Shell has lowered the employer contribution to its Dutch defined benefit (DB) pension fund from 40% to 18% as of 1 July as a result of a new methodology that does not disadvantage members, according to the Stichting Shell Pensioenfonds website.

According to the fund, which manages around €26bn, the 40% employer contribution rate was particularly high when compared with other pension arrangements.

The contribution was lowered from 45% to 40% last year, and the new 18% rate is the outcome of a study to set a new contribution methodology, undertaken as part of an asset-liability management study carried out last year.

The trustees wanted to address the high contribution level and were looking for a calculation method that fit better with the new financial assessment framework (FTK).

Taking the reduction into account, the overall contribution for 2016 will be around 30%.

Shell Nederland’s overall contributions for 2016 will fall by around €80m per year compared with what was paid in 2015.

In 2015, the fund received €320m in contributions, €40m more than it needed to achieved the required growth in pension payments, according to the fund’s annual report. 

The new methodology adjusts the contribution percentage in accordance with the expected return, the growth of salaries at Shell Nederland and the average life expectancy of the active members. 

The average age is increasing as the fund is closed to new members.

The fund also points out that future costs will increase because of the closure. 

The fund apparently no longer wishes to set a contribution rate solely related to the coverage ratio, as it previously did. 

The trustees will set the 2017 contribution at around the end of this year. 

The fund said the level of the contribution was partly dependent on the indexation granted to active members.

If indexation is higher next year than this year, the contribution will be higher. 

“In particular,” it added, “the contribution will rise and fall with the level of unconditional indexation granted to active members.”

It said members would not notice the stark reduction, as the contribution remains at 2%.

Future accrual and indexation expectations remain unchanged, according to the fund.

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