Diversity, inclusion and equity — or DE&I — may have become a buzzword across the financial services industry in recent years, but this relatively new three-letter acronym refers to many age-old and deep-seated problems that persist both within the pensions industry and across wider society.
A new cross-industry body, the Pension Equity Group, is looking to tackle these issues and drive meaningful change on a number of fronts. The group currently has around 20 members, including insurers, master trust providers, consultants, trustee firms, and specialist law firms. It is chaired by Kim Brown, pension scheme director with Legal & General who discussed with Corporate Adviser how the group is hoping to improve pension equity, and what ‘success’ might look like.
Brown says that one of the initial aims of the coalition is to share research and best practice regarding DE&I issues. “We all know that many people aren’t saving enough for retirement. Rather than individual companies researching the reasons behind this, then looking at ways to tackle these myriad problems, we want to work together, to put aside commercial objectives and share research that is being done on a whole range of DE&I issues. This can help us establish what the best practices are and look at how they can be implemented more widely across the industry.”
Gender first
Brown says this is the reason that PEG is initially focusing on the gender pensions gap, as there is a “huge volume” of research and data on this area. However this does not mean that they won’t be looking at other pension inequalities in the near future.
This would include the documented gaps in pension savings between different ethnic minorities, as well as barriers to saving experienced by those from the LGBTQ+ communities, people with disabilities, and those on lower pay. In fact, Brown says it is this issue of lower pay that intersects across these different cohorts. She points out that pensions gaps aren’t an isolated issue but reflect broader inequalities and disadvantages people face throughout their working lives.
But how does PEG plan to remedy some of these issues? Is the group’s main aim to lobby for wider societal or policy change — be it lower AE thresholds, or AE contributions during maternity leave — or will it be more focused on actions that individual schemes or firms can take, for example improving communications to ensure better engagement with pensions among certain cohorts?
Brown says that the group will look at all these areas. “It’s a real mix. The group has been structured into four main workstreams looking at data and research, government and policy, communications and awareness and product changes, so we will be addressing all these issues.”
Action focus
Each of these workstreams or sub-committees will be looking to define “deliverables” in these specific areas. This is an important part of PEG’s remit, Brown says. It is important that PEG is “an action-focused group” she says, that aims to deliver practical solutions for the industry, rather than just be a talking shop. “I think this has been key for us. There’s a lot of information already out there on these issues. We’re not looking to repeat this, but to see how best to act on it.”
She adds: “One of the initial things we want to address is having a consistent methodology for measuring pensions gaps, and then working with government and policymakers to achieve positive change will be our next objective.”
Brown says the group will benefit from the work that organisations like the Pensions and Lifetime Savings Association (PLSA) and the Pensions Management Institute (PMI) have already done on DE&I.
Brown says she welcomes the input they have had already from the government and praises the work being done by the new pensions minister Laura Trott on pension equality. Earlier this month the government published its first data on the gender pensions wealth gap, with figures showing that by the age of 55 men had pensions that were typically around a third higher than women — although the DWP data suggests that auto-enrolment is already helping to narrow this gap.
These figures should provide some baseline from which to measure improvements in this area, although Brown says PEG is not making a public commitment to reducing this by a fixed amount or over a set timeframe.
It is notable that these latest government figures are lower than previous estimates, which put the gender pensions gap nearer 50 per cent.
Pay link
Could this transparency go further? The government now compels companies above a certain size to publish their pay data, which highlights the gender pay gap across different sectors and within individual companies. Is this something Brown would like to see when it comes to pensions, either at a company or scheme level? Would data showing which schemes or providers were narrowing the gender pensions gap help them win new business and so drive further change? New consumer duty rules, for example, focus on member outcomes and this is the kind of information some employers might want to help them select the most appropriate pension scheme.
Brown says that personally she would like to see more transparency on this issue, although this level of disclosure isn’t a policy change that PEG is specifically calling for at present.
She says this new industry-wide coalition wants to explore what policy changes are likely to have the most significant impact when it comes to improving pension equality. One change the group would like to see is a lower threshold for automatically enrolling employees into a workplace pension. This would benefit many lower paid workers, a disproportionate number of whom are women, particularly those in part-time work.
Brown says the remit of the group will be wide-ranging, and will look at broader societal issues that can impact pension savings, for example childcare, or the provision of menopause support within
the workplace, a lack of which can cause women to leave often at the peak of their earnings power.
“We want to look at ways that this broadens out from just a discussion of AE rules and regulations. We will be looking to assess both the cost of such changes, as well as what the longer-term costs and benefits of such policy changes might be, particularly in terms of pension saving.”
Design and communications
Aside from this big picture stuff, there will also be a focus on pension product design and communications; how employers and schemes communicate with staff and how workplace practices help, or potentially, hinder pension equity.
“We have to be more mindful that any tools, solutions or guidance that employers or schemes provide are rolled out in an inclusive way and we consider the impact this might have on various minority groups.”
She adds: “We’re also looking at it through the lens of whether there are product changes that could help address pension equity in the absence of any major policy change from government.
“Are there any barriers we can see that are preventing certain minority groups from saving for retirement, and how can we develop our products so they’re more inclusive for savers.”
For example one issue may be the provision of Shariah-compliant funds. While these are now available on many — although not all — large pension schemes, Brown points out that there is typically just one Shariah-compliant fund. “This doesn’t really reflect the range of risk appetites from savers, so may be delivering less than optimal outcomes.”
Looking at ethnicity, Brown points out that research has also shown there tends to be higher levels of self-employment in certain cultures. She points out that this is again an issue with a public policy element — whether AE should be extended to included self-employed workers — as well as relating to product design. “What does this mean from a benchmarking perspective when you have more fluctuating incomes than a regular salary?” Could there be a more joined up approach, for example between workplace and private pensions to help reduce this gap.
Brown says her own background in the industry has led to her to consider these wider DE&I issues. Prior to joining Legal & General — where she has worked for three years — Brown worked for The Pensions Regulator. She has also had roles and the PLSA and is a board member of NextGen — a pensions, savings and investment group that is focused on supporting new talent within the industry.
She says: “In my current role at L&G I provide executive support for IGCs and trustee bodies. As part of this role I have been involved in an internal working group that looks at how we are doing on DE&I and the gender pensions gap as both a scheme provider and as an employer. It becomes clear that this was an area we could work with others across the industry. So PEG seemed a good way of bringing this all together.”
As Brown points out the pension industry is in the process of changing. “If you look back 20 years to when I started in this industry, it was very common to be the only woman in the room. Now this is changing, there are more women, particularly at senior level and we are starting to see better representation when it comes to ethnicity — although there is still some way to go on this.”
Are there example from overseas of other countries doing more on these issues? Brown says that the UK often looks to Australia, which is a decade or two ahead when it comes to DC savings. “They are in a better position when it comes to the gender pension gap, with women having saved into pensions for longer. But it is still an issue over there. As a rule of thumb the more mature the DC model, and the lower the threshold for pension enrolment the lower the gap will be, but it is an issue that everyone is grappling with.”
She says this she ultimately is why she feels it is important for a group like PEG to exist. “These are issues that affect all sectors, and all pension schemes.
“Some of the industries with the biggest gender pensions gaps are those with the most female employees. There is not one provider, or one employer that isn’t facing this challenge. So while some of the reasons for this gap might be societal, there is an emphasis on all of us in the industry doing what we can in pushing back.”
