Employers: EDI guidance

Detailed guidance for employers and those with the power to appoint trustees to improve equality, diversity and inclusion (EDI).

Published: March 2023

Overview

As the employer of a pension scheme, you play an important role in ensuring that EDI is considered by the scheme.

This is in everyone’s best interests. Evidence suggests that diverse groups of people make better decisions and we believe this can improve scheme and member outcomes. You also have a duty to support your employees who are nominated to the governing body of your pension scheme.

This guidance provides practical steps to help you improve EDI on the governing body through recruitment and by ensuring its staff have sufficient time to carry out their role on the governing body. This can be adapted to any size of scheme.

The governing body

Where we use the term ‘governing body’, we mean this to include trustees of occupational defined contribution (DC), defined benefit (DB), hybrid and pension board members of public service pension schemes (board members).

When describing trustees, we mean this to also include scheme managers and pension board members of public service pension scheme and directors of trustee companies, where the trustee is a company.

A diverse governing body improves decision-making

The governing body of your pension scheme is important for protecting the financial futures of its members – your employees and former employees. The financial position of the scheme may also affect your obligations to fund the scheme, particularly for DB or hybrid schemes.

There have been studies which show that diverse groups of people make better decisions where there is equality and inclusion^[1], and we believe this applies to pension [scheme] governing bodies too. When you select employer-nominated trustees (ENT) or employer representatives with EDI in mind, you can help shape better decision-making on the pension board. This is important as the board is responsible for overseeing large asset values and making decisions that impact member outcomes.

For further information on why EDI is important for pension schemes, read the overview to EDI.

When selecting trustees:

promote this as an opportunity to add value to personal and career development for employees, for example, through gaining new skills and improving performance in their employed role
ensure you carefully consider and comply with any legal obligations under the Equality Act (PDF 487KB, 101 pages), including making reasonable adjustments
join up with other EDI initiatives you may have in your organisation
help fill any skills gap
help the pension board to have a broad range of characteristics, life experiences, expertise, and skills to make good decisions

Although the pension governing body is independent of the employer organisation, the pension scheme is closely linked to your organisation. It can be a valued part of employees reward packages, helping you to attract and retain talent. The pension governing body contributes to your reputation as well as its own so their ability to manage risk is important.

Footnote for this section

^[1]For example: Scott E Page, The Diversity Bonus, 2017, Embracing Diversity And Fostering Inclusion Is Good For Your Business (forbes.com).
Diversity and Fairness in the Jury System (PDF 1.95MB, 244 pages) (ucl.ac.uk).

First steps when considering trustee recruitment

You should check the scheme rules and if relevant, the trustee company’s articles of association, to understand:

whether there must be a minimum or maximum number of trustees
who has the power to appoint and remove trustees
how long trustees serve as a matter of default and what happens when their term is up
if there are any restrictions or qualifications required

Who can be a member of the governing body

If you have a power of appointment, you have freedom to choose some of the members who sit on the governing body. By law^[2] arrangements must be made to give the members an opportunity to nominate at least one third of the board (unless all of the trustees are independent trustees). There are exceptions to this. Please seek legal advice if you are unsure what applies to your scheme.

Some categories of people are excluded from acting by law^[3] (for example, those with an undischarged bankruptcy). If your scheme rules and/or trustee company’s articles of association impose additional requirements, your lawyers or the scheme’s lawyers can advise whether those can be removed or relaxed to allow you to achieve greater diversity.

In the case of public service pension schemes, legislation^[4] sets out the requirements for member and employer representatives on pension boards.

Footnotes for this section

^[2] Section 241/242 of the Pensions Act 2004.
^[3]Section 29 of the Pensions Act 1995.
^[4] The Public Service Pensions Act 2013 and associated regulations.

Who should be on the governing body

Think about what diversity of characteristics, life experiences, expertise and skills (both broader skills and technical knowledge) the governing body currently has and what gaps it may need to fill. This will help target your approach to identifying candidates. You can encourage those from underrepresented groups to apply.

Consider those outside of senior management positions who bring valuable skills and life experience. This is likely to enhance diversity on the board and provide the governing body with a relevant mix of skills drawn from different parts of the business. The scheme could support new trustees by providing relevant training and a structured induction process, along with other support such as buddying, mentoring and shadowing.

A fixed term of office would promote regular turnover and give people opportunities to sit on the pension scheme governing body and provide fresh perspective and challenge at regular intervals. Read more in our EDI guidance for governing bodies.

Appointing the chair

The chair is the strategic leader of the governing body and is responsible for making sure that critical decisions about the pension scheme and its operational goal(s) can be delivered.

An effective chair plays an important role in driving and promoting EDI on governing bodies. It is the chair who sets the tone for discussions on inclusivity, embedding it in the culture of the governing body and ensuring that any EDI policies are followed.

When recruiting for the chair role, in addition to effective leadership, strategic thinking and ability to build effective relationships, consider these qualities:

Understands the importance of an open, inclusive and diverse culture on the board to achieve effective decision-making.
Encourages full participation from all trustees and open discussions using the skills available to the board for example, by building strong relationships with trustees and understanding the dynamics of the group.
Achieves consensus in decisions where possible and takes relevant factors into account.
Challenges advisers to provide advice that is clear and objective to support decision-making.

Read more in our EDI guidance for governing bodies.

For further information on the role of the chair see the standards for chairing a trustee board (PDF 168KB, 13 pages) from the Association of Professional Pension Trustees.

Appointing professional pension trustees

If you find it challenging to address diversity gaps through member-nominated trustees (MNT) and ENT positions, independent or professional pension trustee positions could improve diversity on the governing body.

Isio’s 2022 professional independent trustee survey (PDF 14.1MB, 17 pages) reported that the team profile of professional trustee firms is getting younger and more diverse, as trusteeship is seen as a career in its own right. They also reported that in 2022, some tender processes had more direct requirements for diverse candidates.

Some professional trustees can be sole trustees, where there is a single trustee appointment for the pension scheme. To ensure that sole trustees are still able to implement EDI and improve decision-making, many use 'shadow' diverse boards within the professional trustee organisation, so that decisions are not made by just one individual. If you are thinking of replacing the governing body with a sole trustee, make sure that EDI is considered in that decision-making process.

As professional trustees are often chairs of governing bodies, their commitment to and understanding of EDI is especially important. You should consider how they will further the governing body’s EDI objectives as part of the tender process.

When designing a tender process to appoint a professional trustee, consider the following:

Ask for the professional trustee EDI policy.
Ask specific questions that focus on how the successful candidate will support the scheme’s EDI objectives and what they might add or change about those objectives.
Share details of the current governing body and your EDI objectives.
Ask candidates to give examples of how their life experiences and skills would support your objectives, both as individuals and as their shadow board.
Ask candidates for practical ideas on how the scheme’s EDI approach could be improved. Ideas and experiences on any challenges facing your scheme, which could form part of their deliverables.

Key issues

Your employees on the governing body

There are also some statutory protections given to occupational pension scheme trustees who are employed by the scheme sponsor. These are set out in the Employment Rights Act 1996:

Section 46 gives them a right not to be subjected to any detriment by their employer for being a trustee of the employer’s scheme.
Section 58 gives them the right to reasonable time off during working hours for performing trustee duties and undergoing relevant trustee training.
Section 102 protects them from dismissal because they are a trustee of the employer’s scheme, or because of performing their trustee duties.

In our view, section 46 is not limited to permitting the trustee to rearrange their employment-related workload so that the same level of work is performed alongside their trustee duties. Rather, we consider that expecting a trustee to ‘make up’ missed working time, due to trustee duties outside core hours, would significantly undermine that statutory protection.

We consider that section 46 obliges an employer to reduce its employees workload by a reasonable amount, if they work as trustees of the employer’s occupational pension scheme, to give them time to fulfil their trustee duties.

Any flexible working arrangements or adjustments that employees need for their employment-related workload should be available in the trustee role, along with any additional adjustments that may be required to perform the trustee role. You may need to work with the governing body, for example the chair of trustees, to ensure appropriate arrangements are made for the relevant employee.

Setting aside time for the trustee role

The time a trustee needs to commit to fulfilling their role includes time to:

gain requisite trustee knowledge and understanding
maintain that level of knowledge and understanding
prepare for and attend trustee meetings
work on specific projects, for example, a trustee of a DB scheme may need to engage with professional advisers and the scheme employer for the scheme’s triennial valuation process
properly assess and respond to unpredictable events. This could include unusual macro events that affect their scheme, employer distress or employer transactions

The duties that trustees carry out are important and serious:

They have a fiduciary role to deliver the scheme’s pension benefits to members and other beneficiaries.
Responsibilities are set out under the terms of the pension scheme trust (if applicable), as well as in legislation and under common law (case law).

You have a critical role in recognising and providing support to employed trustees in fulfilling those duties, which we regard as a reflection of the duty of mutual trust and confidence that is at the heart of your employment relationship with them.

Agreeing a time commitment

A newly-appointed trustee may not be in a position to let you know exactly how much time the role will take, but the chair of trustees may be able to help give an estimate. The trustee role description should also help as that sets out the required tasks.

Where an employed trustee is experiencing difficulty with management about time spent away from work because of their trustee duties, or trustee commitments scheduled during normal working hours, we would expect the chair to help explain whether the trustee’s request is reasonable. It may be unreasonable to expect trustees to work outside of normal working hours. In particular, as this could create a barrier for trustees with caring responsibilities or disabilities.

The management team may have a good appreciation of what’s involved, but other individuals, including line managers in large organisations may not share the same understanding. You have a responsibility to help educate managers in your organisation, and the trustee affected and the chair may be able to help and co-operate with this.

Further information

As the regulator of workplace pension schemes we’ve produced significant guidance and codes of practice about what we expect from trustees in fulfilling their duties (and we have and use enforcement powers in this area). We would encourage trustees and employers to take into account our publications:

Giving employed trustees the support, both in time and resources, to engage with and fulfil their trustee duties to the best of their ability, is one meaningful way you can contribute to better decision-making on the pension scheme governing body.