pensions news - shell

FOR MEMBERS OF THE BG PENSION SCHEME

INSIDE: Financial highlights • Investment update • Summary Funding Statement

March 2020

PENSIONS NEWS

2 BG PENSION SCHEME2 BG PENSION SCHEME

As this newsletter goes to print, we are embarking on the statutory financial health check of the Scheme, the triennial valuation. This is a careful evaluation by the Scheme actuary of the expected stream of payments we will be making to you, the members, which is then compared to the assets available to make those payments, now and in the future, to establish the funding position. If there is any shortfall, we need to plan on how to close that gap. We will report in full on the outcome of the valuation in the next newsletter.

As well as the triennial valuation, your Trustees are constantly monitoring the funding position and we produce a formal

annual update. The 2019 update is presented on page 12 as part of the Summary Funding Statement we are required by law to provide to members. You will see that at the March 2019 update, the Scheme was 98% funded on an on-going basis. The Summary Funding Statement also notes the employer guarantee and security arrangements which are in place to protect the Scheme against damaging contingencies.

The healthy funding position does depend on an assumed level of investment returns – albeit modest – and on careful conservation of asset values against the liabilities represented by future benefit payments.

Welcome to the 2020 issue of Pensions News, the newsletter for members of the BG Pension Scheme (‘the Scheme’). Your Trustees hope you find it interesting and informative.

WELCOME

In the last newsletter, I reported that we had appointed the Shell Asset Management Company (SAMCo) to work alongside Hymans Robertson as our investment advisers.

There have been no radical changes arising from that collaboration but some further gradual evolution in the strategy. The proportion of liabilities protected against changes in interest rates and inflation expectations has increased further, we have increased the proportion of the assets invested in both government and corporate bonds and the ‘Diversified Growth’ mandate with Invesco has been cancelled. Further details of the

PENSIONS NEWS – March 2020 3

ContentsScheme noticeboard 4

Financial highlights 7

Who’s in the Scheme 8

Investment update 9

Summary Funding Statement 12

Your Trustee Board 15

Contact us 16


current investment strategy are provided on page 9.

In the last newsletter, I reported that, with the benefit of advice from Hymans Robertson, the Trustees had appointed a new manager, Aegon, to run the assets members have invested in through their Additional Contributions. This change went live during the year and all Additional Contribution accounts were transferred with little fuss. The Trustees are grateful to all involved in this operation, including the affected members, for their pragmatic and efficient approach, and we are pleased that the AC offering now provides a more accessible and flexible service.

Your Trustees are pleased to report that the BWebstream service provided by Barnett Waddingham, the Scheme administrator, is now in operation. This allows members much greater real-time visibility and control of your benefit provision. We hope that those of you who have registered for the service have found it helpful and encourage the rest of you to take advantage of it. Details are provided on page 4.

As we notified you earlier this year, like other schemes of our size, we would like to

cut down on the amount of paper we issue and postage costs we incur and so from June 2020 we will no longer send paper communications in the post. Instead, all your information will be accessible through BWebstream. If you wish to continue to receive paper communications, please contact the administration team who will be able to make a note of your communication preferences.

This newsletter also contains other information which we hope is useful. As always, there is a section warning you about pension scams. Please do pay attention to this – no matter how wise we may all think we are, there is always someone thinking up new ways to trick us into an unwise action.

As usual, I close with heartfelt thanks to your Trustees for their diligence and hard work on your behalf, and to Haydn Jones, who as Scheme Secretary, keeps us all up to the mark.

Martin Jones Chairman of Trustees, BG Pension Scheme

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Scheme noticeboardYour pension at your fingertips

Don’t forget that you can get the latest information about the Scheme at any time using BWebstream, the online service provided by our administrator, Barnett Waddingham.

It is a great way to stay up to date with the Scheme and keep track of your pension. If you are a deferred member, there are also some useful online tools to help you plan for your retirement as well as review your Additional Contribution (AC) fund.

What can I do online?BWebstream is a secure website that allows you to:

■ review and update your personal details

■ send and receive documents securely

■ update your nomination form

■ view your benefit statement showing the most recent value of your deferred pension

■ read the latest announcements from the Trustees about the Scheme

■ find copies of the Scheme’s documents

■ check the value of your AC fund

■ make changes to your AC investment funds

■ view your pension payslip and payment history (if you are a pensioner)

■ get in touch with the administration team.

Logging into BWebstreamYou will have received your login details and password from Barnett Waddingham in April 2018. However, if you have not yet registered to use BWebsteam and/or have misplaced these details, please get in touch with Barnett Waddingham’s specialist team on 0141 447 0799 (UK) or +44 141 447 0799 (overseas), who will be happy to assist you.

You can log into BWebstream at https://logon.bwebstream.com


GMP equalisation update

In last year’s newsletter, we reported on a High Court ruling about Guaranteed Minimum Pensions (GMPs). GMPs were accrued at different rates for men and women and were payable at different ages, reflecting the different State pension age for men and women at the time. It could affect you if you were an active member of the Scheme between 17 May 1990 and 5 April 1997.

As a result of the ruling, GMPs must now be equalised. The Trustees are working with the Scheme’s administrators on the complex process of adjusting benefits, which will take some time to complete. While no-one’s pension will decrease, some men and women may see a small increase in their benefits. However, members should note that the amounts are likely to be modest. You do not need to take any action as we will contact all members who are affected in due course.

Could you spot a pension scam?

Pension scams can be hard to spot but their effects are devastating, with many people losing their life savings. While promising high returns and low risk, in reality, pension scams can leave you with nothing. In addition, you could then face a high tax bill from HM Revenue and Customs if you withdraw your savings before age 55.

Scams often involve unusual, high-risk investments like overseas property, renewable energy bonds, forestry, parking or storage units. If it sounds too good to be true, it probably is. Anyone can be a victim of a pension scam, no matter how savvy you think you are.

The warning signs include:

■ unexpected contact – cold-calling about pensions is illegal so just hang up. Similarly, if you get unexpected texts or emails, ignore them.

■ time pressure – time-limited offers such as bonuses or discounts

■ social proof – fake reviews

■ unrealistic returns – it’s too good to be true

■ false authority – claiming to be regulated. You can check if the firm is FCA-authorised.

■ flattery – building a friendship with you to lull you into a false sense of security.

For more information about pension scams and how to avoid them, please see www.fca.org.uk/scamsmart where you can also try out the FCA’s pensions scam quiz.

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Scheme noticeboard continued

Pension increases

Pensions in payment from the Scheme are reviewed in April each year and normally increase in line with inflation as measured by the Retail Prices Index. The four pension increases awarded up to and including April 2019 were as follows:

April 2019 3.3%

April 2018 3.9%

April 2017 2.0%

April 2016 0.8%

No discretionary increases were applied during the year. Members who have elected to become either a ‘Fixed Protection Member’ or a ‘Fixed Protection 2014 Member’ under the Rules receive increases to their deferred pensions that are restricted to the lower of CPI and RPI. This is to prevent their protected Lifetime Allowance status being lost because of the standard increases that would otherwise be applied.

The next increase to pensions in payment will be at April 2020, when the increase will be 2.4%.


Financial highlights

Value of Scheme at 1 April 2018 £1,993m

Investment income £48m

Benefits paid (£88m)

Change in market value of investments £67m

Value of Scheme at 31 March 2019 £2,020m

The Trustees produce a formal financial report and set of accounts each year, which are independently audited by Crowe UK LLP. The information on these pages is a summary of the report for the year ending 31 March 2019, but if you would like to see a copy of the full report, you can request one from the Scheme administrator.

Who’s in the Scheme?

Deferred members Deferred members

1,161 1,260

Pensioners Pensioners

844 792

Scheme membership as at 31 March 2019

Total membership 2,005

Scheme membership as at 31 March 2018

Total membership 2,052

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Investment updateReducing investment riskDuring the year, the Trustees carried out a review of the investment strategy for the Scheme and agreed to reduce the investment risk in light of the improvement in the Scheme’s funding position. As a result, they reduced the allocation to return-seeking assets to 65% (from 70% in 2018) and increased the allocation to Liability-Driven Investment to 35%.

In order to reduce the investment risk in the Scheme, the Trustees redeemed the entire allocation with Lansdowne Partners and Invesco Perpetual. These allocations were invested in a collateral pool for the liability hedging programme and a new emerging market local currency debt mandate managed by Wellington Management Company LLP. In addition, a new mandate for Investment Grade credit has also recently been allocated to M&G Investment Management Limited.

The Trustees reviewed the Scheme’s target interest rate and hedge ratio and agreed to increase the target from 45% at the start of the year to 67% by the end of the year.

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How are the Scheme’s assets invested?The chart below shows how the new asset allocation for the Scheme at the end of the year has changed from the previous strategy as outlined in the SIP.


Investment update continued

Investment Strategy

Global equities Property Multi-asset liquid credit

35%5%

Private Debt Insurance-linked securities Emerging market debt

Total100%

10%

10%

10%

5%

10%5%10%

5%

35%

* The interest rate and inflation risk protection provided by the LDI portfolio is intended to offset around 67% of the Scheme’s liabilities.

Investment grade credit Asset backed securities LDI portfolio*

Who are the Scheme’s investment managers?The Scheme’s assets are split between the following investment managers as at 31 March 2019.

Passive equities State Street global Advisors (SSGA)

Property CB Richard Ellis Investors (CBRE)

Alternative credit Henderson Investment Management Ltd M&G Investment Management Limited

SCOR Investment PartnersInsight Investment

Liability-Driven Investment Insight Investment

Emerging market debt Wellington Management Company LLP (from 5 April 2019)

Absolute return Lansdowne Partners (to October 2019) Invesco Perpetual (to March 2019)

Investment performance The Scheme delivered a reasonable positive absolute return of 7.3% over the year to 31 March 2019. However, the Scheme underperformed its benchmark by 0.6%, primarily as a result of underperformance by the CBRE UK property, M&G, SCOR and Henderson mandates. In contrast, the CBRE global property and Insight LDI mandates outperformed their respective benchmarks for the year. As expected, the SSgA mandate broadly tracked its benchmark delivering an absolute return of 10.7%.



Summary Funding StatementFor the period ending 31 March 2019

As someone entitled to benefits from the Scheme, the following information is to update you on the Scheme’s funding position. We provide you with statements like this each year. The last statement covered the year ending 31 March 2018.

The latest Scheme funding valuationThe latest full valuation of the Scheme looked at the position as at 31 March 2017. Since then, the actuary has produced update reports looking at the position as at 31 March 2018 and 31 March 2019. The results of the full valuation alongside the actuary’s updates are shown below:

Valuation 31 March 2017

Update 31 March 2018

Update 31 March 2019

Value of Scheme’s assets £1,991m £1,993m £2,020m

Value of members’ benefits £2,232m £2,048m £2,063m

Shortfall £241m £55m £43m

Funding level (ongoing) 89% 97% 98%

Change in the ongoing funding positionThe funding level as at 31 March 2019 has improved slightly since the previous year. This is mainly due to better than expected investment returns and has been offset by an increase in the value of members’ benefits due to changes in market conditions.

Material variations in the funding position will arise from time to time reflecting the investment and mortality risks inherent in the operation of the Scheme. However, these variations should be viewed in the context of the Company’s financial position.

The next formal valuation of the Scheme will be carried out by the actuary as at 31 March 2020, and is currently underway.


The recovery planTo eliminate the shortfall (plus interest), the Trustees and the Company agreed a recovery plan under which a lump sum contribution of £91 million was paid into the Scheme in October 2017. It was also agreed that no further payments relating to the shortfall as at 31 March 2017 would be paid by the Company before 30 June 2028, as it is expected, based on the results of the actuarial valuation as at 31 March 2017, that the shortfall (including expected future costs and expenses relating to the Scheme) will be eliminated by that time by investment returns generated from the Scheme’s assets.

Although the Scheme is now closed to future accrual, the Trustees and the Company have entered into a formal agreement to continue to run the Scheme to provide members’ benefits. As part of this agreement, an asset-backed contribution structure has been established under a Scottish Limited Partnership. Under this arrangement, monthly payments are guaranteed by BG Energy Holdings Limited and backed by a loan, which is secured against two ships owned by BG. This structure is intended to remain in place until 2028.

The Scheme’s interest in the Partnership has been allowed for within the value of Scheme assets when determining the ongoing funding position.

In addition, as part of the acquisition of BG Group by Shell, Shell Petroleum NV agreed to guarantee all the liabilities of the Scheme until 2033 up to a cap. This cap is £1 billion until 2028 and, from 2028 to 2032, a lower number which will depend in part on the size of any shortfall at the time.


Summary Funding Statement continued

The latest solvency positionAs well as assessing the ongoing funding position of the Scheme, the ‘buy-out cost’ of securing members’ benefits in full with an insurance company, had the Scheme been wound up, was estimated. On 31 March 2017, the Scheme assets covered 77% of the £2,582 million estimated buy-out cost, i.e. there was a shortfall on this measure of around £591 million. The disclosure of this assessment (known as the solvency position) is a statutory requirement and does not imply that the winding up of the Scheme is being considered. If the Scheme were to be wound up, the Company would be required to fund the Scheme to 100% of the buy-out cost.

No intervention by the Pensions RegulatorIn certain circumstances, the Pensions Regulator has powers to intervene in a pension scheme’s funding plan by changing the future accrual of benefits, setting the level of the statutory funding objective, setting the terms of the recovery plan for meeting the statutory funding objective and/or imposing a schedule of contributions. The Pensions Regulator has not used any of these powers in relation to the Scheme.

Payments to employersNo payments of surplus have been made from the Scheme to the employers participating in the Scheme in the last 12 months (or at any other time).

Where can I get more information?If you have any questions about the Scheme or would like more information, please contact the Scheme administrator using the details on page 16.


Your Trustee BoardThe Scheme is run by a corporate trustee called BG Group Pension Trustees Limited. The Board has seven Trustees: an independent Chair, three Trustees appointed by the Company and three who are elected by members of the Scheme.

Independent Chair Martin Jones, Capital Cranfield Pension Trustees Limited

Member-nominated Trustees (MNTs)

Carol BoltonHector Rosales-MacedoRichard Souchard

Company-appointed Trustees

Alan BeckenTsira Kemularia Kathryn Taylor

Scheme Secretary Haydn Jones, Shell Trustee Services Unit

Contact usIf you have any questions about the Scheme or your benefits, please contact the Scheme administrator, Barnett Waddingham.

Call us:0800 004 2009 (UK only)+44 (0) 1494 788 814 (from overseas)

Email us:[email protected]

Write to us:BG Pension SchemeBarnett Waddingham LLPDecimal PlaceChiltern AvenueAmersham HP6 5FG

Go online:https://logon.bwebstream.com

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