The following SCPF documents are available to download.
2022 Trustee Discussion
A discussion with Tim Morrison (Chairman) Haydn Jones (Head of Administration) and Donna Livingstone (Communications Adviser) where they answer questions sent in by members on a range of subjects including Climate Change regulations and the proposed changes to RPI.
Headline: 2022 Trustee Discussion
Hello, I'm Tim Morrison. I chair the board of the Shell Contributory Pension Fund. And today we're going to run through questions members have put to us. Donna Livingstone, Head of Communications, is going to put the questions to Haydn Jones, who is our Head of Operations, and to me. So over to you, Donna.
Hello, Tim. We've had some interesting and varied questions from our members. And the first one I'd like to put to you. If the fund is in surplus, why is the company contributing more to the contribution reserve account?
The contribution reserve account is a special account set up between the company and the fund into which the company can make contributions. When the fund's in surplus, it may not actually need more contributions for the continuing accrual by active members. And so it works well for both company and the fund to put money, not into the fund directly, but into this account. It's got about 600 million in it. If in fact the fund does fall into deficit, the money is then available for the fund to use. So it's a win-win for company and fund.
I have another question for you, Tim, here about the membership of the SCPF. I have just realised how few active contributing members there are. What does this mean for the fund?
Well, it's true. Our numbers are going down. We have 2,500 members now, so it's lower than it used to be and it is declining because we are closed to new members. All large company funds are closed to new members. We'll see member numbers decline as members retire and leave company service. But I think behind this question is the concern, well, if there aren't more contributions coming in, will the fund have a problem funding itself? And the answer is there's no problem there at all. We run the fund so that our current assets, the assets we hold, are sufficient to cover all of our current promises.
Yeah. And I've sort of just to add in there, Tim, if I may, is just to remember actually the future contributions are really to cover active members' future liabilities and that's what the contributions are for.
That's right. And so while we're in surplus, contributions can go into the CRA. If the fund doesn't need them, the company can get them back. If the fund does need them though, it's a protection for the fund.
Okay, great. Haydn, I have a question for you on transfers. How does the pension fund ensure that transfers out of the SCPF as safe?
Yes, a very, very relevant question, actually. And to put this into context, what we're talking about is members who have yet to draw their pension benefits. They have a right, effectively, to transfer their pension to another arrangement if they chose to do so. Now one of the issues, obviously, with this is the risk of potential scams. So from the 30th of November this year, the Pensions Regulator has put in some new regulations, which means that us, as the administrators or the operations team, we have to do some further checks just to make sure that we see no signs of a scam or a scam. And so member who is transferring, just needs to be aware that we may come for some more information and some more questions just to make sure that we are protecting all of our members' benefits as best we can. And that may add on time to a transfer process as someone who is actually transferring. But ultimately, we're here to protect the members as much as we can and we'd rather our members enjoy their retirement as opposed to someone else.
And Haydn, I think it's worth mentioning, that if you are already taking your pension from the fund, this is not a concern you need to have.
So how would a member stay safe from a potential scam?
So unfortunately, we've had direct experience of this with our members. What we're starting to see is companies using very tense, high pressured sales technique to try to engage members. Normally it starts with unsolicited contact and by that, I mean cold calling, and there's not necessarily a cold call on the phone all the time. We're seeing social media play a huge part. And we also are starting to see some companies doing promoted advertising within search engines. So if you were to search Shell Pension transfer, you would get a company as opposed to the Shell Pension Scheme.
And I think really if members are contacted out of the blue, they're not expecting it, is to either hang up the phone or to delete the email and to really seek their own advisor. Go to the FCA website that's got a list of registered financial advisors. And also there's a very good section in there called Scam Smart. And I would say if anyone is transferring or thinking of transferring, read that before you do anything else.
And Donna, I think one of the best bits of advice in this area is always never do anything in a hurry. If you're making a big financial decision, take your time. Don't get pressurised. Talk to family and friends.
That's really good advice. So Tim, we have a question here about pension increases. What does the change to RPI mean for SCPF members?
Donna, this is a question of great interest to all of us members. The fund increases pensions each year by the increase in the retail price index to the preceding December. For many years, the RPI methodology has been seen as flawed because it's viewed as overstating inflation. And this is changing from 2030 and the RPI will be calculated with the same methodology used to calculate CPI, the Consumer Price Index. In fact, the CPIH variant, which includes owner occupied cost.
And really just to add in there, this is not only for members who are receiving their pension. It's for those who've yet to receive their pension, so our deferred membership.
That's correct. So it covers a very large proportion of our membership. And what is happening is that in reality, pension increases will be lower than they would've been if the methodology hadn't changed, but the fund will still be inflation protecting in pensions up to the caps that apply, 7% for the pre-2009 members and 5% for those from 2009 onwards.
We have here a very topical question from a member. In recent years, the government has introduced a number of new requirements on Pension Scheme trustees to improve their governance with respect to the effects of climate change. What is the SCPF doing in this area?
Well, the trustee board has been spending a lot of time on this in the last couple of years. As part of our integrated risk management framework, which is designed in the end to make sure we're in a position to pay all pensions on time in full throughout the whole life of the fund, we've been looking at the whole question of climate change, the impact on the fund, not just on investments, but also on things like interest rates, inflation rates, we've been doing scenario analysis. And under the provisions of the Pensions Act 2021, which has introduced new reporting requirements, we'll be providing a report next summer, which we'll go into some detail on all of this. The two lenses we're using to look at the area, one is through this lens of resilience, making sure whatever happens, we will be in a strong position. And the other is through responsible ownership where we encourage the companies we invest in also to take the necessary steps to deal with the climate change problem.
And with those companies, when you say company, is that the fund managers or the actual direct investments?
It's both, Haydn. So where we're using external fund managers, we're working through them, but it is more immediately through our direct investment and equities and in debt. But at the background of all of this, of course, is we have a de-risking plan where we are gradually selling our higher return, higher risk assets and investing index linked gilts, which match our liabilities. And over the next 13 years or so, we'll have completed that plan and that actually also de-risks us very significantly with respect to climate change risk.
So we've come to our final question and this is for you Haydn. Who looks after the day-to-day administration of the SCPF?
Well, we've been asked this a couple of times, not just from a follow up from the Source, actually. We run an end-to-end, in-house Pension Scheme all run by the Shell team. We have two office locations. One is in Krakow in Poland, and one is in the Shell Centre in Waterloo. The two teams are completely integrated. They work side by side, and they do all of the quotes, the pension setups, and they manage all of the general inquiries that come through. And all of these things really contribute to probably our most important task, which is making sure that our members pensions are paid on the first working day of every month. And if anyone has any queries regarding the team, we have the email address and we have a phone line. It's a UK number and call charges, so even if it's picked up in Poland, effectively, it is one number.
Haydn, I'd also really personally like to thank the teams in Krakow and London for the work they've done over the last very difficult period. It's been fantastic keeping the show on the road. I'd also like to thank our investment management team in Rijswijk, who've kept at it all through again, difficult working conditions. So a big thank you to all of them. And thank you to you, Donna, and to Haydn for joining me today. That's the end of our video. Thank you very much for watching.
2021 MND Selection
If you would like to learn more about being a Member Nominated Trustee Director please read the following documents:
2020 Trustee Discussion
A discussion with Tim Morrison (Chairman) Mary Corrie (Trustee Director) and Haydn Jones (Head of Administration) where they answer questions sent in by members on a range of subjects including the funding of the SCPF and pension scams.
2020 Trustee Discussion
0001 00:00:00:01 00:00:02:06
[SOFT INTRO MUSIC
DRAMATIC TONES BUILD]
0002 00:00:02:08 00:00:06:18
[SHELL CONTRIBUTORY PENSION FUND
Trustee's Round Table Discussion
0003 00:00:06:20 00:00:10:12
Welcome to the Shell Contributory
Pension Fund discussion panel.
0004 00:00:10:16 00:00:13:14
[TIM MORRISON - CHAIR OF
I'm Tim Morrison, Chair of the Trustee Board,
0005 00:00:13:16 00:00:16:03
and I'm joined today by Mary Corrie.
0006 00:00:16:09 00:00:17:09
[MARY CORRIE - TRUSTEE DIRECTOR]
- Thank you.
0007 00:00:17:11 00:00:22:05
[Tim] Mary is a member-nominated Director
and has been on the Board since 2014.
0008 00:00:22:18 00:00:25:01
And also, by Haydn Jones,
0009 00:00:25:06 00:00:28:18
[HAYDN JONES - HEAD OF UK
who is Head of Administration
in the Trustee Services Unit.
0010 00:00:29:06 00:00:33:06
We have a number of questions
that were asked by members
0011 00:00:33:08 00:00:37:20
in response to our request
in this year's Source Magazine.
0012 00:00:38:15 00:00:40:20
I'm going to start with
the first question for Haydn.
0013 00:00:41:04 00:00:45:11
How closely linked
is the SCPF to the SOCPF?
0014 00:00:45:21 00:00:46:13
0015 00:00:47:13 00:00:50:04
Well, the short answer is that
they are very closely linked,
0016 00:00:50:06 00:00:52:13
but they are completely separate entities.
0017 00:00:53:07 00:00:58:05
The SCPF is for UK-based employees
working in the UK,
0018 00:00:59:07 00:01:01:20
and is regulated within the UK.
0019 00:01:01:24 00:01:05:22
The SOCPF is for UK employees
0020 00:01:06:00 00:01:07:20
and is regulated from Bermuda.
0021 00:01:08:16 00:01:12:11
Both funds are run administratively
from the UK
0022 00:01:12:13 00:01:13:21
in the Trustee Services Unit,
0023 00:01:14:03 00:01:16:11
but both funds
have separate Trustee Boards
0024 00:01:16:13 00:01:19:06
and their assets are completely separate
from each other.
0025 00:01:19:19 00:01:21:18
On the website,
the Shell Pension website,
0026 00:01:21:20 00:01:24:22
there is a factsheet, I think it's called
the interfund linking factsheet,
0027 00:01:25:11 00:01:28:06
that details how the two funds interact
0028 00:01:28:10 00:01:30:13
and you can find all the information
about the schemes there.
0029 00:01:30:23 00:01:34:03
So the basic position of the members
0030 00:01:34:11 00:01:37:19
whatever your service,
whether it's overseas or in the UK,
0031 00:01:38:04 00:01:41:06
your pension will be based on
total service and final salary.
0032 00:01:41:10 00:01:42:08
0033 00:01:42:10 00:01:45:06
It's something that we do cover off
when members come to retirement.
0034 00:01:45:08 00:01:47:04
Mary, a couple of the questions
0035 00:01:47:06 00:01:50:01
concern the strength
of our sponsoring employer, Shell.
0036 00:01:50:03 00:01:54:10
There's one question that put it:
How independent is the SCPF from Shell?
0037 00:01:54:23 00:01:57:20
And another one asked,
hypothetically, we hope:
0038 00:01:57:22 00:02:00:08
What would happen
if Shell UK was not there anymore?
0039 00:02:00:12 00:02:03:00
Well, it's important to understand that
we are a Trust.
0040 00:02:03:12 00:02:06:01
And our Trust is run by trustees,
0041 00:02:06:04 00:02:09:05
and it's the trustees
who hold all the assets.
0042 00:02:09:17 00:02:13:07
And we hold those separately
0043 00:02:13:09 00:02:16:22
from the employer,
from our sponsor,
0044 00:02:17:06 00:02:19:11
although, of course,
the employer is there
0045 00:02:20:00 00:02:25:04
to top up the fund
if at any point it should be required.
0046 00:02:25:12 00:02:27:18
I mean, the fund is required, by law,
0047 00:02:28:01 00:02:33:06
to ensure that it pays all pensions
on time and in full,
0048 00:02:33:23 00:02:35:17
[Tim] And it's funded for that.
0049 00:02:35:20 00:02:37:04
And it's funded for that.
0050 00:02:37:12 00:02:41:14
although that's funded out of the SCPF,
0051 00:02:41:20 00:02:44:19
should it be required,
then the sponsor is there,
0052 00:02:44:21 00:02:47:17
the employer is there
to top that up.
0053 00:02:48:00 00:02:52:06
[Haydn] And just to add in,
the trustee company has a board of directors,
0054 00:02:52:14 00:02:55:20
half of whom are nominated
by the sponsoring company,
0055 00:02:56:04 00:03:00:15
and half of whom are nominated
and elected by the scheme members.
0056 00:03:01:07 00:03:05:12
And obviously, the trustee's job
is to ensure the scheme is well run,
0057 00:03:05:14 00:03:06:18
and well funded.
0058 00:03:07:12 00:03:09:07
[Mary] And in answer to
the second question
0059 00:03:09:09 00:03:12:05
about what would happen
if Shell UK was no longer there,
0060 00:03:12:15 00:03:17:18
it is very reassuring to know that
it's not just Shell UK
0061 00:03:17:20 00:03:22:00
who is the sponsor for our fund,
but in fact the Shell Group.
0062 00:03:22:12 00:03:25:17
we are not dependent on the outcomes
0063 00:03:25:19 00:03:28:07
or the activities of Shell UK alone.
0064 00:03:28:14 00:03:30:11
[Tim] This is indeed reassuring.
0065 00:03:30:13 00:03:33:01
Let me move on to
the next question, now.
0066 00:03:33:18 00:03:35:14
We had a question on
the strength of the fund,
0067 00:03:35:16 00:03:38:12
given the reduced number
of active members still contributing,
0068 00:03:38:14 00:03:41:17
particularly as the fund
is now closed to new members.
0069 00:03:41:19 00:03:43:05
Haydn, would you like to say something
0070 00:03:43:07 00:03:45:23
[Haydn] Yeah, the scheme
is considered to be a mature fund,
0071 00:03:46:05 00:03:49:20
we have more pension
and deferred members than active members.
0072 00:03:50:13 00:03:52:15
There are assets in the scheme,
0073 00:03:52:17 00:03:55:22
which is sufficient to pay
existing pension promises.
0074 00:03:56:16 00:04:01:00
Also, we are not reliant on
0075 00:04:01:08 00:04:03:04
to make good those pension promises.
0076 00:04:03:08 00:04:06:14
[Tim] The next question is:
How is the fund positioned
0077 00:04:06:21 00:04:11:11
if the employer struggles in
the transition to a lower carbon world?
0078 00:04:12:05 00:04:15:19
This question goes to
the heart of the trustee board's role.
0079 00:04:16:17 00:04:22:04
One of our main tasks is to assess
how financially strong the employer is
0080 00:04:22:06 00:04:23:08
so that if needed,
0081 00:04:23:10 00:04:27:21
the employer is in a position
to provide further funds to the scheme.
0082 00:04:28:05 00:04:30:18
And this is something
we monitor regularly.
0083 00:04:31:15 00:04:36:22
We take account of a lot of external data,
there's much material available,
0084 00:04:37:01 00:04:40:02
but we also meet with
senior Shell executives
0085 00:04:40:10 00:04:44:07
and we have an annual meeting
with the Shell UK country chair
0086 00:04:44:12 00:04:50:17
to assess how Shell's strategy is playing out
and how progress is being made.
0087 00:04:50:21 00:04:51:23
[Mary] And of course, Tim,
0088 00:04:52:02 00:04:55:19
because the SCPF
is currently so well funded,
0089 00:04:56:06 00:05:00:19
and the RDS group
is currently so financially robust,
0090 00:05:01:01 00:05:04:24
our own time horizon
is much more the medium term
0091 00:05:05:14 00:05:10:02
and understanding the sponsor's strength
in the medium term.
0092 00:05:10:04 00:05:13:11
And when I say medium term,
10 to 15 years.
0093 00:05:13:15 00:05:14:22
[Tim] And that's the important point.
0094 00:05:14:24 00:05:17:00
And one of the measures we use
is, of course,
0095 00:05:17:02 00:05:22:01
Royal Dutch Shell's credit rating,
which is AA-, which is very strong.
0096 00:05:22:09 00:05:25:16
This tells us that
the company's in a very strong position
0097 00:05:25:18 00:05:27:10
over that period of time
0098 00:05:27:16 00:05:29:14
to be able to meet
any commitments it has.
0099 00:05:30:13 00:05:33:08
Another question, Mary,
presumably from an active member:
0100 00:05:33:20 00:05:36:06
given the surplus at the last valuation,
0101 00:05:36:09 00:05:39:07
why does Shell not reduce
the employee contribution rate?
0102 00:05:39:09 00:05:43:19
[Mary] Well, technically, Tim,
this would be a question for the employer,
0103 00:05:44:06 00:05:46:11
for Shell, rather than for us.
0104 00:05:47:09 00:05:50:09
However, we know the answer,
0105 00:05:51:01 00:05:55:01
The SCPF was originally set up
as a contributory pension fund,
0106 00:05:55:03 00:05:59:04
and that's one of
the core founding principles of the fund.
0107 00:06:00:08 00:06:04:13
Also, of course,
it is the surplus that we generate
0108 00:06:04:19 00:06:10:07
that then allows us to move towards,
over the medium term,
0109 00:06:10:09 00:06:12:17
to de-risking strategies,
0110 00:06:12:23 00:06:15:14
which therefore, of course,
are for the benefit for all.
0111 00:06:15:24 00:06:18:05
[Tim] And perhaps
a linked question to that,
0112 00:06:18:13 00:06:21:04
we're asked by a member:
what is the SCPF’s strategy
0113 00:06:21:06 00:06:24:13
on moving its investment
out of fossil fuel companies
0114 00:06:24:21 00:06:27:19
and into renewable energy
and other green businesses?
0115 00:06:28:03 00:06:29:23
So I'll answer that question.
0116 00:06:30:05 00:06:35:08
Perhaps a starting point is to note that,
of our 17 billion pounds of assets,
0117 00:06:35:16 00:06:40:09
less than 1% is actually invested in
the shares of fossil fuel companies,
0118 00:06:40:13 00:06:42:07
so it's quite a small proportion.
0119 00:06:42:14 00:06:48:05
Last year, we also decided to use an index
for our investment in listed companies,
0120 00:06:48:11 00:06:52:06
which includes environmental,
social and governance factors
0121 00:06:52:12 00:06:55:10
and includes a reduction
in the carbon footprint
0122 00:06:55:12 00:06:58:10
of our equity portfolio of around 10%.
0123 00:06:58:15 00:07:00:21
And, at the moment,
we are starting off
0124 00:07:00:23 00:07:04:13
with applying that
to about 40% of the portfolio
0125 00:07:04:18 00:07:06:14
as we get experience with using it.
0126 00:07:06:20 00:07:08:16
[Mary] But, Tim,
how does this really affect us?
0127 00:07:08:24 00:07:10:13
Well, perhaps the main impact
0128 00:07:10:15 00:07:13:05
is going to be as a result of
our de-risking programme
0129 00:07:13:07 00:07:16:08
as we move from higher risk assets
to lower risk assets,
0130 00:07:16:10 00:07:19:18
like index-linked gilts
over the next 15 years or so.
0131 00:07:19:23 00:07:24:19
This has the great benefit of reducing
our reliance on the employer covenant.
0132 00:07:25:15 00:07:27:17
The other point to note is that...
0133 00:07:29:05 00:07:33:18
a lot of the impact from
society's response to climate change
0134 00:07:33:20 00:07:36:20
and the need to get to net zero carbon
0135 00:07:36:24 00:07:40:07
is going to come in the impact on
the global economy,
0136 00:07:40:09 00:07:44:13
on interest rates, inflation rates,
and, indeed, longevity.
0137 00:07:44:21 00:07:46:24
And, Mary, finally,
on the investment side,
0138 00:07:47:01 00:07:50:06
one member asked about our policy
on holding precious metals
0139 00:07:50:09 00:07:52:12
as a possible defensive position
0140 00:07:52:14 00:07:55:04
in the event of another
severe financial crisis.
0141 00:07:55:13 00:08:00:06
[Mary] Okay, well, our investment strategy
does not include investing in commodities.
0142 00:08:01:09 00:08:04:09
That stability that
you were talking about just now,
0143 00:08:04:23 00:08:08:17
over the medium-term,
means our policy is much more about
0144 00:08:08:19 00:08:14:05
investing in index-linked gilts
and more stable areas
0145 00:08:14:07 00:08:17:08
so that we can de-risk safely over time.
0146 00:08:17:17 00:08:20:08
And, of course,
we always have the backup of the sponsor,
0147 00:08:20:13 00:08:24:24
if ever we need it,
to re-invest in the fund
0148 00:08:25:01 00:08:27:14
at any time,
we don't need precious metal.
0149 00:08:27:18 00:08:32:06
[Tim] So the diversification provides
a defence against a range of outcomes.
0150 00:08:32:10 00:08:34:02
[Mary] With a much lower volatility.
0151 00:08:34:04 00:08:37:15
[Mary] Which I think is key to
the principles of our investment strategy.
0152 00:08:37:20 00:08:41:10
[Tim] And now, moving on to
quite a different sort of a question,
0153 00:08:41:12 00:08:44:21
Haydn, a member asked:
What steps can they take
0154 00:08:44:23 00:08:47:02
to ensure they don't become
a victim of a scam?
0155 00:08:47:04 00:08:50:21
[Haydn] So we hear quite a few questions
about this from members at the moment.
0156 00:08:51:21 00:08:54:09
The first thing is,
if you're in receipt of a pension,
0157 00:08:54:13 00:08:57:06
you are not at risk of a scam
relating to a transfer.
0158 00:08:57:12 00:08:58:14
But you should obviously,
0159 00:08:58:16 00:09:01:08
all members should be generally aware
of financial scams.
0160 00:09:01:14 00:09:03:13
pretty good information out there,
0161 00:09:03:15 00:09:07:09
the citizens advice website
has got quite a lot of information on there.
0162 00:09:08:02 00:09:11:03
If a member hasn't yet
started taking their Shell pension,
0163 00:09:11:19 00:09:13:15
and they are considering a transfer,
0164 00:09:14:06 00:09:17:17
we obviously always recommend
they take independent financial advice,
0165 00:09:17:20 00:09:20:04
but a member should be extremely wary
0166 00:09:20:06 00:09:22:11
if they've received
an unexpected phone call.
0167 00:09:23:00 00:09:26:10
We're quite lucky in the UK
that cold-calling has been banned
0168 00:09:26:12 00:09:28:12
for UK financial advisers,
0169 00:09:28:19 00:09:31:14
but we are aware that some members
have been contacted
0170 00:09:31:16 00:09:33:13
by overseas financial advisers,
0171 00:09:34:00 00:09:35:20
trying to encourage them to transfer
0172 00:09:35:22 00:09:38:15
into maybe an unsuitable
0173 00:09:39:12 00:09:42:12
And we are aware that
some members have also been contacted
0174 00:09:42:17 00:09:45:20
by financial advisers,
0175 00:09:46:00 00:09:49:05
saying they're working with Shell
or with the trustee
0176 00:09:49:07 00:09:51:07
to help them facilitate a transfer.
0177 00:09:51:09 00:09:55:13
And we don't share member data
with any third party
0178 00:09:55:19 00:09:59:16
unless we've got the member's
expressed permission to do so.
0179 00:10:00:00 00:10:03:22
[Tim] I always think that one of the best
bits of advice to people about scams
0180 00:10:03:24 00:10:05:16
it just don't do anything in a hurry.
0181 00:10:05:23 00:10:07:14
[Tim] As well, take your time.
0182 00:10:07:16 00:10:08:20
0183 00:10:09:00 00:10:11:10
Haydn, another question
a member's asked is:
0184 00:10:11:12 00:10:15:01
where can they find more information
about their SCPF pension?
0185 00:10:15:04 00:10:17:20
[Haydn] So we send, for all active
and deferred members,
0186 00:10:17:22 00:10:19:12
we send an annual benefits statement.
0187 00:10:19:14 00:10:22:00
It sort of details
what pension they've built up.
0188 00:10:22:07 00:10:25:20
And also, it gives an estimation of
what their pension could be at retirement.
0189 00:10:26:08 00:10:30:21
Those members who have AVCs,
their annual statement is available
0190 00:10:31:01 00:10:33:18
on the Legal and General
manage your account website.
0191 00:10:34:05 00:10:36:14
And also, if members are after
any more information,
0192 00:10:37:01 00:10:40:21
we have a website that contains
leaflets and fact sheets
0193 00:10:40:23 00:10:42:22
and plenty of other information.
0194 00:10:42:24 00:10:46:12
And, of course,
we have the administration helpline
0195 00:10:46:16 00:10:48:18
where members can obviously
phone up with any queries
0196 00:10:48:20 00:10:51:23
that isn't covered in the information
that we've already provided.
0197 00:10:52:05 00:10:53:05
[Tim] Good, thanks Haydn.
0198 00:10:53:20 00:10:55:15
Well that's all we have time for.
0199 00:10:55:17 00:10:59:13
Thank you to Mary and to Haydn
for participating in this video
0200 00:11:00:03 00:11:03:02
and thank you for watching,
I hope you've found it useful.
0201 00:11:03:07 00:11:06:05
And, as always, if you have
any questions or comments,
0202 00:11:06:07 00:11:07:19
we're very keen to hear from you.
0203 00:11:07:21 00:11:08:15
0204 00:11:09:07 00:11:11:19
[EXIT PIPE MUSIC]
A discussion with the SCPF Trustee Board
The SCPF Trustee Board answer questions from members on a range of subjects including the investment strategy, the valuation and indexation.
A discussion with the SCPF Trustee Board
A discussion with the SCPF Trustee Board
Hello. My name is Tim Morrison and I’m Chair of the Shell Pensions Trust, which is the governing body of the Shell Contributory Pension Fund. I’m joined here today for this trustee discussion by Sue Jones who’s Chair of the Technical and Communications Committee and by Clive Hopkins, Chair of the Investment Committee.
In the last edition of the Source we asked members to send in some questions and today we’re going to answer those.
Well, Sue, Clive, we’re living in interesting times.
Actually I’m not going to talk today about that because I know that whatever I say about what’s going on politically or in the markets today, will be out of date by the time anyone actually sees the video.
What I would like to do is say a little bit about what we’ve been doing in the last year or so, just to set the scene for the questions.
Yes, it’s been a busy year.
Been a busy year, indeed.
So we’ve completed our triennial valuation to check that we’ve got enough assets to meet our liabilities. We’ve done a major piece of work on developing further our long-term de-risking plan.
We’ve done the asset allocation work, which more later.
We’ve moved our services to our back office, I think, generally, pretty successfully.
And for me, perhaps most important of all, we’ve paid our pensions on time throughout the year. That’s £40 million a month we’re paying now. So it’s quite a number there.
Let me start with the first question that we’ve been asked and, Clive, this is one for you.
The question is, you mentioned in the Source that the Board were carrying out a strategic asset allocation review of the SCPF’s investment portfolio. Is that now complete?
Yes. Let me first say that we carry out a valuation every three years, an actuarial valuation. The most recent one was as at the end of 2017. The actuary determined that the funding ratio stemming from that valuation was 108% which means that the fund’s assets value was 8% greater than the liabilities and the size of the fund is about £16 billion.
So we had a reasonable cushion which we’re pleased about. While the valuation is being done we prepare for another look at where our assets are allocated.
That involves quite a bit of work because we have to look at all the different types of asset, with the help of advisors, project how they might do in the future in different economic scenarios.
And there’s a lot of modelling done and then we get the various answers and decide what we’re going to do in the light of the actuary valuation. Now this chart shows how the asset allocation has been over the last three years and what it is now, what we’re implementing now.
There were three main tranches. First there’s the Liability Hedge.
These are the assets - they comprise about 33% of the fund - these are the assets which are very secure.
They include assets like index linked gilts which have the characteristics of the liabilities and so they’re very safe and sound. We’ve increased that level of assets from 31% to 33%.
Then there’s a second tranche, a new tranche that is labelled Liquidity
& Investment Grade Assets. These comprise shorter dated government bonds and other similar investments. They’re, again, very secure, they yield better than cash and they give us liquidity which we might need and also they are there if we want to take advantage of any particular opportunities.
So we have 18% of the fund in those assets. And finally, there are Return Seeking Assets. These comprise the traditional assets like equities, private equity, hedge funds, property, high-yield bonds and such like.
These are all assets which over time we would expect to yield rather more
than the defensive assets but of course that carries a risk with it and that’s something we have to weigh. Overall, we’ve reduced the level of funds invested in these return seeking assets and it’s now come down to 49%.
That was one of the fruits of doing the valuation. We could see that we could do that. In fact, we decided then to take the risk off in respect of some equities and high-yield bonds and so on.
Back in August, fortunately. Yes, back in August and while we don’t aim to do timing, that was, in retrospect, it seems like a wise decision. Overall, we have some 49% in return seeking assets, so just under half of the fund. And the other half, 51%, is invested in secure defensive assets.
The next question which really follows on from that, Clive, is how do you manage portfolio risk and diversification?
It’s a good question.
Some of the strategic asset allocation process is concerned with that because in looking at all of the different types of assets, we’re looking at what we would expect them to yield and what the risks are.
I think a good perspective is to, building on what you were saying earlier about £40 million per month payable from the fund, this chart shows the projected payments from the fund right through to the very last payment to the very last pensioner.
So it goes right through to the end of this century. You can see that we haven’t peaked yet. We’ll be another 15, 20 years before the payments peak and then they will gradually reduce.
So in our long-term investment thinking we’re trying to determine a glide path which will enable us to meet all of those benefits, selling investments as we need with little dependence on the company.
We hope to be able to, well, we intend to secure all those pension payments by having the right level of investment. As for the question of diversification, that’s very important.
The strategic asset allocation exercise makes sure that we have a diverse bunch of assets. We don’t want to have all our eggs in one basket.
The theory behind that is quite simple, that if certain asset classes
do very badly, we’ve got other ones that should compensate.
That chart is really very interesting because it shows what a range of perspectives the trustees have got to have.
There’s both the here and now paying the pensions but also a very long perspective.
It’s a very long perspective and that’s something that we try to take account of in the Board.
We try to avoid knee-jerk reactions and take a steady as you go process.
The next question, Sue, this one I think I’ll direct your way, if I may. In the Source it mentions that the company contributions will reduce from 20% to 10% in 2019. Are they likely to reduce even further and what does this mean for the fund?
Because of the current funding level, the company does not need to make contributions directly into the fund itself. However, it does provide additional support through the additional reserve account.
It could have had just a contribution holiday but decided to pay something else into the reserve account.
And we have agreed with the company that this will reduce to 10% from the beginning of 2019. We do review the level of contributions with the company and this is part of the three-year valuation cycle, to make sure that contributions are not needed to be put into the fund directly.
So we have an extra buffer that we could draw on if we really needed to but at the present time where we have a significant surplus that’s not necessary.
And maybe following on from that, we received a question on the timing of the valuations. So, Sue, the 2018 Source gives the results of the valuation as at 31st December, 2017. Why does it take so long to produce the answer?
Well, the valuation reviews the fund’s financial position at a specific date. It’s a lengthy process. The statutory deadline for completing a valuation, for submitting a contributions schedule and a recovery plan is 15 months from the valuation date. For us that would be 31st March, 2019. We start with an in-depth analysis of the current membership, the benefit structure and the assets.
And how long are they going to live?
Yes, correct, yes.
And the actuary recommends assumptions for future price increases, future investment returns, members’ life expectancy.
There’s a whole long list.
Yes, lots of factors.
The Board take a considerable time to review these assumptions in depth before making assumptions of which ones to use. We also consult with the company.
So actually it’s a big process but we do it reasonably quickly...
..is what I take away from that.
The next question is one dear to members’ hearts.
Some pension schemes have changed how they increase pensions from RPI to CPI and will the SCPF? This question, of course, is of great interest to all members because the Retail Price Index generally gives a higher increase than the Consumer Price Index, not always but in most years.
Which index is to be used depends specifically
on the precise wording of the trust deed governing the fund. And in the case of the SCPF the deed refers to the index of retail prices, which is now known as RPI, or any broadly comparable index and it’s for the trustees to determine this.
The trustees have no plans to change from RPI. So I think members
will be reassured by that.
The next question, Clive, this one is for you.
You have both SAMCo and Aon as an investment advisor. How do they work together?
It’s a fair question.
Our funds are managed by SAMCo which is the Shell Asset Management Company based in the Netherlands. It’s an in-house team that does all the investing and it’s been running for some 15 years. We’ve had good results from it.
But we do also have an external investment advisor in Aon which is one of the large, consulting actuarial firms who, by the way, also do our actuarial valuations.
The reason we have an external advisor too is so that we don’t become
too incestuous. We feel we need to have external challenge in the light of what other funds are doing, how the markets are going.
But we try to foster an environment where the challenges are constructive.
So the two come together, we have differences from time to time but overall we think we get the best of both worlds by having the manager implementing and an external advisor who can challenge.
Yes, it’s a valuable role and of course it’s also one that we’re required by law to have in place.
I should have mentioned that, yes.
Not to understate that little point.
The next question concerns the recent Lloyds Bank case.
I understand that a recent court ruling will lead to an increased cost
to some pension schemes. How does this affect the SCPF funding and its members?
This question refers to a case concerning equalisation
of guaranteed minimum pensions.
Guaranteed minimum pensions, it’s the old state scheme.
If you wanted to contract-out of it you had to promise a pension which was broadly equivalent to the older state scheme.
For most people that’s quite a small element of their pension.
But you had to promise to provide GMPs, as they’re called.
Indeed. Thanks, Clive.
This is an immensely complicated area. While there’s been the court ruling that we have to carry out the equalisation, we’re still reliant on getting some further regulatory guidance and take some guidance from HMRC
on how to do it.
It’s going to take quite a long time to work through all this but from our initial analysis we don’t expect any material impact
on the fund itself.
The final question, well, actually it’s two questions.
Does each trustee director have a specific role on the Board and how do I become a trustee?
There is no specific role for a trustee director. We serve on one of the two committees, either the Investment Committee or the Technical
and Communications Committee, which looks at actuarial, risk, audit and communication matters.
Yes, we have eight directors now. So it’s four and four on the two committees. Eight is...
It’s a good number.
The Board used to be much larger originally when we started. When we had 20,000 members, we had 18 trustee directors. Nine of whom were elected and nine of whom were nominated by the company.
But now it’s reduced considerably and it’s four and four.
We’ve found that it works well.
On the second part of the question - how do I become a trustee?
The trustees, four elected by the members and four are appointed by our sponsor and we do have member-nominated trustee elections coming up later in 2019.
So I encourage people to look out for the announcement about those.
We’ve always had a very good slate of candidates and we hope to do the same this year.
It’s a very interesting role, so I would urge people to apply.
Yes, not short of interest.
As we said at the beginning, it’s fast moving.
Yes, I think we’d better wrap it up there. So thank you very much everyone who’s looking at the video. I hope you found it interesting.
Thank you, Sue. Thank you, Clive, and goodbye.
An interview with Tim Morrison
In this short video, Tim talks about what has been keeping the Board busy and the areas they will be concentrating on in the coming years. Also look out for this year’s edition of the Source due out in November 2018, which includes the results of the recent Actuarial Valuation.
SCPF Chairman Welcome
Shell Chairman Welcome – Transcript
@ This file written with the Avid Caption plugin, version 1
I joined the board of the SCPF in 2014
Action – Tim Morrison talking head
about a year after retiring.
I've done about 32 years with Shell
Action – Tim Morrison walking down hall
six years as the Group Controller
Action – Tim Morrison talking to employees in office
and then the last five I was the Finance Director
in the Downstream business.
As well as doing the SCPF work, I also Chair another
Action – Tim Morrison talking head (continues until video ends)
small charity pension fund.
I do some finance work for a couple of charities,
and I'm a volunteer advisor on pensions.
And with this spread of activity I see a lot of pension issues
large and small, which I found helpful for the Shell pension work.
The Board deals with a whole range of issues
over the course of a year.
And I'll just pick out a couple.
But to put it in context let me start with the aim of the Board
which is beautifully simple.
It's to make sure that all pensions are paid on time
in full throughout the lifetime of the Fund.
The two issues I'll mention are the triennial valuation
and the Sponsor Covenant.
Every three years the fund is required by law
to carry out a valuation of its liabilities.
In other words the pensions we're going to pay in future.
We compare those against the assets we have
and if there's a gap the sponsor, Royal Dutch Shell,
is required to make additional contributions.
Estimating the liabilities requires making a range of assumptions
about things like inflation, life expectancy,
expected returns on assets.
We have a lot of support from our Actuary,
from our Investment Advisors and managers in doing this.
But the Board is responsible for the assumptions
in the end and the outcome.
We have sufficient assets to cover our liabilities.
But there's a valuable additional backstop
that's what's known as the Sponsor Covenant in pensions jargon.
This is the obligation of the sponsor in this case Royal Dutch Shell
to make up any deficit if, in fact, our funds aren't sufficient
to cover all the pension payments.
One of the roles of the Trustees is to keep an eye on
the Sponsor Covenant, and this means
keeping an eye on the financial strength of Royal Dutch Shell
both now and into the future.
So we look at the industry,
we look at Shell's strategy, we look at how it's doing,
and form a view as to how strong that covenant is.
We meet once a year with the UK Country Chair to discuss this
and we also have access to the enormous range of material
produced about Shell and about the wider industry
both by Shell and by external commentators.
The SCPF is a well funded scheme
we have sufficient assets to cover our liabilities
with quite a safety margin to spare.
We'll be doing an update on the current valuation exercise
in the next edition of The Source, our annual newsletter.
This comes out in November
so members should keep a look out for that.
The Source will also cover investment strategy.
Every three years, at the same time as we do the valuation,
we update our investment strategy and this is to make sure
we've got the right mix of assets in our portfolio.
The Board covers the full range of risks that the fund is exposed to.
These are things like inflation risk, return on assets,
how long our members live.
There are also risks like operational risks.
For example we might have problems with our I.T.
So we take care we've got all of those covered.
I'll say a little bit about climate change risk in a moment,
but I'd also like to mention one risk that affects members
rather than the Fund itself and that's pension scams
which have been much in the news.
If you're already taking your pension
or you've no intention of transferring to anyone else
then this doesn't affect you at all. You're not at risk.
But if you are thinking of transferring your pension
to another provider away from the SCPF you need to be
be very very careful that you choose a reputable and reliable provider.
There's increasing interest in how climate change
will affect major asset holders such as pension funds.
It's also generally reckoned that
the financial impacts of climate change will be material
but quite what form they take, and over what timescale
is still very uncertain.
How society responds to climate change
affects the Fund in two main areas.
First the strength of Royal Dutch Shell as our sponsor,
and second our investment strategy.
We are monitoring how all this affects the oil industry in general,
and Shell in particular.
We're actually more interested in the longer term,
say over 10, 20 plus years, than in the very short term
because the current covenant is so strong.
On the investment side a holding in fossil fuel businesses is very small
as a proportion of our total assets.
So what we're really interested in is the impact
on the global economy as a whole.
We're interested in how this translates
into the returns on different types of assets.
This is a very complex question and we'll be devoting
a lot of time to this over the years to come.
We're monitoring Brexit developments carefully
to make sure our current operations aren't disrupted
and that our arrangements with service providers
aren't disturbed in any way.
We don't think the funding level will be materially affected
by an orderly Brexit.
There's been a lot of worrying news about pension funds recently.
This mainly concerns poorly funded schemes with weak sponsors.
The SCPF is in a very different place.
There will be challenges, of course,
but we're well positioned to deal with them.
We have excellent advisors,
we have a well-informed and well experienced Board,
we're well funded,
and we have a strong sponsor in Royal Dutch Shell.
2017 MND Elections
The SCPF are looking for two pensioner members to join the Board of the Trustee Company. If you’re interested in becoming a Member Nominated Director (MND) read the “Introduction to Trusteeship” and the “Election Rules” available on the election website www.ersvotes.com/shellpensions before the nomination deadline of 31 August 2017. You can also view the short video on what it’s like to be an MND.
SCPF MND Elections