5 questions about the changes

The Pensions Act entails a major change in the pension system in the Netherlands. These changes relate, among other things, to the tax framework that applies to pensions. By converting the accrued pensions (which is the default), different tax rules will apply to your pension and you will be able to take full advantage of this. This is because there is no longer a limit when it comes to the increase of your pension as a result of positive investment returns. Participants who can invest for a number of years and have a so-called long investment horizon will benefit the most from this. The longer the horizon, the greater the benefit for the (active) participants. In addition, the buffers of the pension fund will be shared with the participants in the case of conversion, which will increase this positive effect even further. This is a one-time opportunity that will potentially lead to a significantly higher expected pension. Although, in the new scheme, the investment risks will be taken on by the participants. It is expected that this will provide a significant benefit in almost all cases.

2. What about the calculations and when will employees be given insight into the calculations and considerations made by Shell NL and the COR?

 Our projections are calculated by a third party, Ortec. Ortec is the market leader in the Netherlands and works as an independent party for Shell. Ortec is also working for the pension fund. Ortec has internal certification on its processes and also internal controls to monitor the quality of the data. In addition, Ortec’s calculations are checked by our own actuaries and the actuary of the works council. We are currently in close talks with the Central Works Council and are also discussing the results of the various calculations there.

Ultimately, the transition plan will explain how the social partners (Shell NL and the COR) view the transition. This explanation will also clarify how Shell NL and the COR interpret the open standards (such as a “balanced decision” or “disproportionately unfavourable”) referred to in the Future Pensions Act. We consider the interests of all groups of participants and take the different perspectives into account. For example, the expected consequences (both positive and negative) and the impact of a higher or lower funding ratio at the time of conversion must be considered. Ultimately, there must be a balanced transition. The considerations and choices will ultimately be included in the transition plan. This tran- sition plan is an appendix to the COR’s request for consent and is also made public to all participants.

3. What assumptions are used for the calculations?

To make the calculations, Ortec has developed special software that is used for many pension funds in the Netherlands and also for us. In this software, 2,000 scenarios are projected based on economic scenario sets prescribed by the Dutch Central Bank. Different assumptions apply to each scenario, so there isn’t such a thing as basic assumption. However, we can say that on average in the long term, a return of 5.6% on equities, 2.0% on bonds and 2.1% inflation is assumed. The 2,000 scenarios are also based on so-called stress scenarios: what if things go very badly, but also what if things go very well. An example of such a stress scenario is stagflation, in which there are negative stock returns in combination with high inflation for a longer period of time. The economic projections to determine the pension outcomes are made for the full expected life span of the participants. Scenarios in which participants live longer or shorter are not considered separately.

4. How do the experts view DNB’s scenarios? What if things get worse?

Every company and pension fund will have to work with these scenario sets. In addition to the most likely scenarios, these sets also contain very extreme scenarios. This involves a lot of work and although the scenarios will not cover everything, these calculations do provide a good overview of what can be expected. These sets also take into account extreme situations that are projected in the future. Due to political pressure, DNB’s scenarios contain many more very unreal situations than was previously the case. In this sense, the scenarios are seen as pessimistic rather than optimistic. The Government wants us to provide insight into these scenarios. Despite the fact that these are extreme and in all likelihood will not happen, everyone will also see these scenarios on their pension overview.

We understand that it is important that all interests are properly taken into account, even in a situation in which things suddenly take a turn for the worse. That’s why we set the bar high and don’t want to enter at all costs. We only want to make a request for entry if it is clearly better for the participants. Not only in the expected scenario, but we want the participants to benefit in a large majority of the scenarios. In doing so, we also look specifically at the stress scenarios mentioned, in which things go much worse. We are looking at this together with the COR.

5. What does this transition mean for me?

During the information sessions, we showed personas to give you insight into the possible consequences of conversion or leaving behind the pensions. We will update these personas based on the latest figures. We will also add new personas and explain how to read these graphs.

 With these examples, you can get a pretty good idea of how the changes will impact your pension. Unfortunately, precise details of the new pension expectations at the individual level are not yet available and will take some time. Through the pension fund, you will eventually receive an individual overview showing you exactly what the effect on your pension is. It is not yet clear exactly when this will happen, but it will probably only be possible around the time when the transition actually takes place, because all systems must also be set up for this and the situation at the time of the transition determines the actual outcomes. So, that could take a few more years.