Annex 1 Statement of Investment Principles

Transcription

1 Annex 1 Statement of Investment Principles 1. Introduction This Statement of Investment Principles (hereinafter: the Statement) provides a broad outline of the Investment Policy of Shell Nederland Pensioenfonds Stichting (SNPS). This policy has been determined by the Board of SNPS. The Investment Policy is described in detail in the Investment Memorandum, including Investment guidelines. SNPS furnishes all legitimate claimants and pension beneficiaries with the Statement at their request. The Statement is also available on the SNPS website: The Statement was approved by the Board on May 19, 2017 and will be reviewed once every three years and immediately any major amendments are made to the investment policy. This document begins with a brief description of the profile of SNPS, followed by an explanation of how the investment policy is formulated and how the Board accounts for the policy and its execution. It then goes on to discuss the investment policy. Finally, it describes the implementation of the Investment Policy. 2. Profile of SNPS 2.1 Organisation SNPS is a company pension fund of the Shell Group in the Netherlands and is responsible for the administration of the pension schemes which have been drawn up for the permitted categories of employees by the group companies which have joined SNPS. SNPS is an independent legal entity (foundation) and therefore has no legal ties with the Shell Group. 2.2 No secondary activities SNPS limits its activities to the administration of pension schemes and the performance of work directly related thereto. SNPS does not carry out any secondary activities within the meaning of Section 116 of the Netherlands Pensions Act.

2 2.3 The gross and net pension schemes The gross and net pension schemes administered by SNPS are regular defined contribution schemes (pure defined contribution pensions). The pension agreement stipulates that a defined contribution or a net pension contribution is made available and individually invested at the risk and expense of the participant or former participant. The gross pension scheme of SNPS came into force on July 1, 2013, and is laid down in Regulations I. The net pension scheme of SNPS came into force on January 1, 2015, and is laid down in the Net Pension Scheme Regulations. The current versions of these regulations can be found on the SNPS website. From April 1, 2017, from the age of 57, participant or former participant can choose to gradually convert pension capital accrued at that point up to retirement into entitlements to variable annuities in accordance with the options offered by the Enhanced Premium Scheme Act (Wet verbeterde premieregeling) This is done in the form of a Collected Variable Pension (CVP). SNPS collectively invests the resources in the CVP. 3. Investment Policy 3.1 Investment objective The objective of the investment policy is to pursue the best possible investment results for the individual participant given his or her liability structure (replacement ratio) and acceptance of risk (within the limits established by the Board). This is assessed by means of an ALM (Asset Liability Management) study. This ALM study is carried out at least once every three years. 3.2 Investment Beliefs SNPS has the following investment beliefs: Return is the reward for taking risks; risks within the investment policy are therefore inevitable, but they are taken with care. Diversification improves the ratio between risk and yield.

3 Active management may add value. Costs are a certainty, yield is not. Involved shareholdership stimulates good governance and corporate responsibility. At least once every three years, the investment beliefs will be reassessed, and amended where necessary, as the first step in an ALM study. SNPS has published these investment beliefs on its website ( 3.3 Outsourcing investment administration and asset management SNPS has outsourced investment administration and asset management to Syntrus Achmea Pensioenbeheer N.V. and Achmea Investment Management B.V. respectively. 3.4 Investment risk and returns SNPS recognises that the investments are at the expense and risk of the (individual) participants. SNPS takes account of this when determining the investment options available to individual participants, when outsourcing the investment administration and the asset management, and when selecting and monitoring the investment institutions in which a participant may ultimately invest. 3.5 Strategic asset allocation up to retirement date: Life Cycle profiles and Life Cycle portfolios SNPS has three Life Cycle profiles for each participant: Neutral Life Cycle, Defensive Life Cycle and Aggressive Life Cycle. If a participant has not made any investment choices, his contributions will be invested in accordance with the Neutral Life Cycle profile. Each month, the participant has the opportunity to change between the three Life cycle profiles. The Life cycle profiles may be different for different groups of participants. In addition, certain assumptions have been made for the Life cycle profiles. Among other things this means that risk reduction can be achieved in several small steps rather than in just a couple of relatively big steps (limiting the timing risk) and division of the Life cycle profiles into four

4 "administrative" portfolios: Return, Yield, Match 1 and Match 2. Life cycle portfolios Yield, Match 1 and Match 2 give priority to protecting accrued pension investment capital and limiting the interest-rate risk with a view to purchasing an annuity, while Life cycle portfolio Return aims for returns in the longer term. The allocation to Life Cycle portfolios Yield, Match 1 and Match 2 increases as a participant grows older. The following diagram illustrates the investment structure: The Board of SNPS determines the strategic Investment Policy (the composition - the weightings ) of the Life cycle profiles as well as the distribution across the administrative Life cycle portfolios and across the various asset categories (the underlying investment institutions in which investments are actually made). The selection and monitoring of these underlying investment institutions has been outsourced to Achmea Investment Management B.V. The eventual selection of an underlying investment institution is subject to prior approval by SNPS.

5 The table below shows the weightings of the administrative Life Cycle portfolios. These are listed separately for participants who accrue both gross and net pensions within SNPS (A participants) and participants who only accrue net pension at SNPS and accrue gross pension at Stichting Shell Pensioenfonds (SSPF) (B participants) A participants: weightings of the administrative Life Cycle portfolios for the accrual of both gross pension and net pension (in the case of a provisional choice at the age of 57 not to participate in the CVP). Initial mix to age Reduction from/up Reduction from/in.. to/to (1 st risk years/to (2 nd risk reduction) reduction) Defensive 70% return/30% age 50 up to 55 age 57 in 10 years to interest up to 50 years old to 50% 10% return/90% years old return/50% interest match Neutral 90% return/10% age 50 up to 55 age 57 in 10 years to interest up to 50 years old to 70% 10% return/90% years old return/30% interest match Aggressive 100% return up to age 50 up to 55 age 57 in 10 years to 50 years old years old to 85% 10% return/90% return/15% interest match From the age of 57, growth usually takes place on an annual basis from the target weighting for the age of 57 to the target weighting for the age of 67. SNPS periodically assesses the composition of the Life Cycle profiles and Life Cycle portfolios (target weightings and the various asset categories that are being used) and may adjust them from time to time. Participants will be informed of such changes.

6 When compiling the Life Cycle portfolios of participants or former participants who, from the age of 57, make a provisional choice not to participate in the CVP, the Board takes into account the fact that, on the retirement date, a fixed (net) benefit will be purchased from an external pension provider. From the age of 57 onwards, the weightings for the remaining pension capital of participants who have opted for the CVP (the remainder that has not yet been used to purchase CVP entitlements) will deviate from the above. These remain invested in accordance with the target weightings that apply for the ages of 55 and 56. In addition, the participant can still make choice in the applicable Life Cycle profile B participants: administrative Life Cycle portfolio weightings for the accrual of the net pension (in the case of a provisional choice at the age of 57 not to participate in the CVP) Initial mix to age Reduction from/in..years/to (risk reduction) Defensive 70% return/30% interest up to 57 years old age 57 in 10 years to 10% return/90% match Neutral 90% return/10% interest up to 57 years old age 57 in 10 years to 10% return/90% match Aggressive 100% return up to 57 years old age 57 in 10 years to 10% return/90% match From the age of 57, growth usually takes place on an annual basis from the target weighting for the age of 57 to the target weighting for the age of 67.

7 SNPS periodically assesses the composition of the Life Cycle profiles and Life Cycle portfolios (target weightings and the various asset categories that are being used) and may adjust them from time to time. Participants will be informed of such changes. When compiling the Life Cycle portfolios of participants or former participants who, from the age of 57, make a provisional choice not to participate in the CVP, the Board takes into account the fact that, on the retirement date, a fixed net benefit will be purchased from an external pension provider. From the age of 57 onwards, the weightings for the remaining pension capital of participants who have opted for the CVP (the remainder that has not yet been used to purchase CVP entitlements) will deviate from the above. These remain invested in accordance with the target weightings that apply for the ages of 55 and 56. In addition, the participant can still make choice in the applicable Life Cycle profile. 3.6 Strategic asset allocation CVP: the investment mix for CVP participants Ten years before the regulatory retirement age, the participant or former participant makes a provisional choice for a fixed or variable pension at retirement date. If the participant or former participant opts for the variable pension, then his capital will gradually be incorporated into the CVP portfolio for the gross or net scheme. In the event of a provisional choice for a fixed pension on the retirement date, the participant or former participant continues to participate with his full capital in a Life-Cycle profile suited to a fixed pension at retirement age. Definitive choice for a fixed or variable pension follows on retirement. For participants and pensioners, SNPS has a generic investment mix for the CVP geared to the profile of the group of employees. Individual choice is not possible.the Board establishes the CVP investment mix on the basis of an ALM study. The Board repeats the ALM frequently, in any event every 3 years and checks whether the CVP investment mix needs to be adjusted as a result of the findings of the ALM study. A CVP investment portfolio has been set up for both the gross and the net scheme.

8 3.7 Weighting of Life Cycle portfolios in the Life Cycle portfolios and CVP portfolios In the four Life Cycle portfolios and two CVP portfolios, investments are made in the underlying investment institutions with the following weighting: Category % Global Equities 20 Low volatility equities 20 Equities in emerging markets 20 Equity in real estate 20 High yield 20 Return Category % Non-government bonds Euro 67 Non-government bonds non-euro 33 Interest Category % Long Duration (duration 20) 100 Match 1 Category % Long Duration (duration 20) 62.5 Liquid assets 37.5 Match 2

9 Category % Global Equities 7 Low volatility equities 7 Equities in emerging markets 7 Government bonds Euro 9 Long Duration (duration 20) 43.5 Long Duration (duration 40) 12.5 High yield 7 Equity in real estate 7 CVP gross Category % Global Equities 7 Low volatility equities 7 Equities in emerging markets 7 Government bonds Euro 9 Long Duration (duration 20) 43.5 Long Duration (duration 40) 12.5 High yield 7 Equity in real estate 7 CVP net 3.8 Rebalancing Rebalancing of the Life Cycle profiles takes place each quarter; the ratio between the Life Cycle portfolios is then (re-)adapted to the target weightings as set out in the annual Investment Memorandum, where necessary.

10 The weightings of the Life Cycle portfolios and CVP portfolios listed in the table in section 3.7 are target weightings. The current weightings may differ from the target weightings as a result of, for example, market developments. If these differences are outside the specific ranges set out in the annual Investment Memorandum, the Life Cycle portfolios and CVP portfolios will be brought back within the range. The objective is an interest-rate exposure (duration) of Life Cycle portfolio Match 1 of 20 years, and of Match 2 of 12.5 years. The current duration may differ from the target duration owing to developments in the financial markets. If these differences are outside the certain range set out in the annual Investment Memorandum, the duration will be brought back within the range. 3.9 Responsible investment In relation to responsible investment, SNPS has the investment belief that involved shareholdership stimulates sound governance and corporate responsibility. SNPS is still young and invests its assets in investment funds managed by external asset management companies. Therefore, SNPS is not the legal owner of the investments held in these funds. As long as this is the case, SNPS will fulfil this investment belief with a secondary responsible ownership policy. This means that the Board will ensure that an external asset management company at least has a suitable voting and engagement policy, and also implements it and reports on it. Preferably, this policy is based on the Global Compact criteria for corporate responsibility formulated by the United Nations. These criteria are based on compliance with international human rights and labour rights, the environment and anticorruption practices. Furthermore, when choosing an external Asset Management Company, the Board takes into account the fact that it applies stringent sustainability criteria to the implementation of the investment policy of the investment fund that SNPS is considering investing in. The Board is assisted in this by the appointed fiduciary asset management company.

11 In any case, at an annual meeting, the Board will determine whether, in its opinion, the external asset managers who manage (a portion of) the assets of SNPS, implemented their policy in this area satisfactorily during the previous year. The Board follows developments in the field of responsible investment in the market very closely and in any event discusses whether the Responsible Investment policy requires adjustment at least once a year Investment institution selection (criteria) SNPS has outsourced the selection of investment institutions in which the participants ultimately invest (via four administrative Life Cycle portfolios and two CVP portfolios) to Achmea Investment Management B.V. A number of selection criteria have been agreed on as part of this outsourcing process. Furthermore, the final selection of an investment institution is subject to prior approval by SNPS. From a cost point of view, it has been decided to use (as far as possible) institutional investment organisations. This does mean, however, that daily marketability is not always possible. Therefore, for a certain time, participants investments may not be (completely) in line with the choice they have made for a certain Life cycle profile. The cost savings associated with institutional investing (in comparison with retail funds/share classes which are daily marketable) are considered to more than compensate for this. Where opportune, the Life Cycle portfolios and XVP portfolios comprise passive investment institutions. The added value of actively managed investment institutions is closely monitored Prudent person and duty of care SNPS is responsible for ensuring that the investments comply with the provisions under or pursuant to the Pensions Act, in particular with the prudent person rule and (since the pension scheme offers participants the option of deviating from the Neutral Life Cycle profile) with the required duty of care. In the Board's opinion, with the strategic Investment Policy as set out in this Statement of Investment Principles and formulated in greater detail in the annual Investment Memorandum,

12 the asset portfolio is invested in such a manner that the security, quality, liquidity and yield of the portfolio are safeguarded across the board. The portfolio and policy enable the participants to earn an adequate and as such sustainable pension income. The intention of the portfolio and policy is also to safeguard the participants against the loss of significant amounts relatively soon before their retirement date. The portfolio is broadly diversified primarily across regulated markets. No derivatives are used at a strategic investment level. Investments in the Shell Group are very limited. The underlying investment institutions are assessed for their market value. SNPS does not take out loans unless they are of a temporary nature to meet liquidity objectives and does not act as a guarantor on behalf of third parties Investments in Shell The underlying investment institutions may include positions in Royal Dutch Shell plc securities. SNPS is unable to influence this element of the Investment Policy of the investment institutions in which investments are made. Investments made by SNPS in Royal Dutch Shell securities are legally limited to a maximum of 10% of the total portfolio Use of derivatives SNPS does not use any derivatives, for example to cover currency risks. Derivatives may be used in the underlying investment institutions Securities held in custody and securities lending SNPS has appointed an independent custodian and also ensures that the investments in the underlying investment institutions are kept bankruptcy remote. Securities lending may form part of the investment policy of the underlying investment institutions Accounting principles Investments in the underlying investment institutions are valued (as far as possible) at current cost.

13 4. (Potential) risks Contributions are invested individually at SNPS at the risk and expense of the participant or former participant. By means of the available investment options (the Life Cycle profiles and the CVP investment mix) the Board has set limits to the investment choices to be made by participants and former participants, and their associated risks. The most significant risk to the participant is the investment risk (particularly marketable securities and interest-rate risk). This risk is inherent to investing. This means that yield is the reward for taking risks. Risks are therefore inevitable in the Investment Policy, but must be taken with care. This is one of the Board's Investment Beliefs. In the implementation of the Life Cycle portfolios and CVP portfolios, this is translated as follows. Far-reaching adjustments to the Life Cycle portfolios, the CBP investment mix, the Life Cycle portfolios and the CVP portfolios are only made on the basis of an ALM study. A survey is conducted among the Board to establish its acceptance of risk prior to the study. An important parameter here is the expected pension result. The Board aims for the highest expected pension result possible at an acceptable level of risk. Furthermore, the investment risk is adjusted over time, since: The broader the horizon, the greater the recovery capacity, and Participants must be protected against significant loss of expected income relatively close to the retirement age of 67. Furthermore, the Life Cycle portfolios are sufficiently diversified, i.e. spread across several investment categories, countries, sectors and companies, for example. The Board periodically monitors the Life Cycle profiles, the CVP investment mix, the Life Cycle portfolios and the CVP portfolios to ensure that they still correspond with the principles applied and fit with the choices made by participants and former participants. There is a risk that, on the retirement date, a fixed or variable annuity has to be purchased at a relatively unfavourable time, for example if the balance in the pension investment account has decreased due to market developments or because the purchase of a fixed or variable annuity

14 is more expensive than expected, due to the interest rate. Moreover, the balance in the pension investment account may be negatively affected by inflation. There is also the risk that the full balance in the pension investment account cannot be realised because the liquidity of part of the relevant investments in the underlying investment institutions will have dried up (temporarily or otherwise). SNPS has attempted to mitigate these and other risks, partly by making it possible for participants in the CVP to join 10 years before the regular retirement age. The Life Cycle portfolios and CVP portfolios largely invest in underlying investment institutions which are denominated in, or fully hedged to, euros. Other investments are made in a number of underlying investment institutions which are denominated in other currencies. The currency risk associated with the latter category is not hedged. 5. Fees and (other) costs The return from the underlying investment institutions is impacted by the costs deducted from these investment institutions by the relevant asset management companies. The majority of these costs are expressed by the "Total Expense Ratio" which is listed in the annual report of the underlying investment institution. This is always a look back and may differ from the costs in the current year. Any purchase and sale costs are factored into the value of the investments. 6. Maximum pensions The accrual of the pension investment balance is subject to tax thresholds. At various times, the Pension Fund will assess whether the retirement pension and partner s pension which can be purchased from the pension investment balance are within the tax thresholds. If the financial assessment reveals that the balance is above the tax thresholds, the part of the pension investment balance exceeding the thresholds will irrevocably revert to SNPS. 7. Monitoring and evaluation Every quarter, the Board receives reports on the risk and performance of the Life Cycle portfolios, CVP portfolios and the underlying investment institutions and discusses them during the Board Meeting.

15 The Board also receives regular SLA reports, reports about non-financial risks and annual ISAE 3402 type 2 reports. Furthermore, an annual evaluation establishes whether the economic conditions have changed vis-à-vis the assumptions that form the basis for the most recent ALM study, and whether it is opportune to conduct a new ALM study before the end of the normal three-year ALM cycle.