Your pension, your future
Love your future. Shell Pension.
Your pension, your future
Love your future. Shell Pension.

November 2020

Procedure and Progress

Accountability and Supervision

Supervisory Board

This report is a summary of the report submitted by the Supervisory Board on 1 April 2021 to the board of Stichting Shell Pensioenfonds (SSPF) and is based on the activities performed by the Supervisory Board in the 2020 reporting year. In April 2020 the Supervisory Board submitted separate accounting documents to SSPF’s Accountability Body and Shell Petroleum N.V., in order to render account of the tasks performed in 2020. These accountability documents are based on the report submitted by the Supervisory Board to the Board.

This supervision report for the 2020 reporting year was marked by the Supervisory Board. The year was dominated by the impact of the Corona crisis. In this report the Supervisory Board presents its views on the manner in which the Board pursued its activities in this demanding year.

Procedure

Pursuant to Article 104(2) of the Dutch Pension Act and Article 18 of SSPF’s bylaws, the Supervisory Board is tasked with overseeing the board’s management and the general course of affairs of the pension fund. The Supervisory Board is charged with ensuring that the board pursues an adequate risk management and a balanced weighing of interests. The Supervisory board sees to it that SSPF complies with the Pension Fund Code. The Supervisory Board additionally advises the Board. Finally, the Supervisory Board may subject certain intended decisions of the board to its approval, including those in respect of the annual report and the profile of the members of the board of the pension fund.

The Supervisory Board aims to conduct its supervisory task in such manner that it contributes towards an effective and efficient functioning pension fund. Focusing on implementing the strategic objectives of SSPF it furthermore aims to perform its tasks critically and independently. The Supervisory Board monitors the activities of the board throughout the year and acts as sounding board. The Supervisory Board is committed to keeping sufficient distance from the substantive implementation.

"The Supervisory Board has found that although the Board has addressed the recommendations, a number of topics still require additional consideration"

During the reporting year the Supervisory Board was involved in eight meetings. At each quarterly meeting it spoke with the Chairman of the board, one ore more board members, and one of the two members of the board of Shell Pensioenbureau Nederland B.V. (SPN). In addition, specific stakeholders of SSPF were invited for talks at each meeting. These included in 2020 the Managing Director of Shell Asset Management Company (SAMCo), the Vice-President Group Pensions and the director of HR of the sponsor. Furthermore regular meetings were scheduled with the regulators of the Nederlandsche Bank.

Put briefly, the Supervisory Board made the following recommendations in 2020:
  • To focus on communicating the possible consequences of the Pension Agreement to the existing stakeholders, also in view of the sponsor guarantee and the fact that the participants count on it.
  • To provide clarity about the relationship with SAMCo and the mutual expectations regarding the role as fiduciary adviser and the role as “in house” asset manager.
  • To be vigilant that the support for inducting ESG in SAMCo’s policy is and will remain actually internalised. The scope of the ESG file forces the board to make policy decisions and to communicate about this policy.
  • To annually evaluate and validate the effectiveness and functioning of the solvency targets going forward.
  • To consult with the employer (Shell Nederland’s HRM) on the extent to which HRM cannot ‘fall back’ on SPN where knowledge of pensions and the pension policy are concerned.
  • To remain vigilant that the required availability for strategic policy subjects continues to be guaranteed within the Board in the event of changes in the Board.
  • To make certain that there is sufficient time and opportunity to be critical, given that the organisation is strongly consensus-minded. The contribution of the RIO and the external advisor to the board are critical because nearly all members of the board attend the meetings of the Investment Committee and (premature) “group think” should be avoided.

The Supervisory Board has found that the board has addressed the recommendations, but that several matters demand more attention, e.g. dealing with the risk budget and the strategically desirable regional allocation of shares, in combination with the other active risk options.The Supervisory Board has found that the board has addressed the recommendations, but that several matters demand more attention, e.g. dealing with the risk budget and the strategically desirable regional allocation of shares, in combination with the other active risk options.

Overall opinion regarding 2020

In 2020 the Supervisory Board oversaw the topics on the agenda of the board, both the recurring and the occasional activities. The Supervisory Board concludes that although all policy areas were covered, the decision-making and analysis of some strategic policy matters is complex and still takes up a lot of the board’s time. The Covid crisis has impacted the financial markets and consequently also SSPF’s financial position, which deteriorated. The Supervisory Board has taken note of the careful consideration given by the board to decide against indexing the pension entitlements and pension rights of former participants and pension beneficiaries as of 1 February 2021. The Supervisory Board has also taken note that up to and including 2020 the indexation ambition has been fully realised. Strategically, preparations were set in motion in mid-2020 for a new ALM study and for considering the implications the Pension Agreement will have for the ‘softly’ terminated fund of SSPF. At the time of writing the supervision report it was still unclear how the social partners will respond to the Pension Agreement.

Plagued by the ongoing restrictions imposed by the Covid crisis, the Chairman and members of the boards nevertheless managed to actively fulfil their role in 2020, in constructive cooperation with the Supervisory Board, the Accountability Body, SPN, SAMCo and the sponsor. 

Adopted on 1 April 2021
H. Kapteijn, Chairman, W.A.H. Baljet
J.A. Nijssen

The Board’s response
The Board expresses its thanks to the Supervisory Board for its critical-constructive review of 2020. The Board values the Supervisory Board’s annual report highly, since the members of the Supervisory Board, being independent pension experts, contribute a wealth of pertinent knowledge and experience from the pension sector to SSPF. This clearly has added value for SSPF.

Regarding the Supervisory Board’s recommendation to evaluate the existing governance of the fund, the Board remarks that the governance of SSPF is discussed each year in December during the Board’s internal self-assessment. As part of this self-assessment such themes are addressed as independence in ‘state’, ‘mind’ and ‘appearance’. The Board closely monitors the various bodies of the fund to see if they adhere to their roles vis-à-vis social partners that decide on the contents of the pension scheme. This was also explicitly discussed during meetings between the employer and the Board concerning the impact of the Pension Agreement. The next triennial evaluation, supervised by an external partner, is scheduled at the end of 2021. As part of this evaluation the Board intends, also in view of the recommendation of the Supervisory Board, to evaluate how the governance of SSPF functions – both between the various bodies of the fund and vis-à-vis social partners.

One of the focal points of the Board for 2021 is to closely follow the developments surrounding the Pension Agreement. As was earlier stated in response to the recommendations made by the Supervisory Board in the 2019 annual report, a project group was set up at Shell to study the consequences the Pension Agreement may have for the Shell pension funds, including SSPF. The principal task of the pension funds in this respect is to point out the feasibility and ability to explain the possible changes to the pension scheme to the social partners within Shell – Shell Nederland and the Central Works Council – as well as the necessity to carefully balance the interests of all SSPF’s stakeholders.

The ALM study into SSPF that the Board aims to finalise in mid-2021 presents a conspicuous moment to assess SSPF’s strategic investment portfolio. The ALM extensively addresses the degree of risk of the equities portfolio and the level of hedging the interest rate risk of the obligations. In addition, it assesses the possible consequences the Pension Agreement may have for SSPF and their implications for investment policy. 

The Board adopts the Supervisory Board’s recommendation to continue its scrutiny and analysis of the current construction process of the SSPF share portfolio and how this is expressed in the actual portfolio policy. Initiated by the Investment Committee in 2020, this has already resulted in an evaluation and revision of the regional division. The Board also intends to reconsider the allocation and utilisation of active risk relative to the benchmarks applied in the ALM in 2021. This concerns both the impact of the Board’s strategic choices, to be set out SAMCo’s mandate (the benchmarks included in the asset management agreement), and the size of the risk budget to be allocated to SAMCo for its active policy.

In 2020 SSPF also began preparing “investment cases”, based on the current asset categories in the investment portfolio of the pension fund. The first investment case concerned shares. The Board is positive about investment cases because they provide more insight into the backgrounds of a particular asset category, including the related framework settings and risk tolerances. For 2021 the detailing and adoption of investment cases in terms of the level of the five applied investment buckets are scheduled. Ultimately it is up to the entire Board – following the advice of the Investment Committee – to adopt the investment cases and related framework settings before laying these down SAMCo’s mandate (in the asset management agreement). The Supervisory Board will be given the opportunity to consider this.

Finally, the Board fully endorses the recommendation to strengthen the link between board members. Due to COVID-19 most meetings were held virtually in 2020. The Board has realised that this reduces the board-room dynamic. Naturally, the same holds for the meetings and contact moments between the Board and the Supervisory Board and VO respectively, which necessarily were also held virtually. Hopefully the Netherlands will gradually ‘open up’ again in the course of 2021, so that the board members may meet each other and the members of the other bodies of the fund again in person. The Board intends to organise an ‘away day’, to highlight the personal links between the board members as soon as the corona situation so allows.

Progress on recommendations for 2020

Put briefly, the Supervisory Board made the following recommendations for 2021:

  • To evaluate and where relevant consider the existing governance of the fund in 2021 (independence of mind, in appearance and in state), focusing on the different responsibilities of the social partners (content of the pension scheme) and the government (implementation of the pension scheme).
  • To continue to act pro-actively in 2021, both internally and externally, regarding the further development and design of the Pension Agreement, focusing on the implications for the design of the endorsement guarantee and a balanced promotion of the interests of the current participants in the fund.
  • To evaluate and where relevant reconsider in 2021 the significance of SSPF’s strategic risk management when finalising the ALM study, including exchanging the interest rate risk for the business values risk.
  • To further fathom and analyse SSPF’s existing stock portfolio construction process, and implementation of the actual portfolio policy, specifically applying the active risk relative to a standard benchmark weighted for market capitalisation.
  • To adapt the description of the investment cases to the asset categories modelled in the current ALM procedure and to identify in the related framework settings how SSPF would want to invest in the relevant asset category, including the desired bandwidths for risk tolerance.
  • To continue building up the (personal) relationships between members of the Board, in view of the changes that took place last year and the fact that nearly all meetings in 2020 took place virtually.