GB.276/PFA/14/2 - Governing Body

ILO is a specialized agency of the United Nations

GB.276/PFA/14/2 276th Session Geneva, November 1999

Programme, Financial and Administrative Committee	PFA

FOURTEENTH ITEM ON THE AGENDA

Pensions questions

Report of the United Nations Joint Staff Pension Board

1. The Standing Committee of the United Nations Joint Staff Pension Board ("the Board") held its 182nd Session at the United Nations in New York, from 13 to 16 July 1999. The Standing Committee mainly dealt with: the management of the investments of the United Nations Joint Staff Pension Fund ("the Fund"); the assumptions for the next actuarial valuation of the Fund; the entitlement to survivors' benefits; the situation of former international civil servants in the former USSR, Ukrainian SSR, and Byelorussian SSR; and the Fund's budget provisions for the years 2000-01, including administrative costs. Copies of the report of the Standing Committee are available on request.

Investments

2. Investment income is important to the Fund because its annual administrative costs and benefit payments exceed total contributions. The market value of the Fund's assets was US$22.2 billion at 31 March 1999, or 10 per cent more than the previous year. The total investment return for the 12-month period to 31 March 1999 was 11.3 per cent, which represented an inflation-adjusted return of 9.2 per cent. During this period, approximately 65 per cent of the Fund's assets were invested in equities. The return on equities was 13.9 per cent, followed by 9.9 per cent for short-term reserves, 6.5 per cent for bonds and 4.8 per cent for real estate investments. Cumulative annualized total returns for the Fund over the last five, ten and 25 years have averaged 12.8, 11.3 and 11.1 per cent respectively. These returns are considered to be excellent given the low level of risk that the Fund is required to maintain. As investment advisory and custodial fees are based on a fixed percentage of the market value of the assets and contribute significantly to overall administrative expenses, the Standing Committee requested the investment managers of the Fund to pursue more determined fee negotiations so as to reduce these expenses as much as possible.

Actuarial valuation

3. Actuarial valuations of the Fund are normally carried out every two years. Their primary purpose is to determine whether the assets of the Fund and the contribution rates are sufficient to meet potential liabilities. The last actuarial valuation for the two-year period ending 31 December 1997 indicated that for the first time in 20 years the Fund had a small surplus, equal to 0.36 per cent of total pensionable remuneration (PR). This surplus must be viewed cautiously as recent strong investment performance and exchange rate fluctuations had a positive impact on the actuarial situation. It might be noted that some of the improvements to benefits adopted by the Board in 1998 (reduction of the threshold for cost-of-living adjustments and of the interest rate used to calculate a lump-sum commutation) are subject to continuation of the surplus in future years.

4. The outcome of the 25th actuarial valuation of the Fund for the two-year period ending 31 December 1999 will be examined by the Board at its next session in July 2000. As recommended by the Fund's actuaries, the Standing Committee approved changes to certain economic, demographic and participant-growth assumptions, which amounted to an actuarial cost of 0.5 per cent of PR. The administrative costs of the Fund have grown from 0.18 to 0.24 per cent of PR during the last 15 years, and are now at the ceiling set several years ago. These costs are being monitored closely and actuarial assumptions will be adjusted in the future, if necessary. Should the actuarial situation of the Fund remain positive, next year the Board will re-examine some of the cost-saving measures implemented during the 1980s to redress a deficit in the Fund that first appeared in 1978. In this regard, the Standing Committee decided that it was premature to accord particular items priority, but it expressed the view that deferred pension benefits should not be indexed and that participants who separate from the Fund before age 55 should be able to transfer their pension entitlements. It might be noted that the ILO Staff Pension Committee will prepare a paper on transfer arrangements for the Board's next session.

Entitlement to survivors' benefits

5. As reported last November,⁽¹⁾ the Board has amended the Fund's Regulations to abolish the requirement that a survivor's benefit terminates on remarriage of the widow(er) and to introduce survivors' benefits in the situation of divorce and remarriage after separation, effective from 1 April 1999. The Board also created a voluntary "payment facility" in relation to meeting family maintenance obligations arising from national court orders, subject to the consent of the participant or beneficiary concerned. (Provisions for the splitting of pension assets in the case of divorce do not exist, as the Board felt that this matter should be handled by the appropriate national authorities.)

6. Although the issue of what constitutes a spousal entitlement is somewhat complex, there was consensus in the Standing Committee that further progress in this area needs to be made to reflect social changes and developments at national levels. To this end, the Standing Committee requested the Board to address the following issues in July 2000:

(a) retroactive application of the measures for surviving spouses' benefits (i.e. in relation to deaths of beneficiaries prior to 1 April 1999), but there would be no entitlement to retroactive payments;

(b) removal of the provision whereby a spouse's right to a survivor's benefit ceases (without the consent, or possibly the knowledge, of the spouse concerned) upon the partial commutation of a deferred retirement benefit by a participant;

(d) the provision of survivors' benefits for domestic partnerships not based on marriage.

7. Concerning domestic partnerships, the Fund currently recognizes marriages that are recognized by the employing organization. But several countries, particularly in northern Europe, have recognized long-term cohabitation without marriage and this trend is expected to continue. In a broader context, personnel policies in relation to domestic partnerships are undergoing review in member organizations and, at the common system level, the Consultative Committee on Administrative Questions (CCAQ) has already endorsed a framework for an orderly approach to the relevant issues. The Office intends to move forward on this issue and will actively participate in discussions in the Pension Board and other relevant common system bodies.

Problems related to the application of transfer agreements
between the Fund and the former USSR, Ukrainian SSR,
and Byelorussian SSR

8. This has been a continuing issue since the transfer agreements were suspended in 1990. Background information was provided in earlier papers.⁽²⁾ In 1996, the Board approved a new Agreement between the Fund and the Government of the Russian Federation to reinstate the pension entitlements of former participants from the former USSR who had more than five years of UNJSPF membership. This was conditional on receipt from the Government of payment of a sum of money representing the full actuarial costs involved. Approximately 450 individuals would have benefited from this arrangement. The situation of those with less than five years of service and of the citizens of the other two republics was to be considered in a second stage. However, the Agreement was never formally ratified and the money was not transferred to the Fund.

9. A representative of the Moscow chapter of the Federation of Associations of Former International Civil Servants (FAFICS) indicated that most of the former participants concerned were opposed to an internal solution recently proposed by the Russian Federation, as it would only supplement current state pensions by a very modest amount. The UN General Assembly representative of the Russian Federation stated that ratification of the proposed Agreement with the Fund would remain "on the agenda" should the Government not be able to implement the internal solution by next year.

10. It should be noted that the UNJSPF has an Emergency Fund which provides ex gratia assistance to beneficiaries who face financial hardship of a medical nature. However, in accordance with its terms of reference, the Emergency Fund can only assist UNJSPF beneficiaries. The former participants from the three republics are not beneficiaries, as they had taken withdrawal settlements on separation from the Fund. In consideration of the advanced age of some of the former participants and the perceived moral obligation of the Fund, the ILO Staff Pension Committee, participants' representatives and the FAFICS proposed that limited "benefits" might be paid from Emergency Fund assets until a more permanent solution could be found. Some Standing Committee members felt that the obligation to restore these pension entitlements rested solely with the Governments concerned, and had reservations about adopting a practice that might be viewed as setting a precedent. The Board will consider this in July 2000, taking into account the legal and financial implications of using Emergency Fund resources and any other difficulties that might arise if the proposal was implemented. If accepted, such a proposal would have to be approved by the UN General Assembly.

Financial statements and budget provisions

11. The Standing Committee examined the financial statements of the Fund for the year ended 31 December 1998. The revised budget for the 1998-99 biennium amounted to US$57,514,000, or US$3,282,800 more than the amount approved in 1998. This increase represented greater investment management fees due to the growth of the Fund's assets.

12. The budget estimates submitted for the 2000-01 biennium amounted to US$62,339,900. With the exception of US$15,000 for audit costs, the Standing Committee approved the remainder of the budget -- a total amount of US$62,324,900. Administrative costs have risen by approximately 7 per cent since the previous biennium. Some of this increase is due to the change in administrative cost-sharing arrangements between the Fund and the UN secretariat, effective from 1 January 1999.⁽³⁾ The Standing Committee approved additional resources to address the growth in the number of participants and beneficiaries, including the decentralization of several functions to the Fund's Geneva office. It suggested that some of these resources might be dedicated to "process re-engineering" work and the assessment of information technology. The operational structure of the Fund's secretariat and its associated costs are of concern, and the Board will examine the mid-term strategic orientation of the Fund at its next session. This is part of a broader effort to rationalize and modernize the Fund's operations undertaken since 1996, in large part at the urging of the ILO Staff Pension Committee.

Other questions

13. The Standing Committee reviewed the entitlement of a former ILO participant to a disability benefit which the Secretary of the Fund had failed to certify on medical grounds. It unanimously upheld the decision taken by the ILO Staff Pension Committee and awarded the disability benefit with retroactive effect.

14. The Secretary of the Board will retire on 31 December 2000. The Standing Committee adopted the terms of reference for the selection procedure for his replacement, which is now under way. The Board will vote on a group of preselected candidates in July 2000.

15. The next session of the Board will take place from 5 to 14 July 2000 in Geneva, at the World Meteorological Organization (WMO).

Geneva, 3 October 1999.

1. GB.273/PFA/12/2.

2. GB.267/PFA/13/1; GB.273/PFA/12/2.

3. GB.273/PFA/12/2.

Updated by VC. Approved by NdW. Last update: 26 January 2000.