actuaries and other pension professionals. Additionally, a diverse board means recruiting people from different socio-economic backgrounds with different skills, expertise and points of view. It’s the mix of diversity of skills and perspectives that makes a balanced board.
A board composing of independent (non-affiliated) and affiliated trustees can lead to a more effective board. Affiliated trustees can bring their commercial expertise to the board which can be valuable insight for commercial schemes such as master trusts.
Being able to challenge constructively, negotiate and influence is as important as having investment and legal skills, leading to stronger governance and breaking down group thinking.
Too often unconscious bias may have played a hand in recruiting new trustees and TPR wants to change this, encouraging inclusivity and enabling all trustees to participate and contribute to effective decision making is vital for good communication. This is where a trustee without a traditional pension background, but one who specialises in communications or customer service, can really make a difference to the dynamics of a trustee board. And ultimately help to drive better member outcomes by putting themselves into members’ shoes.
Being a trustee can be challenging and there’s a lot to learn and keep on top of, even for those who are pension professionals. But this shouldn’t put people off from putting themselves forward. Having more role models from diverse backgrounds may encourage more people to consider taking on the role.
Not every trustee needs to be an expert in every single aspect of running a trustee board, but as a group they need to have every base covered. New trustees can get up to speed by carrying out TPR’s Trustee Knowledge and Understanding, continuously learning or undertaking professional qualifications such as the Pensions Managements Institute Certificate in Trusteeship.
To support diversity and inclusion the Aegon Master Trust board includes both affiliated and non-affiliated trustees and a mix of male and females, providing a range of experience and specialism for the benefit of their members.
The regulator is going to establish and lead a new working group looking to help schemes improve diversity and inclusivity. As part of this TPR will set out what diversity means in the pensions context and best practice for board composition.
Diversity in trustee boards is an obvious area where master trusts can be trailblazers demonstrating strong governance. In a competitive market place trustee board diversity is a way for master trusts to differentiate themselves and stand out from the crowd.
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