Diversity and inclusion affects pension funds in different ways. While a lot of the focus is currently on trustee boards, there can be legal ramifications for taking biased decisions that affect members – and this in turn is more likely to happen where the board lacks different perspectives. 

 

The Pensions Regulator is in the process of coming up with ways to improve diversity and inclusion both in its own organisation but also in its regulated community, discussing the issue with industry groups. 

 

Pension funds normally look to the legal requirements around diversity, but this is “not where the conversation should end”, said Hadassah Shulman, a senior associate at law firm CMS, speaking at a webinar organised by industry group NextGen on Wednesday. 

 

Shulman noted how the law does not normally take account of structural inequality that has led to certain situations such as guaranteed minimum pensions, nor does it address inclusion. “It is one thing to say you are not discriminating, it’s another to say you include someone,” she noted. 

 

 

But the law keeps evolving, and trustees might be well advised to ensure their rules, discretionary decisions and member communications not only meet minimum legal requirements but aim to go further. 

 

CMS associate Thomas Bates noted that the non-discrimination rule on protected characteristics applies for all decisions but is the minimum standard. “Diversity goes beyond this,” he said, and reaches into socio-economics, mental health, and things like literacy and numeracy. “Trustees should think about it in those broader terms,” Bates advised. 

 

While most employers and trustees will not make changes if they don’t have to, a discrimination and diversity ‘audit’ could create an appetite to remove some of the weaknesses, such as schemes giving priority to traditional family models by offering spouses’ benefits to married couples only. 

 

Some scheme rules might even still contain elements that have for some time been overruled by case law, for example the time limits for spouses’ benefits in same-sex couples – this used to be limited to December 2005, but the High Court judge in Walker v Innospec overruled this, so the time limits no longer apply. “It’s worth checking if the rules still incorrectly contain these limits,” noted Bates. 

 

He also suggested removing trustee discretion from decision making such as spouses’ or ill-health benefits as this can often come with implicit – or explicit – bias. 

 

For their decisions to be robust, trustees must take account of relevant factors and disregard irrelevant factors. “It is essential that every decision taken is assessed on bias,” he said – for example, “when awarding ill health benefits, are trustees more likely to award it on physical than mental health grounds?” Similarly, for survivors’ pensions, bias could mean trustees are more likely to give the benefit to a woman who has been a carer than to an unemployed man. 

 

 

The need to be inclusive extends to communications, where trustees are under a duty to make reasonable adjustments for protected characteristics. This means they should consider what technology is appropriate or available to members, including audio, Braille or large print.  

 

Bates also advised to “think about what images and examples you are using” in the communications material, whether pronouns are gender neutral, and the circumstances of members, which can range from financial circumstances to bereavement, and also includes making sure the tone is right for the membership’s age profile. 

 

 

Increasingly, the improved decision-making that comes with greater diversity is also considered essential in making investment calls. “Check advisers’ D&I policies, especially for [asset] managers to ensure the decision making benefits from diversity of thought,” said Bates, adding that trustees might also want to look at how the S in ESG is taken into account. Trustees that want to make these actions part of their credo could sign up to the Diversity Project’s charter on diversity, he remarked. 

 

 

Diversity and inclusion are more likely to be robust if the trustee board itself is diverse and inclusive. Tara Rogers, associate at CMS, said boards like to keep ‘rolling’ member-nominated trustees, for example, to avoid the extra time and cost of finding and training a new member, but this tends to have a negative effect on diversity. 

 

She said boards need to widen the net when looking for new members, and consider selection, either alone or alongside election, for new MNT appointments. Trustees also do not legally have to be members of the scheme, she noted, allowing boards to bring in expertise from outside if necessary. 

 

The language of trustee job adverts should be scrutinised, and she advised moving away from making long lists of required and desirable skills as women are less likely to apply for these, feeling that if they don’t meet two or three, they are not suited.  

 

Ads should be placed on different networks and places, rather than just LinkedIn, and she advised putting in place shadowing and mentoring programmes for trustees. Finally, interview panels need to be diverse in order to bring different views on a candidate. 

 

Boards can also take cues from their sponsor, Rogers said. “What steps are they taking? Companies are typically ahead of the game, what policies do they have in place?” she said, noting that employer-nominated trustees with a background in HR can easily help with this. 

 

 

Finally, to increase retention, boards should consider how they operate. “Do your meeting times suit everybody? Has care been taken that meetings don’t clash with religious events?” she said.  

 

While the remote meetings that have become commonplace during the pandemic have helped to act as an equaliser, trustees should consider if they work for everyone, for example where people have a hearing or visual impairment, Rogers said. “Have you reached out to board members and just asked the question, what can be done to make meetings easier?” 

 

Hadassah Shulman

Tara Rogers

Michael Watkins