An industry to be proud of

Diversity and inclusion in pension schemes is essential, and leads to better decisions

As The Pension Regulator’s home city Brighton gears up for its first virtual Pride, chief executive Charles Counsell explains why diversity and inclusion in pension schemes has never mattered more.

Usually, this time of year would see TPR finalising plans for celebrating Brighton Pride. As one of the seaside city’s major employers it’s important we take part in Pride and publicly demonstrate our support for equality and diversity in our workforce. Sadly, COVID-19 means, like many events this year, Brighton Pride has had to be postponed.

With so many pride events still being held online and the Black Lives Matter movement making headlines, I believe it’s the right time to reflect on what makes diversity and inclusion so relevant to pensions.

Building better pensions outcomes

There’s a wealth of evidence highlighting how more diverse and inclusive teams drive better results. Less diverse and inclusive organisations – including pensions schemes – miss out on these opportunities. Unless the entire pensions industry is diverse and inclusive, it cannot claim to be representative of those it serves – savers. The dangerous combination will result in poorer outcomes for many.

The Pensions and Lifetime Savings Association’s (PLSA) work encouraging diversity is based on the understanding that the more diverse and inclusive a company or board is, the better placed they’ll be for finding more innovative solutions to problems, resulting in better outcomes.

The PLSA highlights that companies with more ethnically and culturally diverse executive teams are 33% more likely to outperform peers on profitability.

Research shows half of all trustee board chairs are over 60, as are one-third of all pension trustees. Across all schemes, 80% of trustees are men and one-quarter of boards are all male and figures from the PLSA suggest only 3% of trustees are younger than 40. We know from other research that homogenous groups make poorer decisions.

A study of 600 business decisions, published in US business title Forbes, showed diverse teams delivered 60% better results. Researchers also found more inclusive teams made better decisions faster with half the number of meetings.

Changing saver landscape

The lack of diversity has persisted despite automatic enrolment’s (AE) huge success in shifting the diversity of those saving for retirement. The number of 22-29 years olds saving increased from 24% when AE was first launched in 2012 to 84% in 2018.

There is also clear evidence AE has driven large increases in participation rates among all ethnic groups. The largest increase was among Pakistani and Bangladeshi ethnic groups, with a 60% increase of eligible employees from these groups participating in a workplace pension.

Department for Work and Pensions statistics show AE has driven equality of pension participation by men and women, with only a small gap in participation rates for full-time eligible employees in 2019 – 88% participation for men versus 89% for women.

However, there’s far more to do in tackling inequalities in pension outcomes. The gender pay gap, caring responsibilities, career breaks and part-time working continues lead to lower pension savings among women and continued inequality in pension outcomes compared with men.

Research suggests women aged 50 have, on average, only accrued half the private pension savings of men. Savers from a black, Asian and minority ethnic backgrounds also have poorer pension outcomes than other workers.

To solve these problems, the pension industry will need to better understand the challenges faced by different pension scheme savers. It seems unlikely an all-male, all-white, all over-60 trustee board will have the collective life experience to do this. And scheme members will be losing out on the varied skills and expertise of a diverse board and be less protected from significant knowledge gaps.

Diverse board, diverse solutions

Many schemes already struggle with low member engagement making it difficult to keep members updated with developments or ensure they’re preparing adequately for retirement. A more diverse board should have a broader arsenal of ideas on engagement. This broader outlook may also help organisations embrace new technology, new communication channels or in developing more-effective retirement planning.

It’s clear better decisions and good governance relies on a mix of skills, knowledge and different perspectives. Better decisions and good governance result in better member outcomes. That’s why I strongly believe TPR needs to look not just at changing ourselves but also changing the organisations we regulate.

It’s not enough to simply talk about improving diversity. You can expect TPR to encourage, support and, in some cases cajole, the organisations we regulate to better embrace the need for diversity and inclusion particularly on trustee boards.

That’s why we launched our consultation on the future of trusteeship and governance. The record number of written responses we received during the consultation makes clear there’s a strong appetite and interest in this work.

And we’ve started work to set up an industry working group – and have already had 75 applications to join us.

The group will work towards creating a clear definition of what is meant by diversity and inclusion, providing practical tips for pensions schemes to improve their boards and case studies of those leading the way.

While the COVID-19 pandemic meant that work has been paused for the short term, there’s no reason why schemes shouldn’t start to assess how they can improve their diversity and inclusion.

Act now

We will continue to champion the benefits of a more diverse financial sector – including promoting the benefits of more diversity in the pensions industry and on trustee boards.

But this change must be embraced within the industry and trustee boards themselves – not just driven by regulators. Diversity and inclusion is too vital to good member outcomes for it just to be “desirable”. It must be embedded in an organisation’s behaviours if member outcomes are to be improved.

TPR’s workforce has an almost 50/50 split of women (51%) to men (49%). This is reflected with a 50/50 gender balance at the executive committee leadership level and our pay gap is almost half the national average of 17.3%. We have people of all ages working for us, and 7% of workforce are from a black, Asian or ethnic minority background, 7% are gay, lesbian or bisexual and 5% of our workforce have a disability.

We know there’s still more to be done. The benefits from better decision making, better communication and better saver outcomes are too important. That’s why, this month, we launched our diversity and inclusion committee.

One of its key missions will be driving the advancement of diversity and inclusion throughout our regulated community. The committee will lead our internal and external diversity and inclusion, provide direction and take decisions on diversity and inclusion matters and champion inclusion throughout our organisation.

The committee, with 10 members drawn from a range of roles and levels, will be responsible for providing insight to TPR’s executive committee on the overall diversity and inclusion strategy and action plan and acting as champions for the diversity and inclusion strategy across TPR.

I’m very excited about the long-term benefits this work can drive – potentially changing retirement outcomes for the better for millions. After all, a country where retirement outcomes aren’t dictated by a person’s race, gender or sexuality – that really would be something to be proud of.

Charles Counsell

By Charles Counsell
Chief Executive