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GB.273/PFA/12/2
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Programme, Financial and Administrative Committee |
PFA |
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TWELFTH ITEM ON THE AGENDA
Pensions questions
Report of the United Nations Joint Staff Pension Board
1. The United Nations Joint Staff Pension Board held its forty-eighth session at the United Nations Office in Vienna from 7 to 16 July 1998. Mr. Chotard, member of the ILO Staff Pension Committee, was the outgoing Chairman of the Board. The Board's report and recommendations will be considered by the United Nations General Assembly (UNGA) later this year. Copies of the report of the Board are available on request.
2. This session of the Board took place in a very different context to previous sessions. It was the first occasion since 1980 that the Fund has had an actuarial surplus, albeit a modest surplus (0.36 per cent of total pensionable remuneration). According to the Board's Committee of Actuaries, this situation could be expected to continue to improve in the short term, provided that the recent strong investment performance of the Fund's assets was maintained. In this regard, for the year ended 31 March 1998, the total return on assets was 20.4 per cent (the highest level in the past ten years). At the end of March this year, the market value of the Fund's assets had reached US$20.17 billion.
3. Against this background, the main issues examined by the Board concerned the implications of the Fund's modest actuarial surplus, the possibility of proposing limited additional benefits to Fund participants, concern over continuing increases in the administrative expenses of the Fund, and the transfer agreements between the Fund and the former USSR, Ukrainian SSR and Byelorussian SSR.
Implications of the actuarial surplus of the Fund
4. The recent actuarial gain in the position of the Fund is attributable not only to low inflation and the strength of the US dollar, but, as noted above, to the increase in the total value of the Fund's assets. In this respect, despite the financial turmoil in Asia, the Fund has continued to provide a significant real return on its assets, without incurring undue risk, by focusing on the criteria of safety, profitability, liquidity and convertibility. These investment returns are playing a key role in the positive adjustment of the past actuarial imbalance and in strengthening the Fund's overall financial position.
5. However, the Committee of Actuaries cautioned that it would be desirable to await further evidence, which would hopefully be available to the next actuarial valuation in the year 2000, of a continuing positive trend in the Fund's general position, before the Board took decisions to improve overall benefits.
Proposed limited additional benefits for Fund participants
6. The Board heeded this advice, but was concerned to address certain issues which had been delayed for several sessions pending an improvement in the Fund's financial position. A number of these issues had been the subject of a paper prepared by the ILO Staff Pension Committee. In the event, the Board proposed some limited additional benefits, but in some cases, made them subject to the outcome of the next actuarial valuation. These proposals included --
(a) providing an entitlement to survivors' benefits to former, as well as current, spouses. Inter alia, the Board agreed to recommend to the UNGA the sharing of the existing surviving spouse's benefit between former and current spouses, on a pro rata basis, based on the duration of the marriage, subject to certain conditions. As the proposed provision will only have prospective effect, the Board deferred for further examination the situation of divorced spouses of current beneficiaries. A number of other recommendations were made by the Board in this area, including the provision of a payment facility in relation to meeting obligations arising from family and child support orders, and abolition of the requirement that a survivor's benefit terminates on re-marriage of the widow(er). If agreed by the UNGA, these arrangements would take effect from 1 April 1999;
(b) providing for "purchase" of a surviving spouse's benefit for spouses married after the date of separation of a participant from the Fund. If agreed by the UNGA, this proposal would take effect from 1 April 1999;
(c) extending the time-limit, after separation from service, for determining that a period of participation in the Fund will have ceased, provided the person concerned has not drawn a benefit (the Board agreed to recommend to the UNGA that the relevant period be extended from 12 to 36 months, with effect from the date the change is approved by the UNGA). This is a measure directed particularly at officials who have suffered from the recent downsizing of agencies due to budgetary reasons, and who would hope to be reintegrated within the UN system without further penalty to their pension position;
(d) reducing the interest rate applied to lump-sum commutations, which will increase the value of a lump sum taken by a participant on retirement (the Board decided to recommend to the UNGA that the interest rate be reduced from 6.5 to 6.0 per cent, as from 1 January 2001, subject to a favourable actuarial valuation as at 31 December 1999);
(e) reducing the "trigger" point for implementing a cost of living (COL) adjustment in pensions (the Board decided to recommend to the UNGA that the threshold for annual cost of living adjustments be reduced from 3 to 2 per cent in the movement of the relevant COL index, as from 1 April 2001, subject to a favourable actuarial valuation as at 31 December 1999).
Administrative expenses of the Fund
7. The Board was concerned that the Fund's administrative expenses continued to increase. It supported proposed new cost-sharing arrangements between the Fund and the United Nations (UN) in respect of the pensions secretariat services provided by the Fund secretariat to the UN and its affiliated programmes/funds. But the Board was not satisfied with the paper prepared by the Fund Secretary concerning the long-term administrative costs of the Fund. It decided to continue to examine this issue, though an informal working group, with a view to rationalizing pensions operations and establishing closer working arrangements between the Fund and member organizations. A document prepared by the ILO Staff Pension Committee, which provided guidance on the means by which these changes might be achieved, will remain a reference point in this exercise.
Transfer agreements between the Fund and the former USSR,
Ukrainian SSR and Byelorussian SSR
8. Background on this issue was provided in 1996 in a document which reported on developments at the forty-seventh session of the Board.(1) The proposed transfer agreement between the Fund and the Government of the Russian Federation, concerning the reinstatement of pension rights to former USSR colleagues, has not yet been ratified by the Government. Many of these former Fund participants (up to 1,500) are now experiencing severe financial hardship. The Board authorized the Secretary of the Fund to negotiate further with the Russian authorities indicating a preparedness to exercise a certain degree of flexibility on the schedule of payments required to be made by the Russian Federation and/or the date of entry into force of the benefit payments to facilitate early ratification and implementation of the agreement. The Board agreed that its representatives should again reiterate before the UNGA its strong support for the agreement to be honoured by the Russian Federation. The agreements concerning Ukraine (26 former participants) and Byelorussia (16 former participants) have not seen progress, pending resolution of the Russian agreement.
Other business
9. The Board again discussed the possible withdrawal of ICITO/GATT from the Fund. It noted information from that organization to the effect that a final decision on this issue was likely to be made by mid-October 1998. The Board decided that if ICITO/GATT were to make a formal application for withdrawal, it would be necessary to arrange for an appropriate valuation of the Fund as at the date of the proposed withdrawal and for the Committee of Actuaries to submit recommendations in this regard to the Board for its decision at a special session.
10. It might also be noted that the Board agreed to consider the following issues for future Standing Committee/Board discussions:
(a) whether, as is currently the case, a surviving spouse's benefit should continue to cease upon partial commutation by a Fund participant of a deferred retirement benefit;
(b) the possible award of a benefit to children born to former participants after their separation from the Fund;
(c) a reduction in the age (from age 55) at which indexation of deferred retirement benefits should apply;
(d) whether persons transferring into the Fund under a transfer agreement with another international organization should be able to purchase (at full cost) any shortfall in the period of service occurring after the value of their prior service has been converted at the relevant exchange rate for entry to the Fund.
Geneva, 5 October 1998.
1. GB.267/PFA/13/1.