UK pensions regulator focuses on scheme diversity with new guidance

TPR has published its first EDI guidance, for both pension scheme governing bodies and employers, to drive diversity and inclusion in the pensions industry. The guidance contains codes of practice aimed at assisting both governing bodies and employers to improve the diversity of the scheme’s board.

Pensions expert Christina Bowyer of Pinsent Masons said: “Companies and their employees are more used to the language of EDI, whilst trustee boards have not yet had to concentrate on this in a way which requires specific action. The new guidance will push the EDI requirements onto their agenda for this year”.

“As an initial step, they will need training to ensure trustee boards and those working with them are up to speed with the regulator’s expectations. They will also need to consider their own approach and the impact of this guidance on their role and their scheme,” she said.

The guidance is expected to have a wide-ranging implications for the pensions industry. “Companies will need to consider this guidance when appointing a chair and other trustees to their pension trustee boards, and member-nominated trustee processes will need to be updated in light of the new guidance too,” said Bowyer.

For example, the guidance specifies that chairs of trustee boards should play a key role in making boards more diverse and inclusive. TPR expects governing bodies to regularly review and assess their diversity of lived experience, expertise and skills. Under the guidance, employers must include EDI-related considerations when appointing a chair, and are encouraged to consider widening the pool of candidates for governing bodies beyond those in senior management positions.

The guidance allows the governing body to consider an independent or professional trustee if it is challenging to address diversity gaps through member-nominated and employer-nominated trustee positions. It also gives governing bodies the option to consider fixed terms, such as between three to five years, for member-nominated trustee positions to encourage a scheduled change to the trustee board and bring new perspectives to the group’s decision making. Governing bodies are also reminded of their existing legal duties under the 2010 Equality Act to make reasonable adjustments for candidates and existing trustees with disabilities.

Trustees, meanwhile, will need to add EDI considerations to their business plans and have an EDI policy in place. TPR’s guidance suggests that pension schemes’ EDI policies should cover an agreed definition of EDI, the EDI aims of the governing body and an EDI training plan. EDI goals and objectives, including ways to achieve a diverse and governing body, are to be agreed at the start of the scheme year.

“Policies will no doubt evolve over time and will need to be monitored to ensure they remain relevant to the scheme and appropriate for the guidance,” said Bowyer. “Going forward, trustee effectiveness reviews, training plans and strategy will all need to factor in EDI.”

The EDI guidance will also affect pension schemes’ interaction and selection of external advisers. “To get diversity in all forms, including diversity of thought, trustee boards may want to cast their net wide and ensure their advisers fill the EDI brief,” Bowyer said.

Pension schemes will also need to pay close attention to how they communicate with members, as the regulator’s EDI push also places a focus on inclusive communications. It has updated its guidance on communicating and reporting for defined contribution schemes by adding a section on inclusive communications. The new section is aimed at ensuring scheme communications consider the diverse range of backgrounds, needs and vulnerabilities of their savers. TPR advises that all communications should be checked for bias and to ensure they avoid inclusion of stereotypes, and governing bodies have legal duties to ensure their communications are accessible for disabled people.

“Whilst this is guidance, it would be unwise for companies and trustee boards not to show progress in this space now that TPR has this firmly on its radar,” said Bowyer.