Stichting Shell Pensioenfonds
NEWSLETTER
DECEMBER 2015
PENSION FUND TOWARDS A NEW BALANCE
From time to time, the Board of the Pension Fund investigates whether the policy is still functioning well,
and what, if anything, should change. The most important questions are: is the contribution policy
satisfactory, is the quality of indexation guaranteed and which investment policy is required to fulfil the
ambitions? Henk Sytze Meerema, Risk & Investment Officer, and Maud Slabbers, Head of Actuarial
Affairs of the Pension Fund, explain how the Pension Fund has achieved a new policy.
Maud Slabbers: ‘If the Board of the
Pension Fund wishes to amend the
financial structure it has an Asset and
Liability Management (ALM) study
carried out, which examines the
cohesion between the various
components of the policy. There was
every reason to redefine the financial
structure, because a great deal has
changed in recent years. The point of
departure for the financial structure of
the fund is to maintain a good balance
between the interests of the active
participants, retirees and former
participants, and also the employer.
In the financial structure ultimately
determined by the Board, the
contributions represent 40% of the
capped salary (was 45%), the employer
receives discount on these contributions
earlier, and the period during which
indexation not granted can be ‘caught
up’ is extended from five to ten years.
The threshold (policy funding ratio)
above which repayments to Shell can
be made has been lowered from 200%
to 170%.’
No radical amendments have been
made to the investment policy. The ALM
study concluded that the policy is robust,
also in pessimistic scenarios where
yields are very disappointing, for
example. Henk Sytze Meerema: ‘The
Board had indicated in advance that it
was comfortable with the existing
policy. The Implementation Investment
Policy Workgroup suggested only
minor adjustments, which were
adopted by the Board. The policy
remains focused on growing to higher
funding ratios, and to achieve this,
taking risks is essential. In the event of
severe adverse conditions we will
receive help from the employer, and
conversely the employer will receive
repayments if the Pension Fund is
performing particularly well.’
Henk Sytze Meerema, Risk & Investment Officer, and Maud
Slabbers, Head of Actuarial Affairs of the Pension Fund
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SERIES OF CHANGES
REQUIRES NEW BALANCE
Looking back over the past few years, it is clear that a whole series of changes have been implemented in
the pension sector, and that these changes were often very considerable. The government introduced new
laws and regulations and significant adjustments were also made in the Pension Fund.
The main reason was the economic
situation, with protracted low interest
rates, combined with continually rising
life expectancy. As a result, concerns
were raised about the affordability of
the pension system in the Netherlands.
The government introduced new
measures including raising the
retirement age and adjusting the
financial rules for pension funds.
Due to the new situation, Shell has
implemented important changes in
recent years. The SSPF Pension Fund
has been closed to new participants
since July 2013 and the salary over
which gross pension can be accrued
has - in accordance with the new fiscal
regulations - been capped at
€ 92,600 (2015 amount). Following
on from that, a net scheme for salary
above that threshold was introduced.
The final pay system made way for an
average salary scheme with a higher
accrual percentage.
The new financial structure also
demonstrates the necessary balance.
With a low funding ratio - and if
required - Shell provides additional
THE ALM STUDY IN BRIEF
An ALM study starts with a survey of Members of the Board. The aim of
this survey is to gain insight into the Board’s opinions about ambitions
and the fund’s risks. It concerns the certainty of being able to pay the
nominal pensions, indexation ambition, the likelihood of Shell having to
pay substantial additional funding, the amount of the contributions and
the limit above which the Pension Fund can make any repayments to
Shell, and the extent to which the fund is prepared to accept investment
risk. These opinions about ambitions and risks determine the limits within
which the policy should preferably be. Once the results of the survey are
received the calculations can then begin.
First, assumptions are made about expected inflation and the yield/risk
characteristics of the various investment categories. Various variants are
then calculated to determine their implications for the likelihood of Shell
having to pay substantial additional contributions and for the indexation
feature. These variants are discussed with the Board in workshops.
Control over the ALM study rests with the Pension Fund’s administrative
office.
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funding. And with a high funding ratio,
the Pension Fund makes a repayment.
Naturally, careful agreements have
been made about the levels of funding
ratio for this to take place.
In 2015, partly on the basis of the ALM
study, adjustments were made in three
areas: funding policy, indexation policy
and investment policy.
Indexation policy
■ The period for catching up on
indexation that was not granted will
be extended from five to ten years so there is more time for catching up.
■ For the indexation policy, it continues
to apply that all stakeholders are
taken into account and that the
distribution ‘over the generations‘
must be neutral and fair.
Funding policy
■ Through adjustment of the pension
scheme, the contributions have fallen
from 45% to 40%.
■ The scheme up to a salary of €
€ 92,600 (2015 amount) has not
worsened, in spite of the lower
contributions.
Investment policy
■ The investment policy remains
focused on growing to a higher
funding ratio.
■ There is always risk involved in
investment. With a higher funding
ratio, the risk is scaled down earlier.
MOMENT AT WHICH ANNUAL
INDEXATION IS APPLIED TO
MOVE TO FEBRUARY 1ST
The Pension Fund is
streamlining its
administrative tasks. One
of the steps is that one
moment of indexation for pension
beneficiaries, former participants and
active employees will be applied. For
pension beneficiaries and former
participants this means that the annual
indexation will take place earlier and
move forward from 1 July to 1 February.
The Board endeavours to adjust the
pensions in line with the development
of the derived consumer price index
of Statistics Netherlands. For the
indexation as of 1 July 2015, the Board
took into account the development of
this price index from March 2014 to
March 2015. For the next indexation,
as of 1 February 2016, the development
of the price index from March 2015
to November 2015 will be decisive.
Thereafter, the Board will again look at
the development of the prices over an
entire year.
This indexation is conditional. The
Board decides whether conditional
indexation will be applied. No reserves
are set aside for this indexation and
no contributions are paid. The Pension
Fund pays the future increases to your
pension from return on investment. Due
to an increase already allocated and
the expectations for the next few years,
you will not immediately be entitled to
increases in the future.
Each year, Shell Nederland announces
the general salary increases in the
course of February.
Subsequently the Pension Fund
announces the annual indexation
that will be factored into the pension
payment in March, with retroactive
effect to 1 February.
INTRODUCING
Frank Lemmink recently
took a seat on the
Board as an employer
representative.
He is also the new
Chair of the Investment
Committee. What
knowledge and
experience does he
bring, and moreover
how will he use it?
Frank Lemmink
What do you do at Shell?
‘In January this year I became Vice President Finance Upstream Joint
Ventures. This means that I am financially responsible for Shell’s major
joint-ventures, such as in Oman, Brunei, Egypt and Kazachstan. I have
been working for Shell since 2003, always in financial roles. Before
that I also worked for the Ministry of Finance for ten years. I trained as
a monetary economist, and my entire career has actually been in risk
management, which is conducted using tools including financial
instruments.’
Did you consider the management position for a long time?
‘Some time of course, I only just started my current role at the start of
this year. But not long. It is very healthy to use your financial
background for something other than your actual role as well. In
addition, it is my own pension fund and there’s a lot at stake. I want to
do my best for it, on the Board and in the Investment Committee.’
What will be most important in the immediate future?
‘The markets remain highly volatile, they continue to fluctuate strongly.
And the pension sector is changing quickly, owing to all the new
legislation and regulations, for example. The regulator is constantly
looking over our shoulder. A third factor is that we have a closed fund.
No more participants are joining and therefore it ages by definition.
We must carefully consider what the developments mean for our
pension fund and asset portfolio. The ageing population may mean
that we have to make gradual adjustments to our risk profile, for
example. That requires a balanced and sensible policy and I want to
contribute to it.’
And what is the most significant challenge vis-à-vis participants?
‘They are key, of course. We must ensure sound management and we
must use clear and transparent information to create an environment in
which participants understand their personal situation properly, are
aware of the possible impact of their pension choices and so are able
to make well-founded decisions.’
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QUESTIONS & ANSWERS
Apparently there are various funding ratios.
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How can that be?
There are two funding ratios, the ‘regular’ funding ratio
and the policy funding ratio. The regular funding ratio
depicts the relationship between the Pension Fund’s assets
and liabilities. Liabilities consist of the sum of the pension
benefit payments that a pension fund must pay in the
future. Liabilities are calculated retroactively using current
values. An example: today, with an interest rate of 3%, the
sum of 3,554 Euros is necessary for every 10,000 Euros
in the case of someone who is now 32 and will receive a
pension of 10,000 Euros at the age of 67. In 30 years
this liability will grow to 10,000 Euros, with an interest
rate of 3%. A lower interest rate therefore results in higher
liabilities.
Interest rates can fluctuate, because of which liabilities
may be higher one month than the other. It is difficult to
base a policy on that. De Nederlandsche Bank therefore
applies the policy funding ratio: the average funding ratio
over the previous twelve months.
What does the Pensions Communications Act
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The Act, which came into effect on July 1, aims to offer
people a personal and transparent overview of their
pension, to provide clarity about options and their
consequences, plus good information about the
consequences of important events in your life, for
example.
Pension providers now also have greater scope for digital
communications, via the website, for example. This also
offers opportunities to provide information in layers: from
straightforward to in-depth and detailed. The Pension Fund
is already very active in these areas and sees the Act as
an incentive to continue and strengthen communication
with Participants even further.
The English version of this newsletter is available in
digital format only, at www.shell.nl/pensioenfonds-en
How important is the interest rate to SSPF?
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Very important, because interest rates have a direct
impact on the funding ratio. If interest rates fall the Pension
Fund’s liabilities immediately increase. Compare this to saving
for a major purchase in the distant future: when interest rates
are low you have to invest more to pay for that purchase in
due course. And if liabilities increase more than the Pension
Fund’s assets due to low interest rates the funding ratio will fall.
It then becomes more difficult to apply indexation for example.
What does low inflation mean for my pension?
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In principle, low inflation means that a pension fund
doesn’t have to spend as much money on indexation to keep
pensions inflation-proof. Or vice-versa: the higher inflation is,
the higher the cost of indexation. The current low inflation
means that participants do not lose much purchasing power if
a pension fund is able to apply little or no indexation.
Catch-up indexation can be applied within a ten year time
frame, this was previously five years. The Shell Pension Fund
still has half of one outstanding indexation to catch up on.
2016 UPO AVAILABLE DIGITALLY SOON
The Uniform Pension Statement (UPO) is mailed to
active Participants at the end of February each year.
From 2016 the UPO will be made available digitally
via the Pension Calculator on the SSPF website.
We will notify active participants by e-mail when the
UPO is available via the Pension Calculator. If you
would prefer to continue receiving a paper copy of the
UPO please contact us.
http://www.shell.nl/pensioenfonds-en/contact.html
Disclaimer
The companies in which Royal Dutch Shell plc participates directly
or indirectly are individual legal entities with their own identity.
Stichting Shell Pensioenfonds
P.O. Box 65, 2501 CB The Hague
E-mail [email protected]
Internet www.shell.nl/pensioenfonds
www.shell.nl/pensioenfonds–en
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In this newsletter, ‘Shell’ is used as a collective term to refer to the
various Shell employers and joint ventures affiliated with the
Shell Pension Fund. No rights may be derived from this newsletter.
The official legal wording of the pension scheme is contained in the
Regulations.