‘Meaningful targets’ needed to address industry diversity issues

Research has shown a lack of diversity in senior leadership within the pensions industry – although significant progress has been made to improve this in recent years.

To continue making progress, the industry must implement meaningful targets, in part to address the lack of racial diversity in senior leadership roles, an expert has suggested.

Eleanor Daplyn, partner at Sackers, said having targets can help address any disparity and this should include both entry-level and senior roles. 

She said: “Targets can be really valuable in focusing attention on addressing a lack of diversity, including a lack of racial diversity. However, they need to be meaningful – for example, don’t just focus on targets for entry-level recruitment, think about what the aim should be for representation at senior levels in the business too.

“Any targets absolutely must go hand-in-hand with management engagement, a clear and realistic plan for how to achieve them, and a willingness to challenge and improve if things don’t go to plan.” 

Her appeal comes after researchers discovered that failure to attract diverse talent is proving to be a key barrier to improving diversity, equality and inclusion (DEI) within the pensions industry.

More work needed

Research commissioned by advisory firm Cardano last year surveyed 120 UK pension funds and professionals trustees, and found that 46% have now implemented DEI strategies, marking a substantial rise from 26% in 2022. 

However, respondents acknowledged the need for greater efforts to attract a more diverse range of talent, especially from underrepresented groups including minority ethnic backgrounds.

When asked which group in the industry is making the least progress in terms of increasing representation, 17% of survey respondents said those from an ethnic and minority background. This is compared to just 2% who said women were making less progress.

Many experts believe a more racially diverse workforce can help drive innovation and improve problem-solving within the pensions industry.

Hannah English, head of defined contribution corporate consulting at Hymans Robertson, said better diversity can help a pension scheme to better represent its members.

“We believe that having more diverse trustees or boards brings more and different perspectives,” she said.

“In theory you could have two similar looking trustees in terms of job role, but if they come from differing backgrounds or privileges their journeys to reach their current role will have been very different, and from this they will have each built up a different perspective. This different perspective will be of benefit when making decision making on behalf of a diverse workforce.”

View from the regulator

Automatic enrolment has meant that the UK’s pension savers are more diverse than ever, but this has yet to be reflected by pension scheme governing bodies.

In an effort to address this, the Pensions Regulator (TPR) has issued guidance to help pension schemes, governing bodies and employers improve the DEI credentials of leadership teams.

Louise Davey, interim director of regulatory, policy, analysis and advice at TPR, said: “To meet the needs of savers from a variety of backgrounds, schemes need to be well-run, well governed and understand their savers’ needs.

“Increasingly, evidence shows improved DEI sees more effective decision making, which is key to good governance and improved saver outcomes.

“Our guidance aims to help pension scheme governing bodies and employers improve the DEI of their scheme’s board. It provides practical ways to improve board diversity and inclusion and recommends assessing boards to identify gaps in knowledge, experience and protected characteristics, including ethnicity as a first step.

“The guidance also highlights key actions governing bodies can take, for example, in respect of encouraging a broader range of candidates to apply for governing body roles and in encouraging an inclusive board culture.”

Finding solutions

Attracting people from different racial backgrounds begins at the hiring process because unconscious biases can also create an automatic barrier to entry when recruiters review CVs.

Manpreet Sohal, chief people officer at professional trustee firm Independent Governance Group (IGG), said: “Barriers inevitably exist among both hiring companies and potential target recruits. Among recruitment teams, there is the risk of unconscious biases when reviewing CVs; among candidates, the lack of current representation can create an automatic barrier to entry.

“IGG actively implements recruitment practices to reduce such barriers: making sure our interview panels are diverse, gender balanced, and representative across all characteristics, as well as ensuring potential candidates are assessed fairly, independently, and by a number of people.

“To overcome these barriers, recruitment practices should still place priority on merit-based hiring, and the industry should be cautious about advocating for quotas in order to address ethnic and racial imbalances. That said, quotas could become necessary as an industry if every other option to expand the talent pool has been exhausted.”

Shadowing and mentoring can also introduce and educate people from different minority backgrounds about the industry and roles available, as can improved networking opportunities, according to Hymans Robertson’s English.

“If you want more ethnicity, the industry should expand its networks to help understand how you improve representation and understand the barriers,” English said. “Network groups can help attract candidates and promote roles to those from more minority backgrounds as well as impart knowledge on how processes and policies can be adapted to be more inclusive for all.”

IGG’s Sohal emphasised the importance of industry professionals from diverse backgrounds encouraging their networks to participate.

“We need to encourage current industry professionals from diverse backgrounds to encourage their networks to participate, using incentives such as internal referral schemes, as well creating more EDI visibility amongst the current workforce,” Sohal added.

“At IGG we have taken measures such as introducing a dedicated prayer spaces and holding diversity training and awareness sessions. We should also extend our outreach to minority institutions, actively engage our target audiences with open days and encourage an open dialogue about the pensions industry and what a career in pensions could look like.” 

Data gathering

However, the Cardano research, published in January this year, found that the absence of comprehensive diversity data also poses a significant risk to the effective measurement of DEI and the progress of initiatives across the pensions industry.

More than a third (34%) of pension schemes did not collect any diversity data on members, the research found.

For the Pension Protection Fund (PPF), collecting data is essential in monitoring DEI progress. This has enabled it to invest in future leaders by bringing in more people from underrepresented groups at junior roles and then promoting them internally.

Katherine Easter, interim chief executive officer at the PPF, said the organisation had made “good progress in increasing ethnic minority representation”.

“Although we may not see a positive impact on our pay gaps in the short term, we’re confident these actions will help change the makeup of our organisation and even our industry over time,” Easter said.

The PPF’s 2022 Diversity Pay Gap Report outlined that it wanted its employee population to better reflect the ethnic diversity of where its head office is based in Croydon, south London. The overall proportion of PPF employees from an ethnic minority background increased from 23.7% in 2021 to 26.1% in December 2022.

Easter said: “While we’re doing our best to address areas of underrepresentation, we’re part of an industry where attracting diverse talent is a challenge. For instance, the diversity of our investment team reflects the inherent profile of the sector. We can’t change the industry we’re part of, but we can be part of the solution.

“Our targets help us to make sure we have an ethnically diverse workforce; one that reflects the areas where we work and members we support. This is different to setting specific quotas, which can be challenged and lead to potential exclusion of other underrepresented groups.”