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

November 2020

SNPS. Smarten up your future
Annual Report 2020 – Shell Nederland Pensioenfonds 
Accountability and Supervision

Report of the Internal Supervision by non-executive board members

2020 was a very eventful year. A year in which the coronavirus pandemic spread rapidly and maintained a strong grip on the world, causing great unrest in financial markets and a sharp contraction of the world economy. This report and opinion has been prepared against this backdrop of exceptional challenges for the Fund which, in addition to current developments such as the Pension Agreement, deserve special attention from the board. This internal supervision report addresses these developments and provides accountability for a number of these strategic themes.

Governance and Internal Supervision

SNPS uses the reverse mixed board model in which the board consists of two executive and five non-executive board members. The non-executive directors are responsible for the (permanent) internal supervision of the policy, implementation and balanced consideration of interests by the board. It provides accountability to the Accountability Body.

The role and duties of executive and non-executive board members are further detailed in a protocol that also describes the intended cooperation and communication within the board. The aim is to work in a way that focuses on the core tasks of the board as a whole (active management, supervision/control, accountability), but in which both sections (executive and non-executive) are also aware of the different roles they have in relation to each other. Roles and responsibilities are clearly defined, including a portfolio allocation (1st port of call) of the non-executive directors.

The board agendas are aimed at optimally fulfilling the duty of care within the specific requirements of the contribution agreement with the investment freedom implemented by SNPS. All policy proposals and decisions explicitly consider risk management and the balancing of interests. The structure and results of the risk management process are part of every board meeting with a discussion and adoption of the Risk & Control Self-Assessments. Through these assessments, the SPN Executive Office conducts a structured evaluation of financial and non-financial risks.

The executive directors take care of day-to-day management matters including operations and communication with internal and external stakeholders. The non-executive directors are involved at an early stage in subjects that, due to their strategic nature or size, require consultation within the entire board and are also put on the agenda for board meetings. Formal board decisions regarding the subjects specified in the SNPS board protocol are adopted and recorded in the board meetings.

The provisions and underlying intentions of the Pension Fund Code are taken into account in the organisation of the internal supervision (by the non-executive board members) and receives special attention when the board makes important considerations and decisions. By the end of 2020, SNPS complied with all the standards of the Code. However, expanding the diversity of the composition of the Board and the Accountability Body remains a point of attention. It has also been agreed, among other things, that the next time there is a change in the board, we will comply with the requirement of having two female board members.

After each regular board meeting, the non-executive board members hold a ‘debriefing’ to review the past meeting, the supervisory role and the general state of affairs. It also considers the performance of the executive board members and the relationship between the executive and non-executive board members. Any feedback is shared with the executive board members.

The coronavirus pandemic

The coronavirus outbreak and subsequent turmoil in the financial markets in spring 2020 prompted the activation of the SNPS crisis procedure. The multidisciplinary Crisis Management Team held weekly meetings to consider the possible consequences of the coronavirus pandemic based on various scenarios and to compare the economic situation with the scenarios in the latest ALM study. Due to a relative normalisation of market conditions, the crisis procedure was terminated in May 2020 and the functioning of the crisis plan was evaluated. This revealed that the crisis procedures of the fund and external service providers are well aligned and meet expectations, also the information provision to the board, Accountability Body, external supervisors and participants was experienced as being very positive. Some lessons learned have been incorporated through a review of the crisis procedure. Further developments concerning the coronavirus and its consequences for the financial markets are recurring subjects at Board meetings.

Investment results

The situation on the financial markets in the first quarter of 2020 initially resulted in strong negative returns, especially in the Yield portfolio. The aforementioned scenario analysis did not give cause to adjust the previously made strategic choices. The second quarter and also the last months of the year showed a broad market recovery, which resulted in all life cycle portfolios ending the year with positive returns. However, interest rates have decreased further in 2020, which puts pressure on future pension purchases. Although the board has no influence on the development of interest rates, this will remain a point of attention.

“2020 was a very eventful year. A year in which the corona pandemic spread very quickly and gripped the world, resulting in major turmoil in financial markets and a strongly shrinking global economy.”

ESG

We also made further progress in the field of ESG and the implementation phase of the IMP covenant was successfully completed by the end of 2020. As part of this, we introduced a regular screening of the exclusion policy and activated reporting on the engagement policy. The ESG policy is also a conscious factor in our choices when selecting investment funds. In addition, we conducted a participant survey on responsible investment in mid-2020, with a high response rate, to better identify the expectations and preferences of our participants. The survey indicated that there is broad support among the participants for the responsible investment policy pursued and the four chosen Sustainable Development Goals.

Outsourcing

The relationship with Achmea Pensioenservices (APS) and Achmea Investment Management (AIM), the two outsourcing parties of SNPS, is managed by the executive directors and the experts within SPN. Checking the careful implementation of our asset management and pension administration and monitoring performance play a central role in this. During the year, APS appointed a new account manager, which further strengthened the operational relationship.

The consultation with APS regarding the introduction of the new pension administration system (the Accelerate project) was formalised by defining and aligning the scope of the project, the deliverables and the risk management approach. The implementation process will be supported by a (second-line) SPN - APS project team as well as a Sounding Board, with representation from the board and external Subject Matter Experts.

Communication

In 2019, the communication policy was thoroughly revised with the choice of three strategic pillars and corresponding objectives. In 2020, this policy was implemented through targeted campaigns, with progress being regularly assessed against specific KPIs. The feedback from participants and results of the campaigns are extremely positive; the aforementioned participant survey on responsible investing and the introduction of video calling are good examples of this. The communication policy remains an important tool in fulfilling the duty of care, which is why the Accountability Body was closely involved in the review.

Pension agreement

In the Pension Agreement, the Dutch government and central organisations of social partners have made agreements about the future of the Dutch pension system that will now be further translated into a bill to amend the Pension Act. The goal is for the new rules to enter into effect on 1 January 2022. The intention to introduce a flat graduated scale for defined contribution schemes will also have consequences for SNPS. The specific consequences will also depend on the outcome of the consultation between the employer and employees (represented by the COR) and the choices that will be made therein. The Executive Board has been closely involved in these developments and has highlighted the interests of SNPS in a timely manner. The entire board is regularly informed about the follow-up process and the specific role of the board in considering the feasibility of the agreements to be made.

Eligibility of the board and Accountability Body

In 2020, there were changes in both bodies with the appointment of a new chairperson of the board and the reappointment of the chair of the Accountability Body (VO). The onboarding process was carefully supported and successfully completed by the Executive Office and the executive board members. Individual training plans are completed in accordance with the suitability policy with an annual (self) evaluation that is supported by an external training agency. We are particularly focusing on deepening our knowledge in the area of asset management.

Opinion

2020 was a year with many challenges for the Fund; the executive board members have, in the opinion of the non-executive board members, responded very professionally and appropriately, without losing focus on the ongoing policy and executive tasks. The latest ALM results have been incorporated into the investment policy, the operational administration is at the desired level and the implementation of the strategic priorities is proceeding according to plan. Critical business processes, deliberate decision-making and timely information provision by the Executive Office and external partners are structurally evaluated; these were extensively tested in real life during the coronavirus pandemic and found to be adequate. Communication with participants, essential in times of increased uncertainty, has been further intensified.

The cooperation between the executive and non-executive board members is definitely constructive and supported by insightful reports, high-quality board documents and frequent formal and informal consultations, guided by the principle of complete transparency. This has worked well, despite the predominantly virtual nature of consultations. The non-executive board members and the Accountability Body are involved in policy-making at an early stage and informed of relevant developments in a timely manner. The guiding principle here is to ensure a high degree of involvement and to further strengthen the relationship with the Accountability Body, rather than simply meeting the requirements of the legal framework.

Change processes, such as the changes in the pension system and the development of a new pension administration system, are well anticipated in close cooperation with designated partners such as Shell Nederland and APS.

Focus areas for 2021

For the year 2021, we have formulated the following focus points:

  • Assess the feasibility of new pension agreements (yet to be determined) between employer and employees and including participants in the transition process.
  • Monitor the implementation of the new pension administration system at APS.
  • More explicitly consider the IT developments that are relevant to the Fund and, as part of this, conduct a Cyber Security Risk Analysis.
  • Evaluate further implementation and effectiveness of the Communication policy.
  • Supervise and further develop the Socially Responsible Investment policy.
  • Implement a stricter policy for broader diversity in the composition of the board and the Accountability Body.
Reaction of the Executive Board members

The executive board members are duly grateful for the observations of the non-executive board members on the many challenges faced by SNPS in the turbulent year 2020, which were met in a professional manner, in good cooperation with all stakeholders, and with a continued focus on managing the Fund.

SNPS continues to grow in terms of numbers of participants and invested assets. At the same time, internal and external changes are taking place at a rapidly increasing pace. This requires the Management Organisation to pay constant attention to the ability to change, keep control over the outsourced tasks and for the entire board to have a clear vision for the future and the strategy to be employed. Effective cooperation between executive and non-executive board members, as we now see, is essential.

The executive board members endorse the concerns raised by the non-executive board members. These have now been included as part of the work plan for 2021-2022. In the last year we have made the required progress in several policy areas mentioned by the non-executive board members and SNPS is therefore, in the opinion of the executive board members, well prepared for issues such as the Pension Agreement, technological innovation, participant engagement and socially responsible investment. However, this should not lead to complacency. Especially in this period of increasing economic and social uncertainties, it’s important to maintain an open dialogue with all stakeholders, so that SNPS remains in a position to operate with support in the rapidly changing pension landscape.

The VO issues a positive opinion for 2020 of the board’s actions regarding its implemented policies, future policy decisions and compliance with good and stable pension fund governance.

This report further explains and substantiates the opinion of the VO.

Activities and composition of the VO

The VO functioned at full capacity during 2020. Mr De Mönnink stepped down in 2020 and was succeeded by Mr Poolman. Ms Spaanderman joined the VO as a trainee. See the annex for a full biography. To date, the pension fund has a small number of pensioners and therefore no representation yet of pensioners in the VO.

To provide an informed opinion, the VO undertook the following activities and consulted a number of sources:

Activities between the board, Management and the VO:

  • During the year under review, the VO met five times with management and the board. These meetings are open and constructive with ample opportunity for questions. Meeting documents are of good quality and shared on time, an agenda is composed in advance, with the VO actively suggesting agenda items based on the determined priorities and recent developments. In addition to the formal meetings, there are also regular informal consultations between the Chair of the VO and the Fund.
  • The VO also has annual consultations with the non-executive board members in their role as internal supervisors.
  • In addition to the regular meetings, a number of meetings and working group sessions were organised to discuss specific subjects. Examples include meetings about the SNPS Pension communication, the implementation of the Environmental, Social and Governance (ESG) policy and the possible consequences of the Pension Agreement. The corresponding VO portfolio holders participate in these meetings.

Internal VO activities:

  • Draw up and implement a VO work plan that identifies strategic governance themes, priorities and portfolio holders from the VO.
  • Manage an overall competency vision and training plan for the VO. As a result, VO members have attended various courses and seminars to ensure their expertise.
  • Information sessions with the supporters of the VO for both the employer (Shell Nederland) and employees (COR Pension Committee). In addition, the VO takes the annual report and the opinion of the previous year into account.
Requests for advice

In the past year, the board submitted the following requests for advice to the VO. The VO gave a positive recommendation to each request:

  • Net and gross available premium scales
  • Remuneration policy
  • The SNPS communication policy and strategy

In every case the VO comments were discussed with the board, and resulted in adjustments to the policy or its implementation.

2020 retrospective

The seven multi-year strategic themes formulated by the board have guided the operational activities and projects implemented by the board in 2020. In addition to these multi-year themes, the developments around the coronavirus and its impact on SNPS were closely monitored. Below is the VO’s reflection on the focus areas in 2020.

Coronavirus pandemic

As a result of the coronavirus pandemic and the subsequent turbulence in the financial markets, the SNPS Board activated the crisis plan in March 2020. The VO is very satisfied with the board’s approach during this period. The crisis protocol was followed, which centred around the interests of the participants. This was reflected in the clear, additional communication to participants and the focus on the impact upon different groups of participants - specifically those approaching retirement. In addition, based on sound analyses, it was decided not to change the investment strategy, which resulted in a recovery of assets in the second half of the year. Finally, before the summer of 2020, the crisis approach was evaluated and improvements were made to the procedures.

Pension agreement

In 2020, the Dutch government and central organisations of social partners signed the Pension Agreement. This agreement will also have an impact on SNPS. The board and the Pension Office have followed these developments closely, and the importance of the SNPS participant has been put forward to (external) committees at various stages. In addition, the board organised several theme sessions to inform the VO of developments. The VO is very pleased with the attention and open communication on this subject, and the continued focus on the importance of Shell Pension Funds in the Netherlands.

Pension Communication

The board drafted a new communication policy in late 2019, for which the VO issued a positive request for advice in early 2020. This opinion was made after an extensive discussion about the VO concerns. The board has enthusiastically set out to work on this. The VO is satisfied with the progress that has been made in implementing Pension Communication and the focus on determining and monitoring measurable objectives. Examples are incorporating the results of the participant survey into the communication and using digitalisation to make the information accessible and understandable for the various groups of participants.

Asset management and ESG policy

Due to the crisis in the financial markets, the planned improvement of investment reporting was accelerated, providing better insight into the performance of the various investment funds and the financial risks. In addition, several steps were taken to improve the selection of investment funds within the various asset classes. The VO is very pleased with these improvements, which are leading to better insight and an improved return-risk profile.

In addition, the VO was actively involved in the various ESG developments in 2020. Good progress has been made with the implementation of the IMVB covenant and the process of screening and engagement monitoring through Achmea Investment Management. The VO underlines the importance of an adequate screening and monitoring process, and sees the progress made in this process as essential steps. In addition, the responsible investment policy of SNPS was further formalised, with a greater focus on short- and long-term ambitions in the field of socially responsible investment.

A lot of attention was also paid to the ESG communication with the participants, using the participant portal, the newsletter and the participant survey. In the opinion of the VO, the results of the survey confirmed the importance of increasing awareness and support for ESG in all participant groups. The VO is very positive about the initiatives to raise the level of ESG communication with the participants.

Reinsurance risks

The reinsurance of incapacity for work and death risks has been transferred to a new party, with a more efficient administration and lower costs. The VO is pleased with this adjustment, which will result in lower costs for the SNPS pension.

New pension administration system

The external pension administration organisation of SNPS (Achmea Pensioen Services, APS) has started an important change track this year: the development of a new pension administration system. The VO is very pleased with the board’s involvement in this change process.

Looking ahead to 2021

The VO expects that the two major change processes - the Pension Agreement and the development of a new pension administration system at APS - will be a priority on the board’s agenda. The VO is closely following these developments. In addition, the VO would like to suggest the following focus areas:

First of all, the VO would like to continue to emphasise the ongoing importance of asset management to the board. SNPS has achieved excellent financial results in recent years, but falling interest rates have simultaneously increased the price of future pensions. The VO sees the board’s investment policy as the best instrument to obtain a good pension for its participants. The VO hopes that the board will continue the improvements in reporting and investment fund selection.

Secondly, the VO expects to continue the chosen communication approach with participants in 2021; its effectiveness will be assessed during the year. The VO is very pleased with the current approach to involve and inform participants about their pensions in innovative ways and looks forward to further developments in this area. In the context of the broad duty of care, the VO emphasises the importance of clear communication about the risks and interests of the different target groups within SNPS. The VO is specifically referring to the consequences of return and interest rate developments on the (expected) pension levels and the changes that will result from the implementation of the Pension Agreement.

The VO also recommends making the ESG ambitions more concrete and measurable in 2021 and focusing more attention on the ongoing ESG themes, including European policy and regulation. The VO also expects that the results of the ESG survey will be included in further developments. Finally, in 2021, the importance of broad diversity in the composition and competency development of the VO remains a priority.

Opinion 2020

Based on the above information, the VO formed a general opinion of the board’s actions, the policies implemented by the board and future policy choices. The VO also appreciates the board’s current approach whereby the operational activities are driven by the strategic themes.

Based on the above and all other findings of the VO, the observations and findings of the external auditor, certifying actuary and supervisory (non-executive) directors, the VO has a positive opinion of the actions of the board in relation to the policies pursued, future policy choices and compliance with good and stable pension fund governance.

Finally, the VO would like to express its appreciation for the work and commitment of the board and staff of the Pension Office, and the many efforts and results that were achieved during 2020. The VO is looking forward to continuing this pleasant and professional cooperation in 2021.

The board’s response to the Accountability Body’s opinion

The board thanks the VO for its comprehensive opinion on 2020. The board is pleased to note that the VO is positive about the way the board has balanced the interests of participants and other stakeholders within SNPS during this past unique year. All board members perceive the dialogue between the board and the VO as open and transparent. The board’s intention is to continue this transparency in 2021. At the same time, the VO’s opinion provides the board with good feedback for the implementation of the SNPS pension schemes in 2021. The constructive-critical approach of the VO is highly appreciated by the board.

Improving the pension result and providing participants with insight into this result is and remains an important spearhead for the board. Whether it concerns policy choices regarding the selection of investment funds, making ESG ambitions more concrete and measurable or improving the services of external implementing organisations, the interests of SNPS participants always play a central role. This principle especially applies to clear communication about the expected future pension income, which gives participants a realistic picture and enables them to make good financial plans for old age. What certainly helps is that with the Pension Agreement, defined contribution schemes are becoming the norm in the Netherlands. As a result, the future legal framework will focus much more than the current one on subjects that are important for contribution agreements, such as the interpretation of the duty of care, guidance for decision-making and determining the individual participant’s attitude to risk.

A good reflection of the participants and a right mix of competencies and expertise in the fund are indispensable for the board to make well-founded decisions for the future, in close consultation with the VO. The board can only endorse the fact that the VO will strongly focus on diversity at SNPS in 2021.

Opinion of the Accountability Body 2020

The board of the pension fund is accountable to the Accountability Body (VO) for its policies and their implementation. Each year, the VO formulates an opinion of the actions of the board, the policies implemented by the board and future policy decisions. In addition, the VO advises the SNPS Board on the issues defined in the articles of association.