At its core, I&D provides a healthy variety of people from different backgrounds and cultures, to give the balance of voices, views and diversity of thought that is needed to successfully navigate the many challenges that pension schemes and their members face.
To bring this to life, we set out below five areas that sponsors and trustees can focus on as part of incorporating I&D in their pension scheme governance practices and culture.
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01
Education
A good place to start is a training and discussion session on what I&D means and its merits within the context of the governance of a pension scheme. This ensures a clear and common understanding of the scope of I&D and its practical applications.
Background reading of I&D materials, e.g. The Parker Review, can also help to further broaden and improve your I&D knowledge.
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02
Trustee Board – improving diversity and exhibiting inclusive behaviours
A number of Trustee Board surveys highlight a lack of diversity through a variety of lenses. To remedy this, we suggest that trustees and sponsors commission a gap analysis to identify what diversity they have on their current Trustee Board and what is missing. The results should inform future trustee appointments, and the manner in which these are carried out, and highlight the areas where training and advisory support are needed to improve skills and broaden viewpoints.
Once recruited, to make this diverse talent thrive, the Board needs to have an inclusive and equitable culture. A truly inclusive board exhibits a culture of questioning and healthy debate to ensure understanding of the issues being discussed, ensures key decisions are not centred on the views of two or three individuals, and works like a team.
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03
Member engagement and experience - connecting with all members
An important aspect of I&D relates to the Scheme’s members. How diverse is the membership – what cohorts are evident? For each cohort - what are their circumstances, what are their preferences, what are their needs, what communications have they responded well to in the past, etc. Take a fresh look at your member data and conduct analysis to gather these key insights. The answers will inform the what, how and nature of communications to your members and help them to better understand “how the scheme works for me”.
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04
Scheme operations – making the Scheme work for all members
Trustees have a fiduciary duty to run their schemes in the best interests of all pension scheme members. There are a number of areas where the I&D lens should be applied to ensure the scheme works for all members and these include:
- The application of discretionary powers to ensure fair and consistent outcomes. For e.g. treating mental vs. physical ailments in a similar way.
- Review of the Scheme Rules from a I&D perspective to assess whether they remain fit for purpose given today’s view of what I&D means.
- Consideration of actuarial calculations and assumptions used.
- Selection of advisers and suppliers.
- Addressing pension income inequalities (for e.g. by gender and ethnicity) and providing practical solutions to help reduce the gap.
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05
Investments – investment options offered and decision making
Willis Towers Watson’s analysis of diversity and investment performance outcomes shows that investment teams with diversity, in particular ethnic diversity, tend to generate better excess returns. As such, trustees and sponsors have an interest to choose asset managers with strong I&D credentials in order to achieve the best outcomes for pension scheme members.
Trustees and sponsors should also consider whether the investment options available to DC members caters for their diversity and needs.
Trustees should work collaboratively with their sponsor to address any issues arising.
How Willis Towers Watson can help
We encourage trustees and sponsors to embrace I&D, starting with an education and discussion session. This can then be followed by bite-size sessions to work through steps 2 – 5 so as to tease out your scheme’s I&D approach and priorities. Finally, apply your I&D lens in your daily governance and experience better outcomes.
If you would like to discuss further, or get further insights as to how to incorporate I&D within your pension scheme, please contact Jasmine, Andrew or your usual Willis Towers Watson consultant.
