As a result of the Future Pensions Act (WTP), all pension schemes in the Netherlands will change. In principle, a change in the pension scheme only affects the future accrual. But the WTP also makes it possible to convert the accrued and entered pensions into the new pension scheme. In this case the accrued pensions of employees and former colleagues (deferred members), but also the pension benefits of the pensioners, are converted into the new pension scheme.

In the case of conversion, the accrued or already entered pension is converted into a personal pension pot that will move with economic developments according to the set-up of the premium scheme. Conversion is the main principle in the new pension law as the government wants the old and new pensions to be integrated and to be covered by the new rules.

The WTP does offer an opportunity to deviate from this principle. This is possible if conversion is disproportionately unfavourable for (some of) the stakeholders. The stakeholders include current employees, pensioners, former colleagues and the employer. If the exception is used, the accrued pensions will remain in the existing pension scheme at SSPF. For current employees, the new premium scheme will apply only to the future accrual.

The main principle under the new pension law is that accrued and pensions of pensioners are converted into the new scheme. But the new pension law provides an opportunity to deviate from that principle. Since it will no longer be possible to continue to accrue pension in the current SSPF pension scheme, deviating from that main principle is also called ‘leaving behind pensions’. In that case, the current SSPF scheme and the pension fund will be ‘hard closed’. That means that the pensions already accrued and the pensions of the pensioners are left behind, in accordance with the rules that currently apply to them. For the employees, this means that the accrued pension remain in SSPF (according to the current rules), but that in the future they will accrue pension in a new premium scheme (according to the new rules). If you have already left Shell, then in fact nothing changes for you.

In order to be able to leave the pensions behind, certain conditions must be met, which is not automatically possible. It requires Shell and the COR to agree that conversion of the accrued pension is disproportionately unfavourable for (some of) the stakeholders.  They will then not ask the pension fund to convert the pensions.

Conversion has several advantages.

• Accrued pensions and the pensions from pensioners can benefit directly from the benefits of the new pension system; this can be beneficial if things are going well economically. In the current scheme, agreements have been made about the annual pension increases; these are in fact capped. In the new system, there is no longer any restriction and pensions can be increased indefinitely.
• In the new pension system, reserves (buffers) are no longer needed. That is why these buffers become available for distribution. This can be done by adding the buffers (whether or not spread out over several years) to the individual pension pots of the various participants or by reserving them to mitigate certain risks. The buffers can also be used to financially compensate for the consequences of the new system for the future pension accrual of employees.
• The new and already accrued pension are administrated in one pension scheme. For employees, this is more transparent and easy to understand. Communication about this is also easier.
• The implementation of one single pension scheme is administratively easier, cheaper and easier to control for pension funds.
• Conversion is in line with the government’s thoughts about the new system; it is also in line with what will apply to the majority of employees, former colleagues (deferred members) and pensioners in the Netherlands. It is sustainable and future-proof.

At the moment, Shell’s pensions in SSPF have a high level of security due to the employer’s guarantee. This guarantee is no longer allowed in the new system. If the pensions are to be converted, the guarantee will expire not only for the future, but also for the pension that has already been accrued or started.  The rules of the new pension system then apply to your total pension (both the pension already accrued and yet to be accrued, and the pension of the pensioners).

In the new pension system, your personal pension pot moves in line with economic developments. If things are going well economically, this leads to an increase in the pot, but if things are going badly economically, you will also notice that. If the pensions are converted, the pensions that you have already accrued or that has already started will also move in line with the markets. This can lead to fluctuations in your pension. The risks of this can be mitigated by the pension fund by holding reserves (buffers).

There are legal rules to calculate the impact of conversion and how much everyone gets in the personal pension pot. One of the conditions is that participants receive at least the value of the accrued entitlements, provided that the pension fund has sufficient capital. That is the case with Shell.  In that sense, no money gets lost.

Depending on the funding ratio of the fund, there may be capital left with the fund afterwards. We call these the buffers of the fund. These buffers can be used/distributed in different ways. In the new system, it is no longer mandatory to have any buffers. For example, the buffers can be used to limit risks. The buffers can also be used to compensate for any difference in future pension accrual or to increase individual pension entitlements or accrued pensions. A combination is also possible. For the distribution of the buffers, it will be necessary to look separately at how they are distributed in a balanced way.

The fact that your pension will move in line with the market in the new system can have both a positive and negative effect. If things are going well economically, you will immediately notice this by an increase in your pension, but economically less positive circumstances are also noticeable. There are several ways to mitigate this risk in the new pension system.

• If you accrue a pension in a flexible premium scheme (such as Shell’s SNPS scheme), you can choose an investment profile yourself, depending on the risks you want to take. For example, you can choose a profile where you run more risk (offensive), run little risk (defensive) or a neutral profile. If you do not make a choice, you automatically invest via a smart default in which the investment risks move in line with your life phase.
• You can opt for a variable pension, and you can gradually transfer your pension capital, starting ten years before you retire; the risks in your investments are then reduced. This also applies to the pensions of pensioners. The pensions of pensioners are invested more defensively by the pension fund. As a result, less risk is taken with these pensions.
• When you retire, you can again choose between a variable pension with the pension fund (which will then move with the investment results) or a fixed pension with an external insurer.. A variable pension means that your pension will also be invested after your retirement date. With a variable pension, it is possible that the pension benefits fluctuate in amount. The risk of this is reduced by spreading the investment returns out over several years. This can prevent large fluctuations in the pension. Choosing a fixed pension means that the amount of the pension is certain, but there may be no indexation and no prospect of a higher pension.
• If there are buffers in the pension fund, these buffers can be (partly) used by the pension fund to reduce risks (by a one-off (or spread over several years) increase in pensions and/or by reserving new buffers to absorb certain future risks.
• If the pensions are converted and you are already retired, you will then have a one-off choice between a variable pension with the pension fund (which will then move with the investment results) or a fixed pension with an external insurer. If a fixed pension is chosen, the amount of the pension is certain, but there may be no indexation and no prospect of a higher pension.

The WTP assumes a collective conversion of pensions in case of conversion. This means that this transposition, if so decided, will apply to everyone. It is not possible to make an individual choice for the new pension system or to stay in the current system; there is also no possibility to object individually as a participant. However, the legislator has built in a number of safeguards to ensure that a careful process is followed.

Shell and the Central Staff Council will discuss together whether Shell will ask the pension fund to convert the accrued pensions. This is done in consultation with the pension fund and the VOEKS hearing rights committee.

A careful process is followed. The employer is having discussions with the COR and with VOEKS (the Association of Former Employees of the “Royal/Shell”). VOEKS has a right to be heard. Ultimately, a request for conversion will have to be made to the board of the pension fund. The board will then decide whether to grant the request, whereby various guarantees also apply within the pension fund via the Accountability Body and the Supervisory Board. Ultimately, there must be a balanced decision for all stakeholders, including the employer.

COR
The COR has a right of consent with regard to a proposed amendment to the pension agreement between the employer and the employee. This right of consent also governs the decision whether or not to submit a request for conversion to the pension fund. The discussions with the COR have been going on for some time and as soon as there is an intended decision, the COR will also be formally asked for approval. A pension committee has been set up within the COR in which specific knowledge about pensions is present. We value a good consultation and therefore have regular discussions with both the pension committee and the COR about the developments. In these discussions, the consequences of the new legislation are discussed in detail.

VOEKS
The WTP has determined that Shell and the COR must not only look at the interests of employees and the employer, but also at those of pensioners and deferred members, with regard to the changes resulting from the new law.

In addition, the WTP gives a representative association of pensioners and/or deferred members the opportunity to express their opinion to Shell and the COR before the decisions on the new scheme are taken. This is called the ‘hearing right’. Shell and the COR must then take that opinion into account in their decision-making and also provide feedback on what has been done with that opinion. At Shell, VOEKS (the Association of Former Employees of the “Royal/Shell”) is such a representative association. VOEKS has now set up a hearing rights committee that is having discussions with Shell and the COR.

Pension Fund
Eventually – if Shell wants to convert the pensions – a request to this will have to be send to the board of SSPF. Following this request, the pension fund will have to go through its own decision-making process, which also includes various guarantees. For example, the Accountability Body must be asked for advice and the Supervisory Board has a right of approval.

All these steps should lead to a balanced decision ultimately being taken on whether or not to convert the accrued and pensions of pensioners, in which the interests of all stakeholders have been carefully weighed.

The government commissioned a detailed analysis of the legal risks because it wanted to ensure that the new pension system, like the current pension system, is legally sustainable. Among other things, ownership aspects and equal treatment were examined. The conclusion of this analysis is that the new pension system is legally sustainable. Of course, legal risks can never be completely ruled out. This will have to be demonstrated in practice in the coming years.