2013 IN BRIEF PENSIONS ON THE MOVE. Stichting Shell Pensioenfonds

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1 2013 IN BRIEF PENSIONS ON THE MOVE Stichting Shell Pensioenfonds

2 FUNDING RATIO The funding ratio is the relationship between the current assets (the funds held by the Pension Fund) and the pension liabilities (the funds that are needed to cover all current and future pensions). The funding ratio is assessed once per month. On December 31, 2013, the funding ratio was 131%. Assets The Pension Fund s assets rose by 1,268 million from 21,171 million to 22,439 million at year-end This increase was mainly attributable to the favourable 7.0% return on investment that the Pension Fund achieved last year. Provision for pension liabilities The provision for pension liabilities fell by 602 million, from 17,722 million to 17,120 million. The principal reason for this decrease was the increase in the interest that the Pension Fund is obliged to apply when calculating its liabilities. When the interest rate rises, the provision for the pension liabilities will be lower. The market rate of interest rose from 2.40% to 2.74% in Due to the combination of an increase in assets and a reduction in the provision for pension liabilities, the total net assets of the Pension Fund rose by 1,870 million, from 3,449 million to 5,319 million. This increase in the net assets was favourable for the funding ratio. As a result, the funding ratio rose from 119% at year-end 2012 to 131% by year-end The Pension Fund s required funding ratio at year-end 2013 stood at 123%. More information about the Pension Fund s assets, liabilities and funding ratio can be found on the website: funding RECOVERY PLAN A Recovery Plan, approved by the Dutch Central Bank (De Nederlandsche Bank, DNB), has been in place since mid The Plan outlines how the Pension Fund intends to restore the funding ratio to 105% within three years and to the statutory level within 15 years. At year-end 2013, the required level for the Pension Fund stood at 123%. At 131%, the funding ratio was therefore higher at year-end Nevertheless, according to the DNB the Recovery Plan only ends when the funding ratio remains above the requisite level for three consecutive end-quarterly periods. This was achieved on March 31, 2014, when the funding ratio stood at 131%. 135% 130% Development of funding ratio during % 4.0% Funding ratio 125% 120% 115% 110% 105% 3.5% 3.0% 2.5% 2.0% 1.5% Market rate of interest 100% Dec Jan Feb March April May June July Aug Sept Oct Nov Dec 1.0% Funding ratio required for the Pension Fund 1 Market rate of interest Funding ratio Statutory minimum funding ratio 2 1) This is the level which is required for the Pension Fund, based on the investments and the associated risks 2) This applies to all pension funds in The Netherlands

3 INVESTMENT RESULTS The economic environment and the financial markets were much discussed during the past year. Despite the continued economic recovery, many items of concern remain. For example, poor economic growth and high levels of (youth) unemployment in Europe. The Pension Fund closed the year under review with a positive investment result. This led to an increase in the net assets. In 2013, an investment result of 7.0% was achieved (in 2012: 17.0%). The Pension Fund invests in equities, fixed-income investments and alternative investments. It was a good year for listed equities; however the return on fixed-income investments proved disappointing. The table below shows the distribution of the investments and the return on investment in For more information on investments, visit the website: pensioenfonds-en/funding. Detailed financial information can be found in the Annual Report. The Annual Report is also available on the website (Dutch only). Net results and distribution of investments in 2013 Returns are net of exchange-rate hedging and after deduction of asset management costs Strategic investment Returns in 2013(%) distribution in 2013(%) Pension Fund Benchmark Equities Fixed-income investments Alternative Investments Total Interest-rate hedging fixed Interest-rate hedging variable Total returns

4 RESPONSIBLE INVESTMENT The Pension Fund pursues a responsible investment policy and examines the business operations of the companies it invests in. As an investor, the Pension Fund has the right to vote at the general shareholders meetings of these companies. It endeavours to exercise these rights in as many companies as possible, except with regard to shares in Royal Dutch Shell plc. For practical reasons the Pension Fund usually votes remotely, without being present at the general shareholders meetings. Where necessary, the Pension Fund will enter into discussions with the management of a company. For example, in relation to the conduct of corporate policy, environmental and climate issues, human rights and social relations. The Pension Fund assigns a specialised service provider to perform both these activities. In 2013, the Pension Fund voted remotely at 7,671 shareholders meetings. At 3,506 of these meetings one or more resolutions were opposed. Discussions were held with 560 companies about various subjects, including: Board structure, staff and the community relations, health and safety, child labour, controversial weapons, corruption, climate change and environmental issues. For more information on the responsible investment policy, see responsibleinvestment. On this website, the Pension Fund also reports on implementation of this policy every quarter.

5 INDEXATION AND CONTRIBUTIONS Indexation It was possible for the pensions in payment to be indexed as from July 1, The Board decided to grant a 1.5% increase. The development of the funding ratio was not sufficient to catch up the missed indexation of July 1, 2012 (2.2%) as well. No capital reserve has been formed and no contributions are paid to cover conditional indexation. This indexation is financed from returns on investments. The Pension Fund s indexation policy is outlined on the website: pensioenfonds-en/indexation. The indexation brochure can also be downloaded from this website. Contributions The Pension Fund strives to achieve its objective by means of reasonable and stable contributions. It invests the contributions paid in by the employer and by the participants. The employee's (participant's) contribution is laid down in the Regulations. The contribution paid by the employer depends on the Pension Fund's financial situation. The employer s contribution is determined by the Board, in consultation with the certifying actuary. In 2013, the employer's contribution amounted to 41.6% of the salary sum. In the first half of the year, the contribution payable by participants was 2% on the salary components up to 77,899 and 8% on the salary components above that limit. As from July 1, 2013, the limit was set at 78,700. On average, the participants paid a contribution of 3.4% of the salary; in 2013 the total pension contribution amounted to 45% of the salary sum. For more information please see: www. shell.nl/pensioenfonds-en/funding CLOSURE OF THE PENSION FUND The year 2013 was a special year because with effect from July 1, 2013, the Pension Fund became closed to new participants. This means that no more new participants will take part in the pension scheme. The Board has carefully considered the effects of the closure in the long term and weighed up the interests of all concerned. The main consequence is that the average age of the active participants will rise. If the average age goes up, the total contribution as a percentage of the total salary sum will be higher. The assets and the provision for pension liabilities will fall in the long term. The closure is not expected to impact on the anticipated indexation of pensions in the future.

6 OPERATING COSTS Pension funds incur costs with respect to the operation of pension schemes. The Federation of the Dutch Pension Funds drafted recommendations in 2011 with regard to the reporting of operating costs and made some more additions in The Board s aim is to provide information on the Pension Fund s operating costs on the basis of these recommendations, in so far as details are available. Operating costs comprise of pension management costs, asset management costs and transaction costs. Pension management costs - these include pension administration costs, communications costs, costs incurred by the Board, financial management and project costs. In 2013, these costs amounted to about 220 for each contribution paying participant and pensioner. This was the same as in Asset management costs - these generally encompass the costs associated with the administration and holding of investments; including performance related fees, custody fees and the fees payable to accountants or legal advisers. Some of these costs are charged directly to the Pension Fund. Other costs, referred to as indirect costs, have a bearing on the returns for The total asset management costs came to 192 million in 2013 (2012: 153 million). This increase is principally due to the catching up effect with respect to the performance related fees. In basic terms, this is due to the fact that in respect of a number of investments, the fees due to the asset managers on their portfolio returns in 2013 and in previous years are only paid after a period of time. The performance fees payable by the Pension Fund in a given year are, therefore, not wholly attributable to the returns for that particular year. Transaction costs - these are costs that are incurred by the Pension Fund when purchasing and selling investment products. They make up a part of the price of the investments. In 2013, these costs came to an estimated 23 million (2012: 19 million). The increase is due to the rise in the number of transactions in The reason, among other things, was because the Pension Fund sold more shares and bought more bonds during the year. This served to reduce the investment portfolio risk, in line with the investment policy.

7 Historical overview Active participants 11,327 11,182 10,879 10,933 11,517 11,690 11,655 11,226 10,589 10,591 Pensions in payment 19,646 19,584 19,522 19,471 19,562 19,554 19,509 19,300 19,003 18,878 Former 6,319 6,458 6,717 6,855 6,616 6,701 6,639 7,010 7,458 7,605 participants Total 37,292 37,224 37,118 37,259 37,695 37,945 37,803 37,536 37,050 37,074 Assets 22,439 21,171 18,247 17,445 15,473 10,598 19,257 18,570 16,153 13,770 (EUR million) Provision for 17,120 17,722 16,419 14,183 12,978 13,213 10,679 11,256 11,120 10,197 pension liabilities (EUR million) Funding ratio (%) Total returns (%) Indexation of life-long pensions (%) Catch-up indexation In 2004 based on 4% actuarial interest 2 The funding ratio is calculated on the basis of the average interest rate for the previous three months. The yield curve that applies here is the so-called 'UFR' as prescribed by DNB.

8 COMMUNICATIONS & ORGANISATION Communications A lot happened in 2013 and this in turn led to additional communications throughout the year. For example, the changes in Dutch State Pension (AOW) legislation at the beginning of 2013, the closure of the Pension Fund for new participants and the changes in the pension scheme that came into effect on January 1, The Pension Fund availed of various (new) means of communication, including video messages and short animated films on the website. Three sessions were organised for HR staff to acquaint them with the pension scheme changes coming into effect in January A special helpdesk was made Introduction of Regulation VI The pensions have been economized as from January 1, The retirement age has been increased from 65 to 67 and the permitted pension accrual has been reduced. Active participants have received an allowance to mitigate the negative effect of the reduction in pension accrual. This was achieved by means of a 3% increase in the pension basis for the portion of the salary up to the 100% scale position in salary group 3. The adjustments in the pension scheme have been incorporated in new regulations: Regulations VI. available to deal with queries from participants. At year-end 2013, the national Benchmark Review Platform (BOP - an online survey of participants and pensioners) was organised for the second time. The Pension Fund scored above the national average. The various information options made available by the Pension Fund are widely used. In 2013, video messages and short animated films were introduced aimed at making the communication more interactive, a point for improvement taken from the previous measurement (2012). Participants were positive about the special web page and the personalised brochure on the increase in the retirement age from 65 to 67 years. The BOP survey is an initiative undertaken in the pension sector, providing a national comparison of the ways in which pension funds communicate. A further survey will be conducted by the Pension Fund in Organisation The Pension Fund administers the pension scheme on behalf of Shell in the Netherlands; it has assigned Shell Pensioenbureau Nederland (SPN) and Shell Asset Management Company (SAMCo) to perform these tasks. SPN has been appointed director of the Pension Fund; it manages the day-to-day affairs and maintains contact with participants and pension beneficiaries. SPN also supports and advises the Board on pension policy matters, asset management supervision and risk management. The Board has ultimate accountability. SAMCo manages the Pension Fund s assets and advises the Board on portfolio investment matters. Investment proposals are discussed first by the investment committee; these matters are then decided by the Board. Participation in decision-making by the participants and pension beneficiaries is processed through the participants' council. Every year the Board reports to the Accountability Council on the policy it has pursued. The Internal Supervision Committee reviews the Board s performance and reports on this annually. The Internal Supervision Committee's report, the Accountability Council's assessment and the Board's response are to be found on the website: www. shell.nl/ pensioenfonds-en/organisation On this website you will also find details regarding the tasks, responsibilities and members of the various bodies and committees. The Dutch Pension Fund Governance Reinforcement Act will come into force on July 1, As a result, the organisation of the Pension Fund is set to change. Details of this can also be found on the website. This 2013 in brief brochure gives a summary of the course of events and key financial figures of Stichting Shell Pensioenfonds (the Pension Fund). This publication has not been verified by an external auditor and no rights can be derived therefrom. The companies in which Royal Dutch Shell plc participates directly or indirectly are individual legal entities with their own identity. In this brochure, Shell is used as a collective term to refer to the various Shell employers and joint ventures affiliated with the Shell Pension Fund.