Rocked by Turmoil in World Financial Markets, United Nations Staff Pension Fund Bounces Back to Post 30 Per Cent Jump in Assets, Budget Committee Told

16 November 2010
GA/AB/3970

Rocked by Turmoil in World Financial Markets, United Nations Staff Pension Fund Bounces Back to Post 30 Per Cent Jump in Assets, Budget Committee Told

16 November 2010
General Assembly
GA/AB/3970
Department of Public Information • News and Media Division • New York

Sixty-fifth General Assembly

Fifth Committee

16th Meeting (AM)

Rocked by Turmoil in World Financial Markets, United Nations Staff Pension Fund

Bounces Back to Post 30 Per Cent Jump in Assets, Budget Committee Told

 

Investments Official Touts Tightened Risk Controls, Prudent Asset

Allocation, Says Fund Will Keep Providing ‘Secure Foundation’ for Staff Benefits

Even though it suffered its first actuarial setback in 14 years during the biennium that closed in December 2009, the United Nations Joint Staff Pension Fund bounced back from the turmoil in global financial markets to post a 32.2 per cent jump in assets to $38.3 billion by March 2010, Secretariat officials told the Fifth Committee (Administrative and Budgetary) today.

The Fund’s market value headed upward to $40.4 billion by late October, up from the $26.7 billion asset value posted at the end of March 2009, when markets first began recovering from the volatility that rocked the financial world in the fall of 2008.  Established more than 60 years ago by the General Assembly, the Fund provides retirement, death, disability and related benefits for United Nations staff participants.

Vladimir Yossifov, Chairman of the United Nations Joint Staff Pension Board, introduced the 186-page report that the Pension Board had turned out after its fifty-seventh session this summer.  He outlined the financial details surrounding the Fund’s performance during the 2008-2009 biennium and said the Fund’s principal had increased from $30.6 billion to $33.1 billion over that two-year period.

Turning to the vital actuarial valuation, the Chairperson of the Advisory Committee on Administrative and Budgetary Questions (ACABQ) said the Fund’s first negative actuarial result stemmed primarily from investment losses suffered earlier in the two-year reporting period.  But it was partially offset by cost-of-living adjustments, which were lower than expected, Chairperson Susan McLurg said as she introduced the Advisory Committee’s report.

The valuation, carried out every two years, serves as a gauge to determine whether the current and estimated future assets of the Fund will be sufficient to meet its liabilities.  The ACABQ noted that this thirtieth actuarial valuation, carried out by the Committee of Actuaries, showed an actuarial deficit of 0.38 per cent, or $1.2 billion, of pensionable remuneration as of 31 December 2009.  This was the first negative actuarial result after six consecutive positive actuarial results over the past 14 years.  Yet the Advisory Committee had been assured by the Fund’s Consulting Actuary and the Committee of Actuaries that the Fund’s present contribution rate was sufficient to meet its long-term liabilities, she said.

Returning to the Pension Board’s report, Mr. Yossifov had said the Fund’s total investment income had dropped by more than 70 per cent to $2.7 billion, down from $7.2 billion in the prior biennium.  He said a Secretariat official had provided a detailed explanation of the Fund’s net loss of $467 million during 2009, noting that the realized losses stemmed primarily from the disposal of poorly performing assets.  The official had also pointed out that, while the realized net losses were significant, they were small relative to the Fund’s size, the trading volume and unrealized gains in the portfolio.

That issue was noted in the Board of Auditor’s extensive review of the Pension Fund’s financial statements and by the Advisory Committee.  Ms. McLurg said the Advisory Committee was concerned that the Fund had received a modified audit opinion with one emphasis of matter on the realized and unrealized losses on its investments.  The Board observed that the unrealized profit and losses were not separately disclosed in the financial statements.

The Pension Fund’s Investment Management Division had agreed to provide a clear description and disclosure of the information in the financial statement, a type of disclosure that would be standard procedure under the International Public Sector Accounting Standards (IPSAS), Ms. McLurg added.

During the introduction of more than a dozen reports on the financial statements of the United Nations and its funds and programmes last month, representatives of both the Board of Auditors and the Advisory Committee had expressed their concern to the Fifth Committee with the Organization’s delay in implementing these international accounting standards.  The shift to international accounting standards was to have started in 2010.  Yet all entities in the Organization had delayed implementation to 2012 while the United Nations Secretariat was postponing its implementation until 2014.

Improved risk management was another concern of the Board of Auditors and the Advisory Committee, which noted that some of the Fund’s realized and unrealized losses were excessive and showed it had not set a suitable tolerance level for losses.  Warren Sach, the Secretary-General’s Representative for Investments, emphasized that risk control was high on his Office’s agenda and implementation of 128 controls, outlined in the Risk Management Manual, were under way.

In introducing the Secretariat’s report on the Fund’s investments, Mr. Sach said the Fund now equalled more than 96 per cent of its peak value.  With continued diligence of bottom-up stock selection and prudent asset allocation, the Fund would keep providing a secure foundation for the pension benefits of nearly 180,000 beneficiaries and participants.  The implementation of the new risk management software was under way and would provide an additional level of safety.

Speaking on behalf of the “Group of 77” developing countries and China, the representative of Yemen said improvements in the United Nations Pension System should be carried out to ensure they provided retirement, death, disability and related benefits for participants and retirees with full transparency and accountability.  The Group was satisfied that the number of participants had increased from 106,566 to 117,580 by the end of the 2008-2009 biennium and the Fund’s principal had increased from $30.6 billion to $33.1 billion, up 8.3 per cent.

The ongoing financial and economic crisis made it even more imperative that the Fund acted on its commitment to diversify geographically when investing.  He noted that investments in developing countries were underrepresented in the Fund’s portfolio.  “Investment in the developing world could provide balance in the market and avoid negative impacts and setbacks of markets,” he added.  The Group urged the Fund to diversity its investment by increasing investment in developing regions and countries and report back to the Assembly.

Sharon Van Buerle, Director of the Programme Planning and Budget Division, introduced the Secretary-General’s report on the administrative and financial implications arising from the Pension Board’s report.

The Fifth Committee will reconvene at 10 a.m. Friday, 19 November, to begin discussion on financing for the United Nations Mission in the Sudan (UNMIS) and the Subcommittee on the Prevention of Torture, which is allotted to the Programme Budget:  biennium 2010-2011.

Background

The Fifth Committee (Administrative and Budgetary) had before it four reports concerning the United Nations Joint Staff Pension Fund and its performance for the two-year period ending on 31 December 2009.  The report of the United Nations Joint Staff Pension Board, United Nations Joint Staff Pension Fund (document A/65/9) provides a summary of the Fund’s operations for this biennium ending 31 December 2009.  The Board submitted the report after its fifty-seventh session, held from 15 to 23 July 2010.

The 186-page report includes 20 chapters and 20 annexes.  Chapter II includes a summary of the operations for the biennium while Chapter VII focuses on audit issues.  This chapter includes a Report of the Audit Committee on page 45 and the External Audit by the Board of Auditors on page 47.

Chapter IV focuses on actuarial matters.  Article 12 (a) of the Fund’s regulations states that the Board shall have an actuarial valuation made at least once every three years by the consulting actuary.  The primary purpose is to determine if the current and estimated future assets of the Fund will be sufficient to meet its liabilities.  The practice of the Board has been to carry out a valuation every two years.  The consulting actuary submitted the report on the thirtieth actuarial valuation of the Fund, as of 31 December 2009, two years after the previous valuation on 31 December 2007.

Annex XX of the Pension Board report is a draft resolution proposed for the Assembly’s adoption.  It covers matters discussed in the Board’s report which require action by the Assembly, and other matters that the Assembly may wish to note in its resolution.

The Board’s recommendations and decisions that require action by the Assembly:

  • The approval of an amendment to the Fund regulations that would let additional contributions be made by part-time staff.  The Assembly considered this item in 2008 and did not approve it, based on the recommendation of the Advisory Committee on Administrative and Budgetary Questions (ACABQ).  But the Board believes the measure should be reconsidered for reasons of fairness and flexibility and demonstrate sensitivity to gender-related issues, as a majority of part-time staff is female.
  • The suspension of the special index provision under the Fund pension adjustment system, for all separations as from 1 January 2011.  The Board’s decision is aimed at addressing the conceptual deficiencies of the provision.
  • The approval of funding for the cost-sharing arrangement for the use of the new administration of justice system of the United Nations.

The Pension Fund was established in 1949 by an Assembly resolution to provide retirement, death, disability and related benefits for staff after ending their service with the United Nations.  The Fund is administered by the United Nations Joint Staff Pension Board, which reports to the Assembly on the operations of the Fund and the investment of its assets.  When necessary, it recommends amendments to the Fund’s regulations and to the Fund’s pension adjustment system, which govern rates of contribution, eligibility and expenses.

The Committee also had before it the report of the Secretary-General on the Investments of the United Nations Joint Staff Pension Fund and measures undertaken to increase diversification (document A/C.5/65/2)in accordance with his fiduciary responsibility to manage the Fund.  The Secretary-General acts in consultation with the Investments Committee, taking into account the observations of the United Nations Joint Staff Pension Board and the General Assembly.  The Committee provides advice to the Secretary-General on investment strategy and reviews the investments of the Fund at its quarterly meetings.  The Assistant Secretary-General for Central Support Services has been designated as the representative of the Secretary-General for the investments of the Fund.  All investments must, at the time of initial review, meet the criteria of safety, profitability, liquidity and convertibility.

The report provides information on the management of the Fund from 1 April 2008 to 31 March 2010, as well as on the Fund’s returns, its diversification and development-related investments.  The report notes that the Fund has performed steadily, in excess of its benchmarks, during the unprecedented volatility of the past year due to the implementation of an ongoing system for documenting the initial logic behind each investment and the monitoring of key risk factors.

The report also highlights the implementation of the trade order management system, completed in the first half of 2010, which provides straight-through processing of equity trades and a clear audit trail which documents pre-trade compliance.  The report states that the Investment Management Division will be in a position to safeguard the Fund and build a stronger foundation for the future with the support of additional staff and investment tools which were added during the biennium.

Delegations are also set to consider the Report of the Secretary-General on Administrative and financial implications arising from the report of the United Nations Joint Staff Pension Board (document A/C.5/65/3).

The Joint Staff Pension Board’s report to the General Assembly on its fifty-seventh session contains revisions to the overall administrative expenses of the United Nations Joint Staff Pension Fund for the biennium 2010-2011.  In accordance with rule 153 of the Assembly’s Rules of Procedure, the Report of the Secretary-General informs the Assembly that there are no financial implications for the regular budget should the Assembly adopt the recommendations submitted to it in the report of the Board.

The ACABQ weighed in on the issue with its report United Nations pension system (document A/65/567), issued on 10 November 2010.  The Advisory Committee was informed that the market value of the United Nations Joint Staff Pension Fund’s assets had increased by 32.2 per cent to $38.3 billion as of 31 March 2010, up from about $26.7 billion as of 31 March 2009.  As of 22 October 2010, the Fund’s market value amounted to $40.4 billion.

For the biennium 2008-2009, total realized investment gains amounted to $3.1 billion and total realized investment losses amounted to $2.7 billion, resulting in a net realized gain of $411 million.  However, as indicated in the Secretary-General’s report, the Fund encountered the most volatile markets in its history during the biennium.  The Advisory Committee was informed that after the rebalancing of the portfolio in the first half of 2009, the Fund earned 32.2 per cent for the 12 months ending 31 March 2010.  The Committee was further informed that equities represented 51.9 per cent of the Fund in 2009 and 65.6 per cent in 2010.

The Board of Auditors observed that net profit for the biennium 2008-2009, on the sale of investments of $412 million, included realized losses of $2.7 billion.  In addition, unrealized losses of $1.9 billion were included in the $4 billion of unrealized profit as at 31 December 2009.  The Advisory Committee was informed by the Board that, for investments still on hand since the Fund’s inception, cumulative unrealized gains totalled $5.9 billion and cumulative unrealized losses totalled $1.9 billion, resulting in a net unrealized gain of $4 billion.

In this connection, the Board observed in its audit report that unrealized profit and positions are not separately disclosed or discernible in the financial statements.  It recommended that the Pension Fund’s Investment Management Division provide a clear description and disclosure of investments in the financial statements.  The Board also believed that some of the realized and unrealized losses were excessive and on some investments, reversal of the losses may occur only after a long time, or the full reversal of such losses may never occur.  This indicated that the Fund had not set a suitable tolerance level for losses to avoid excessive losses.  In response, the Investment Management Division is currently creating a risk management manual and developing a risk management software tool to strengthen its risk controls.

The Advisory Committee notes that the Pension Board has fully endorsed the Board of Auditor’s recommendations and welcomed the initiatives currently being implemented by the Investment Management Division.  The Advisory Committee also concurs with the Board recommendations regarding the revised risk management policy.

The Advisory Committee concurs with the recommendations of the Board of Auditors and urges the Pension Fund to implement them.  The Committee is concerned that the Pension Fund received an unqualified audit opinion with one emphasis of matter on the realized and unrealized losses on its investments recorded on the financial statements for the biennium ended 31 December 2009.  The Committee is aware of the volatility of international financial markets and the impact on the Pension Fund’s annual rate of return, as evident from the fluctuations of the Fund’s historical returns since 1961.  It expects that, as recommended by the Board of Auditors, the Fund will identify lessons learned, with respect to the realized losses for the biennium 2008-2009 and its current unrealized loss positions, to ensure that the criteria established by the General Assembly in its resolution 32/73 — safety, profitability, liquidity and convertibility — remain the paramount investment guidelines.

Turning to actuarial matters, the Advisory Committee noted that the thirtieth actuarial valuation of the Fund showed an actuarial deficit of 0.38 per cent of pensionable remuneration as of 31 December 2009, or $1.2 billion.  This is the first negative actuarial result after six consecutive positive actuarial results over the past 14 years.  The Advisory Committee recommends that the newly identified deficit be closely monitored, with the aim of correcting the situation.

Regarding the implementation of the International Public Sector Accounting Standards (IPSAS), the Advisory Committee agrees with the Board of Auditors that the Pension Fund should finalize and approve its IPSAS implementation plan in a timely manner.  The Advisory Committee expects that the new Chief Financial Officer will be hired as soon as possible and preparation for IPSAS will proceed to ensure its implementation on 1 January 2012.  In addition, the Committee encourages the Board of Auditors to closely monitor the Pension Fund’s IPSAS implementation process and reiterates the recommendation that the Board report annually on progress.

In producing its report, the Advisory Committee considered the report of the United Nations Joint Staff Pension Board (document A/65/9), which included the report of the Board of Auditors on the financial statements of the Pension Fund for the biennium ended 31 December 2009.  The Advisory Committee has also considered the reports of the Secretary-General on the Investments of the United Nations Joint Staff Pension Fund (document A/C.5/65/2) and measures undertaken to increase diversification, as well as Administrative and financial implications arising from the report of the United Nations Joint Staff Pension Board (document A/C.5/65/3).  In addition, the Advisory Committee had before it a note by the Secretary-General on the membership of the Investments Committee (document A/C.5/65/6).

Introductions

As the meeting opened, VLADIMIR YOSSIFOV, Chairman of the United Nations Joint Staff Pension Board, introduced the Report of that panel’s fifty-seventh session, and gave an overview of the contents, including items that required action to be taken by the General Assembly and which the Fifth Committee (Administrative and Budgetary) was invited to endorse.  Those included, among others, amending the Fund’s regulations to allow formerly full-time employees now part-time employees to continue to earn full-time service up to three continuous years, and approving the funding for the cost-sharing arrangement for the use of the new administration of justice system of the Organization.

On the issue of the thirtieth actuarial valuation of the Fund as of 31 December 2009, he said that the Fund had experienced the first actuarial deficit in 14 years in its required contribution rate, which was 0.38 per cent of pensionable remuneration.  That deficit was due primarily to the investment performance of the Pension Fund during the economic crisis over the past two years.  Despite favourable performances in 2009, the Fund had not regained the losses of 2008.  Further adding to the deficit were the Fund’s commutation factors, which had been modified in 2009 to reflect the new mortality rates adopted in 2008.

The Consulting Actuary and Committee believed that the present contribution rate would be sufficient to meet long-term liabilities under the Pension Fund and that there was no requirement for deficiency payments under the Fund’s Regulations.  Also reviewed were the costs of the modifications of the two-track features of the Pension Adjustment Systems.  He said that the Board decided that no changes were necessary at this time to the rate of contribution or to the cap provision and that the costs of the two-track system should continue to be monitored and any trends be reported to the Board at its 2012 session.

Turning to the management of the investments of the Fund, he said that the Fund had earned 32.2 per cent during the year ending 31 March 2010, which was slightly under the market benchmark established for the Fund by 1.09 per cent, and which was a reflection of the recovery in the global equities market from the prior year.  The combined two-year performance for the Fund was -5.2 per cent, which was 0.47 per cent above the market benchmarks of the fund.  For the longer-term horizon, the Fund outperformed the 60/31 benchmark in the last 3, 5, 7 and 10 years.

As requested by the Board of the Auditors and the Pension Board, he said the Representative of the Secretary-General for Investment of assets of the Fund provided a detailed explanation of the net loss of 467 million during 2009, noting that the realized losses were mainly the result of the disposal of poorly performing assets.  He also pointed out that, while the realized net losses were a significant amount, they were small relative to the Fund size, the trading volume and unrealized gains in the portfolio.

Regarding administrative matters, he highlighted certain operational and financial information from the biennium that ended 31 December 2009, pointing out that the number of active participants had increased by 10.3 per cent, which had followed an increase of 13.9 per cent during the previous biennium.  Benefits-in-award increased by 6.5 per cent, following an increase of 5.3 per cent during the previous biennium.  The principal of the Fund increased from $30.6 billion to $33.1 billion.  However, he said, total investment income decreased by over 70 per cent to $2.7 billion from $7.2 billion in the prior biennium.

He went on to say that contribution income of the Fund increased 18.6 per cent from $3.1 billion to $3.7 billion, while benefit payments increased 17.9 per cent from $3.2 billion to $3.8 billion.  Benefit expenditures of $3.8 billion during the biennium exceeded total contribution income by $41.5 million, whereas expenditures of $3.9 billion for benefits plus administrative costs and investments cost exceeded total contributions income by $163 million, as compared to the prior biennium where total costs exceeded total income by $153 million.

Addressing auditing, he said the Board had been presented with the Audit Committee’s report and had endorsed it including all its recommendations and conclusions.  A revised Audit Charter, which had been requested in 2009, had also been reviewed and approved by the Board.  The Board of Auditors had presented their report on the financial statements of the Pension Fund for the biennium ending 31 December 2009.  It was noted that the Board of Auditors had issued a modified audit opinion on the financial statements as a caution to highlight inadequate disclosures concerning investments.  Further, the Board of Auditors had specifically highlighted the sales of investments in the amount of $412 million in profits compared to the sales of investments for the prior biennium of $4.8 billion but had not provided sufficient information on both realized and unrealized gains and losses.

He then discussed the Board’s activities on governance matters, including the endorsing of the revised Accountability Statement, a request for the Fund’s secretariat to provide at its next session a report on its working methods and effectiveness, as well as the Boards own self-evaluation, and a comprehensive report on the two-year study completed by the Working Group on Plan Design, among others.  On the matter of benefit provisions of the Fund’s regulations and rules, he said that the Board had addressed a few changes in its Regulations, including a change in the Administrative Rules of the Fund to correspond to changes previously made in the Regulations on participation and restoration of service.

Also addressed was the impact of currency fluctuations on pension benefits, and the variation in pension amounts due to different separation dates historically observed in the history of the Fund’s Pension Adjustment System.  Concluding, he said that the Board had reviewed and noted 15 judgments where the Pension Fund was the respondent.  He stated that the majority of decisions had been upheld, affirming that the Rules and the Regulations continued to be properly administered.

WARREN SACH, Representative of the Secretary-General for the investments of the United Nations Joint Staff Pension Fund introduced the Secretary-General’s relevant investments report and highlighted key issues, including changes made during the biennium, the performance of the Fund’s investments and the current situation of financial markets, among others.  On the changes made during the biennium, he said that, despite turbulence in the markets, the infrastructure had been improved and solidified to reduce costs and enhance security.  He also noted the inauguration this year of an electronic trade order management system which was integrated into the SWIFT payment system.

Turning to the performance of the Fund’s investments, he observed that the Fund continued to rebound since last year, reaching $41 billion on 8 November 2010, as compared to $26.7 billion in March 2009.  Thus, the Fund now equalled over 96 per cent of its peak value and he said that, with continued diligent bottom-up stock selection and prudent asset allocation, the Fund would continue to provide a secure foundation for the pension benefits of the nearly 180,000 beneficiaries and participants.  Further, the implementation of the new risk management software, Rick Metrics was under way and would provide an additional level of safety.

He also said that the Fund also continued to expand its investments in developing countries and in economies in transition, with direct and indirect investments in developing countries amounting to $4.8 billion as of 31 March 2010, an increase of approximately 25 per cent from $3.8 billion on 31 March 2008.  Possible investment opportunities in developing countries continued to be explored, with investment trips undertaken in Africa, Asia, Latin America and Eastern Europe during the review period.

Addressing the current market situation and the realized and unrealized losses in the portfolio, he stressed that in a long-term portfolio with a long-term horizon and low turnover, the unrealized gains and losses would heavily outweigh the realized gains and losses.  During the calendar year 2009, there had been an unrealized gain of $6.2 billion while there was a realized loss of $467 million.  Realized losses were generated as a result of pruning the portfolio to improve overall quality and ensure that the Fund would retain only the most promising investments.  While noting that realized losses of $467 million might seem high, he pointed out that these losses were dwarfed by the long-term unrealized gains of $6.2 billion.

Turning to annex X of the Pension Board’s report, he emphasized that risk control was high on his office’s agenda, and that implementation of 128 controls outlined in the Risk Management Manual were under way.  Seventy-five controls were already active, ten were partially active and the rest were in process of being implemented.  He also addressed the Board of Auditors’ request to provide a clear description and disclosure of investments in the financial statements by tabulating separately gains and losses on the sale of investments, as well as disclosing all unrealized gains and losses as at the balance sheet date.  In that regard, he pointed out that the level of disclosure in the 2008-2009 accounts was equal to that of the prior bienniums and he assured the Committee that future disclosures would be consistent with the evolving industry best practices and International Public Sector Accounting Standards.  Templates for future disclosures would also be discussed directly with the Audit Committee of the Pension Board for use in the current biennium statements.

SHARON VAN BUERLE, Director of the Programme Planning and Budget Division, introduced the Secretary-General’s report on the administrative and financial implications arising from the Pension Board’s report.  She referred to the revised administrative expenses for the biennium 2010-2011, contained in annex XIX of the Pension Board’s report.  She said the appropriations would remain the same if the Assembly adopted the Pension Board’s report.

SUSAN MCLURG, Chairman of the Advisory Committee on Administrative and Budgetary Questions, introduced the Advisory Committee’s report on the United Nations Joint Staff Pension System and said volatile market conditions during the recent financial crisis had reached their peak during the biennium 2008-2009.  That volatility triggered significant fluctuations in the Pension Fund’s portfolio.  The Advisory Committee was well aware that the Fund’s annual rate of return would continue to endure the impact of volatile market conditions and agreed, with the Board of Auditors and the Pension Board, on the need to mitigate associated risks.

During the biennium, the Committee of Actuaries undertook its thirtieth actuarial valuation of the Fund and had identified the first negative actuarial result after six consecutive positive assessments.  That change stemmed primarily from investment losses suffered earlier in the biennium, but it was partially offset by cost-of-living adjustments, which were lower than expected.  The Advisory Committee was assured by the conclusions of the Fund’s Consulting Actuary and the Committee of Actuaries that the present contribution rate was sufficient to meet the long-term liabilities under the Pension Fund.  There was no requirement for deficiency payments, under article 26 of the Fund’s Regulations.

Turning to the International Public Sector Accounting Standards, she said the new accounting standards were scheduled to be operational on 1 January 2012 and a new Chief Financial Officer would lead the implementation efforts.  The Advisory Committee expected the post would be filled as soon as possible.  It was important for the Fund to finalize the implementation plan as soon as possible and press forward to avoid any delays.

She noted that the Pension Board adopted an amendment to the Regulations of the Fund to let part-time staff keep contributing to the Fund, as if they were employed on a full-time basis by paying the relevant additional contributions.  The Advisory Committee’s previous position on that issue remained unchanged and it did not support the proposed amendment to the Fund’s Regulations that would allow for “buying” full-time participant status, in order to achieve an increased rate of accumulation.

Finally, she turned to the Board of Auditors’ audit review for the biennium 2008-2009.  The Advisory Committee was concerned that the Pension Fund received a modified audit opinion with one emphasis of matter on the realized and unrealized losses on its investments of the Fund on the biennium’s financial statements.  The Board observed that the unrealized profit and losses were not separately disclosed in the financial statements.

The Pension Fund’s Investment Management Division agreed to provide a clear description and disclosure of the information in the financial statement.  This type of disclosure would be standard procedure under the IPSAS standards, she added.  The Board of Auditors also observed that the circumstances of some of the realized and unrealized losses during the biennium 2008-2009 showed that a suitable tolerance level to mitigate such losses had not been set.  The Advisory Committee agreed with the Board of Auditors that parameters were necessary to strengthen risk controls.  It concurred with the observations and recommendations of the Board of Auditors and expected that the Investment Management Division would continue to ensure that the criteria set by the General Assembly in its resolution 32/73, “namely safety, profitability, liquidity and convertibility”, remained the paramount investment guidelines.

The Advisory Committee recommended approval of the Pension Board’s proposal continued in Chapter II, paragraph 12, of the Board’s report, subject to the observations and recommendations made by the Advisory Committee in its report, she said.

Statement

WALEED AL-SHAHARI (Yemen), speaking on behalf of the “Group of 77” developing countries and China, said the Group believed that improvements in the United Nations Pension System should be implemented in such a way that they provided retirement, death, disability and related benefits for participants and retirees of the Organization with full respect for transparency and accountability.  The Group was satisfied that the number of participants had increased from 106,566 to 117,580 by the end of the 2008-2009 biennium, the number of periodic benefits in award from 58,084 to 61,841, and the Fund’s principle from $30.6 billion to $33.1 billion, or 8.3 per cent.  The net investment income had totalled about $2.7 billion.

Noting the Fund’s first actuarial deficit in 14 years and the recent volatile markets, the Group reiterated that the ongoing world financial crisis called for a cautious analysis of any type of investments, which could jeopardize the benefits.  “Every effort should be made to ensure that future investments take into account potential risks,” he said.  The Investment Committee should play a key role in providing guidance to the Investment Management Service, he said, adding that his delegation agreed with the Advisory Committee and welcomed the Investment Management Division’s initiatives and concurred with the Board’s recommendation regarding a revised risk management policy.

The ongoing financial and economic crisis made it even more imperative that the Fund acted on its commitment to diversify geographically when investing.  The Group noted that, despite some investments in a few developing countries, those types of investments were underrepresented in the Fund’s portfolio.  “Investment in the developing world could provide balance in the market and avoid negative impacts and setbacks of markets,” he said.  The Group urged the Fund to diversify its investment by increasing investment in developing regions and countries and report back to the Assembly.

Turning to the audit opinion related to the non-disclosure of realized and unrealized loses on the Fund’s investments in the financial statements for the period under review, the Group would seek additional information on the steps that the Pension Board would take to implement the Board of Auditors’ recommendations.  The Group also would seek clarification on the governance matters reflected in paragraph 23 of the Advisory Committee’s report.  That issue regarded the Secretary-General’s decision not to accept the Pension Board’s recommendation on the length of appointment for the deputy chief executive officer of the Board of the Pension Funds, and its impact on the Fund’s Rules of Procedure.

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For information media • not an official record
For information media. Not an official record.