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Presentation to the Parliamentary Portfolio Committee of Finance 30 May 2007.

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Presentation on theme: "Presentation to the Parliamentary Portfolio Committee of Finance 30 May 2007."— Presentation transcript:

1 Presentation to the Parliamentary Portfolio Committee of Finance 30 May 2007

2 Agenda 1. Overview of the Shell Pension Fund 2. Past Benefit improvements to members 3. Surplus legislation (2001) and Amendment Bill (2007) 4. Effect of Surplus legislation on South African Economy 5. Alternatives for the consideration of the Legislature

3 Overview of Shell SA Pension Fund - Established 1975. Closed to new employees from 1995. - Pensions are key employee benefit – top quartile in market. - Consistently held up the best interests of members as a fundamental principle. - Significant benefit improvements granted throughout history of the Fund. - Employer contributed over two thirds of cumulative contributions to Pension Fund since 1980. - Employers have always acted in accordance with legal requirements and with professional actuarial & legal advice. - Well-managed fund in a healthy financial position.

4 Benefit Improvement for members - In 1990, resignation withdrawal benefits significantly improved - In 1994, retrenchment benefits were improved - In 1995, additional benefit improvement of 10% was given to all members and pensioners (value R81m) - In 1998, an offer to pay medical aid benefits from the Fund was implemented following wide engagement with trustees and a pensioner representative body and resulted in 97% acceptance. The deal included: - 100% CPI catch up increases for pensioners (CPI not guaranteed but practice was 75% of CPI) - Additional increase in pensions to replace the Company medical aid - R200 per month to pensioners not on medical aid - Safety net reserve (agreed at request of pensioners) valued at R150 m in 1999 Value of package including safety net was in excess of R400 m in 1998 No benefit to company except for the transfer of medical aid liability to pension fund.

5 Impact of Legislation on Shell and Economy Direct impact on Shell is significant: - Initial view from Fund Actuary valued Improper Use Amount at over R100 million as at 31 st Dec 2002. - Amendment bill has introduced an additional provision that requires interest to be paid on initial amount. - Continued risk exposure to Company regarding future surplus allocation. - Shareholder uncertainty regarding the investment. Broader Economic impact of legislation: - Certainty and predictability in the business environment are key factors considered by investors. Retrospective legislation, by its nature, creates uncertainty. - Retrospective legislation has potential impact on BEE transactions – creation of obligations for past activities that were lawful at the time. - ‘Improper use’ obligation creates a burden that Employers may not be able to bear, even if they conducted their funds in accordance with legislation.

6 Alternatives for the Consideration of the Legislature Proposal 1: Improper use is not made retrospective (Section 15B(6)(b)). Proposal 2: If legislation is retrospective, amend Section 15B(6)(b)(i) so that the Bill excludes any use of surplus which was properly communicated and approved by the Trustees. Proposal 3: Remove the requirement to pay interest on the initial amount of improper use – (Section 15B(6)(f)). Proposal 4: In a defined benefit fund redress the power of distribution of future surplus so as to reduce the ongoing exposure to Employers, which has the potential of discouraging defined benefit funds.


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