Title:SCPF Trustee Webcast Podcast

Title:SCPF Trustee webcast podcast

Duration: 62:45 minutes

Description:

Shell Pensions Trust Limited Shell Contributory Pension Fund Trustee Webcast, held January 2016.

SCPF Trustee webcast podcast Transcript

[Video footage]

Webcast window header at top of frame with the Shell logo frame-left and text appearing frame-right. This appears throughout the webcast.

[Text displays]

SCPF Trustee webcast

January 26, 2016 11:00 AM GMT

[Split screen]

Main webcast window features a split screen, with a slideshow presentation appearing frame-left, and live/streaming video appearing frame-right within the media player feature. The controls of the media player appear throughout the webcast.

Frame-left, text appears below the slideshow presentation featuring a section for resources and a small window for live contact with the service support team, with a small question mark icon in the top right hand corner of the small window denoting Help. This appears throughout the webcast.

Frame-right, text appears in a small window below the streaming video, for live questions to the presenters. This appears throughout the webcast.

[Text displays]

Event Resources

- Enlarge Slides

Contact Live Service Support team (if you need assistance or Click the Help Button for FAQ’s)

- Submit

Ask the Presenter(s) a Question

- Submit

[Slideshow Presentation]

Shell logo appears top of frame left with text displaying below in a large yellow block with an oblique shadow.

[Text displays]

Shell Pensions Trust Limited

Shell Contributory Pension Fund Trustee Webcast

January 2016

[Video streaming footage]

Black screen as the video stream connects.

Wide front view of six people seated at a table against the background of grey walls.Clive Mather, one of the central figures, gestures with his hands as he speaks and introduces each person seated at the table.

Below the video stream and to the right, a numerical counter displays the passing of time. This appears throughout the webcast.

[Text displays]

Connecting…

Connecting to media…

Buffering

London, Bank Street, 918/919

Playing ‘1_wmmulti’: 291K bits/second

Playlist2

[Title]

Chair of the Shell Pensions Trust Ltd

[Clive Mather]

Good morning.My name is Clive Mather.And I have the privilege to chair the Shell Pensions Trust, which is the governing body of the Shell Contributory Pension Fund.And I’m delighted to welcome you to this, our third online webcast, welcome you as active members of the fund to talk to you about what's going on, and to answer your questions.

Now I have a number of good friends with me to help me do that.So let me introduce them.On my far right I have Per Reiff-Musgrove, who is the head of the Trustee Support Unit.Next to her is Moira Shannon.Moira in her day job is an Associate General Counsel in the downstream.But she's also a Trustee of the Fund, as I am.

Next to me, Clive Hopkins, also a Trustee and Chair of the Investment Committee.On my left is Tim Morrison, who is a Trustee and Chair of the Technical and Communications Committee.And on my far left, Jonathan Kohn, who's a Trustee and the Vice President of Human Resources in the UK.

So they're all going to help me later on, when we get round to the presentation and the questions.But for now, let me just do a brief introduction.

[Slideshow Presentation]

A yellow title banner appears top of frame. Below it, text displays against bullet points.

[Text displays]

Welcome

- Constant challenge in uncertain times

- Your pension fund is in good shape

- Strong Team

- New Trustee Board

- Effective Committee Structure

- External Advisors

- Trustee Services Unit

- Shell Asset Management Company

[Video streaming footage]

Slow zoom in to close-up of Clive Mather as he speaks and gestures with his hands and occasionally looks off-camera to his left.

[Text displays]

London, Bank Street, 918/919

Playlist2

[Clive Mather]

I suppose I should start by saying we live in interesting times.Hardly a morning passes that the markets aren't bouncing up, or, too often I'm afraid, going down.And today is another market day when we're seeing share prices fall, crude oil falling, and general turbulence, not easy.And in a background where we also face a lot of change in legislation and tax, it does make for a real challenge for the trustee.

However, the fund is in good shape.And at the end of last year we had a surplus of 5%.So we had 105% of assets versus our liabilities.And that means that we are fully funded, and we remain so today, despite all of the happenings in the market.

We have a strong team.We have a Trustee board of 10, the trustees here today plus a few others.And at the end of last year we elected two new trustees from the membership, Sue Jones, who's a deferred pensioner; and Jonathan Fraser, who works in Finance in London.

We have a very effective structure, which comprises a Trustee Board, which I chair, plus two important committees.Tim chairs the Technical and Communications Committee; and Clive, the Investment Committee.And the trustees split themselves between those two committees.

I'm very happy about our advisors.We clearly rely on experts from Actuaries to Investment Advisors, Legal Advisors and Communications Advisors.So I think together they form a first-class team.And the Trustee is very-well briefed on all matters of importance.

We of course rely on the Trustee Services Unit, and they are really the foundation of the scheme.They do the administration.They support the trustee, and of course they communicate to you and provide information that you need as members of the Fund.

And last but by no means least, of course we have our asset management, which rests with SAMCo.SAMCo is a Shell company based in the Netherlands.And they manage all the day-to-day management of our investments, buying and selling as indicated within the strategies that we give them.

So enough of that introduction, let me just remind you how you can ask a question.

[Slideshow Presentation]

A yellow title banner appears top of frame. Below it, a large yellow block contains two red bubbles in which white text is displayed. A red down arrow separates the two bubbles.

[Text displays]

How to Ask Questions

1. Click on the ‘Ask a Question’ space on the bottom right of your screen and type your question

2. Click “Submit”

[Video streaming footage]

Close-up of Clive Mather as he speaks and gestures and occasionally looks off-camera to his left.

[Text displays]

London, Bank Street, 918/919

Playlist2

[Clive Mather]

We'd love to hear from you, whatever it is, whether it's about investment, administration, liabilities, what's happening in legislation, in tax, the Trustee Board, how we work, what's on our mind; please ask.

Just click on the Ask-a-Question space at the bottom right-hand side of your screen, and type in your question.Then click Submit.We will take as many questions as we can in the time we have available.

[Slideshow Presentation]

A yellow title banner appears top of frame. Below it, a large yellow block contains a horizontal line-up of five close-up portrait shots. A name is displayed below each portrait shot.

[Text displays]

Technical and Communications Committee

Mary Corrie

Sue Jones

Jonathan Kohn

Clive Mather

Tim Morrison

[Video streaming footage]

Close-up of Clive Mather as he speaks and gestures and then looks to his left as he hands over to Tim Morrison.

Pan to close-up of Tim Morrison as he speaks.

[Text displays]

London, Bank Street, 918/919

Playlist2

[Clive Mather]

From that, let me hand over to Tim Morrison.As I said before, Tim chairs the Technical and Communications Committee.And he's going to talk a little bit about the work of that committee.Over to you.

[Title]

Trustee and Chair of the Technical and Communications Committee

[Tim Morrison]

Thanks, Clive.So the Technical and Communications Committee who you see here, covers the technical side of the Fund.This involves taking care of the liabilities, particularly the valuations, which I'll say more about, risk management controls and communication.

And you see here the members of the committee.Sue Jones, who Clive mentioned; Jonathan Kohn, who's to my left; and Mary Corrie, who's a deferred pensioner who is also a valued member of the committee; plus of course Clive and myself.

[Slideshow Presentation]

A yellow title banner appears top of frame. Below it, three red, rectangular bubbles contain white text. Three vertically staggered red frames appear behind the red bubbles.

[Text displays]

Major Activities in 2014-2015

Full Actuarial Valuation as at 31/12/2014

Covenant Monitoring

Keeping up with new legislation and regulation

[Video streaming footage]

Close-up of Tim Morrison as he speaks, occasionally looking down and off-camera to his left.

[Text displays]

London, Bank Street, 918/919

Playlist2

[Tim Morrison]

The work that we do, major activities in the last couple of years, there's a lot of ground to cover.There's a lot of technical stuff.But these are the three main things that we've been paying attention to.One is the valuation.Every three years we do a detailed valuation of the liabilities of the Fund.The second is the Covenant.And I'll say more about the valuation and the covenant in a moment.

The third thing that we've been spending a lot of time on is simply dealing with the change that Clive mentioned.There's a lot of detailed regulatory change about how pension funds should be run.And then there are all the pension fund tax changes that the government has been putting through.So you'll be, I think, very well aware of the reducing Lifetime Allowance.There's pension freedoms. For high earners there's the reducing Annual Allowance and the end of contracting out.And then finally we've got, coming up in March, whatever the Chancellor has got in store for us following his review of pension taxation generally.

Now a lot of these affect benefits design initially, so that's something for the Company and for the Employer.But then whatever the employer decides to do about pensions in Shell, we then need to follow through and implement, as they affect the Fund.

[Slideshow Presentation]

A yellow title banner appears top of frame.

A large rectangular block shaded in lighter to darker hues of yellow and outlined in yellow appears below the title banner and is divided into two, the smaller left segment containing a header in a red bubble with text displayed below, and the larger right segment containing a header in a red bubble with an area chart displayed below.

The chart’s vertical axis is measured in segments of £100 million, extending from £0 to £800 million, and the horizontal axis is measured in increments of five years, extending from 0 to 100. The lilac shaded area of the chart ascends from £500 million to approximately £700 million within 20 to 25 years, and shows a decline to zero within approximately 80 years.

[Text displays]

Valuation Assumptions

Key assumptions:

- Discount rate

- Rate of inflation

- Longevity

Calculate value of liabilities

- Expected cashflows (£M) / Years into the future

[Video streaming footage]

Close-up of Tim Morrison as he speaks, occasionally looking downward.

[Text displays]

London, Bank Street, 918/919

Playlist2

[Tim Morrison]

So the big task in 2015 was to deal with the Valuation.So every three years, as I said, we do a very detailed valuation of all of our liabilities.And you see here on the chart the curve of our liabilities over the next, who knows, 80 years.There are about 30 billion of payments that we're due to make.And we value these liabilities and compare them to the assets we've got because the assets we've got, together with the earnings on those assets, have got to be enough to pay out all the liabilities.And so we check that.

What we do is we estimate the liabilities based on a range of assumptions about inflation, about the longevity of our members, particularly our retired members, and we estimate a prudent rate of return on our assets.So we discount the actual liabilities by this prudent rate of return, and then we compare that to the market value of our asset at any particular moment in time.

The calculations are very detailed, and we have excellent expert assistance from our Fund Actuary, Mike Webb of Aon Hewitt.And from all that and a great crunching of numbers, out comes a little bit of detail.The detail is this.

[Slideshow Presentation]

A yellow title banner appears top of frame.

A large rectangular block shaded in lighter to darker hues of yellow and outlined in yellow appears below the title banner and contains a header in a red bubble with text in a smaller bubble displaying text regarding valuation to the right of the header, with a red arrow pointing downwards to a line chart that appears below these.

The chart’s vertical axis is measured in segments of £1 billion, extending from £10 billion to £16 billion, and the horizontal axis is measured in quarterly increments extending from 2011 to 2015. A key to the right of the chart indicates that the blue line indicates the path of the market value of assets while the red line indicates the path of technical provisions liabilities.

[Text displays]

Funding Ratio History

Assets and Liabilities

Valuation 31 December 2014

Assets - £14.7 bn

Liabilities - £14.1 bn

Surplus - £616mn

Funding level - 104%

Liabilities measured on Technical Provisions basis

- Market Value of Assets

- Technical Provisions Liabilities

[Video streaming footage]

Close-up of Tim Morrison as he speaks, occasionally looking downward.

[Text displays]

London, Bank Street, 918/919

Playlist2

[Tim Morrison]

The important detail is that the blue line, which is our assets, is above the red line, which is our liabilities.

I'll say a little bit more about the discount rate, because that is so critical.We start off with risk-free rate of return, the rate of return on Gilts.And then because our assets, we have a spread of assets, many of which allow you to return more than gilts.We add on a little bit extra.Currently in this valuation it's 1.25%.And that tells us what our assets in the end will pay out.

It's worth bearing in mind the degree of prudence we include in that calculation because the estimated 50/50 outcome is not 1.25%, but 3.7%.So there's a heavy amount of prudence in there in determining that comparison of liabilities and assets. And if you see the big arrow points to where the valuation was at 104%,that compares to 98% last time we did the valuation in 2011.So there's been a considerable improvement.

And that's basically down to the fact that the returns over the 3-year period have been much better than the prudent rate of return we assumed in that 2011 valuation.And as Clive mentioned, at the end of 2015 we are well in surplus, and even after the recent eruptions, it still looks like we're fully funded.

And the strong position that we've got is down to very good investment performance over the years, and indeed healthy company contributions over many years.

[Slideshow Presentation]

A yellow title banner appears top of frame.

Three rectangular bars run horizontally across the screen below the title, shaded iin pale red/pink, yellow and grey respectively anddisplaying red text.

[Text displays]

Covenant Monitoring

Employer backing of Fund

Challenging industry conditions: prices & regulation

RDS covenant remains strong

[Video streaming footage]

Close-up of Tim Morrison as he speaks, occasionally looking downward and off-camera to his left.

[Text displays]

London, Bank Street, 918/919

Playlist2

[Tim Morrison]

The second topic I was going to cover in a little bit of detail was covenant monitoring.So the Covenant is a term for the undertaking a sponsoring employer makes to support the Fund if ever the money in the fund was insufficient to pay all the pensions in full.And it's a core Trustee duty to monitor the covenant.And so this is what we've been doing.

It's obviously critical if the Fund is in deficit.But we think, we value highly as trustees, the company covenant even though we are in surplus.And it's a valued back stop in uncertain times.

We've been paying increased attention to the covenant this year.Two reasons really. One is obviously the low oil and gas prices.And this condition may last for quite some sustained period.And the second is of course in the very long term, you saw the 50-plus year life of the Fund, there’s the question of the whole where does the hydrocarbon industry go, will regulatory action by Governments in response to climate change have an impact on the industry.So all of that gives us cause to be looking at the covenant carefully and we'll continue doing that.