United Kingdom: Pension Trustee Diversity - The Role of Employers

In March 2024, TPR announced the results of a 2023 survey on trustee diversity. The results confirm that trustee boards are less diverse than the overall population, with the “typical trustee,” as described by TPR, being “a white man aged over 45.” However, the results also highlight industry recognition of the importance of inclusive and diverse boards, with 78% of respondents saying they felt a diverse trustee board was important. TPR plans to use the results as a baseline to measure progress towards ensuring high standards of diversity and inclusion on trustee boards.

TPR’s Focus on EDI

The survey is the latest step in TPR’s increasing focus on EDI in trustee boards. TPR believes that a diverse and inclusive trustee board made up of people with a broad range of characteristics, life experiences, expertise and skills will lead to a number of benefits for occupational pension schemes and their members, including:

• Wider discussion encouraging new thinking and approaches
• A deeper understanding of issues that have a real-life influence on members’ outcomes
• More effective decision-making that reflects member needs and values
• Improved communications with scheme members

There are two key aspects to improving EDI in the trustee board: (i) increasing diversity in the board’s composition, and (ii) promoting a board culture of mutual respect and inclusiveness.

In March 2023, TPR published guidance for employers (and trustees) on EDI. This guidance provided practical steps to help employers improve EDI on the trustee board, through recruitment and by ensuring their staff have sufficient time to carry out their role on the trustee board. It covered:

• First steps when considering trustee recruitment;
• Who can be a member of the trustee board;
• Who should be on the trustee board;
• Appointing the trustee chair;
• Appointing professional trustees; and
• Key issues that employers should consider when appointing employer-nominated trustees.

The Employer’s Role

Employers have an important role in supporting the trustee board to implement EDI. In the majority of occupational pension schemes, the employer has the power to select a number (often the majority) of trustees (or directors of the corporate trustee). This power frequently extends to the selection of the trustee chair. The employer’s involvement is therefore essential to achieving the trustee board’s goals and objectives in relation to EDI, and to supporting the trustee chair’s role in promoting an inclusive board culture.

How Employers Can Improve EDI

The steps that employers should consider taking to improve EDI will depend on the circumstances of their scheme and its trustee board. However, some areas for employers to consider include:

• The trustee board’s diversity of characteristics, life experiences, expertise and skills and how any gaps could be filled when selecting employer-nominated trustees/directors. This includes considering whether there are individuals outside of senior management who could be selected.
• Whether there are changes that could or should be made to the scheme rules (and, where the scheme has a trustee company rather than individual trustees, the trustee company’s articles of association) to encourage greater diversity in the trustee board. For example:
  • Removing any requirements which restrict who can be appointed as a trustee/director; and/or
  • Imposing a fixed term of office for employer-nominated trustees/directors.
• Their legal obligations towards employees who are trustees/directors and how they can support such employees by, for example, ensuring they are able to commit sufficient time to the role and providing access to relevant training and other appropriate resources.
• Where the employer is responsible for appointing the trustee chair, whether the potential candidates for appointment demonstrate qualities that will promote EDI in the trustee board. (TPR’s General Code includes a module setting out the skills and behaviours that TPR believes a good trustee chair will generally demonstrate.)
• Whether appointment of a professional trustee (whether as trustee chair or otherwise) could help to enhance EDI on the trustee board.
• How improving EDI in the trustee board may align with the employer’s other EDI initiatives.

Employers are also likely to have their own knowledge and expertise on EDI matters from which trustee boards can benefit. Some employers will already have teams focused on EDI who can provide input to the trustee board, and the employer’s own EDI policies may be helpful to trustees when formulating their EDI strategy.