Members of Shell’s Dutch defined contribution (DC) scheme have opted for variable benefits at retirement at a much higher rate than expected.
According to Peter Westgeest, supervisory trustee on behalf of the employer, when surveyed just 5% of participants wanted to receive fixed-rate annuities from an insurer at retirement.
Other providers of variable benefits have so far observed limited interest from members.
Variable payments involves an individual drawing down payments while their remaining pension rights stay invested, accruing additional pension income.
In 2013, Shell Netherlands closed its defined benefit (DB) scheme – SSPF – and started its individual DC pension fund for new workers, known as SNPS.
Last year, Dutch parliament passed legislation enabling defined contribution pension fund participants to opt for variable benefits, also known as drawdown plans.
Shell was among the advocates of such plans for DC arrangements. Without this option, DC schemes would generate lower pension incomes than DB plans.
Within DC arrangements like Shell’s, participants must make more choices than at traditional DB schemes, with options for lifecycle investments and benefits.
In SNPS, participants can opt for a collective variable pension at Shell at the age of 57.
This enables them to annually transfer 10% of their accrued pensions capital to Shell’s benefit scheme, which invests 35% in equity and the remainder in fixed income.
Speaking during the World Pension Summit in The Hague last week, Westgeest emphasised that the sponsor refrained from advising participants.
“Shell merely provides information and pays the contribution,” he said. “The risks lay with the participants.”
The employer does not deploy independent financial planners.
Westgeest said that he hoped that participants would be legally enabled to cash in part of their pension in a lump sum – a similar option is open to retirees in the UK.
Since the introduction of the legislation, four insurance companies have also developed variable drawdown products, which vary widely in their set up.
However, just a small minority of retirees – ranging from one in five at Allianz to one in 10 at Aegon, respectively – has opted for them.