New Technical Capacity, Expanded Staff Would Keep United Nations Pension Fund Fiscally Solid, Budget Committee Told

8 November 2013
GA/AB/4086

New Technical Capacity, Expanded Staff Would Keep United Nations Pension Fund Fiscally Solid, Budget Committee Told

8 November 2013
General Assembly
GA/AB/4086
Department of Public Information • News and Media Division • New York

Sixty-eighth General Assembly

Fifth Committee

16th Meeting (AM)


New Technical Capacity, Expanded Staff Would Keep United Nations

 

Pension Fund Fiscally Solid, Budget Committee Told

 


Proposal for Representative of Secretary-General Draws Mixed Reviews


With nearly $45 billion in assets at year-end 2012, the United Nations Joint Staff Pension Fund was paying out $2 billion a year in benefits to more than 67,000 people around the globe while preparing to meet its obligations to 85,000 beneficiaries by the end of the decade, the Chairman of the United Nations Joint Staff Pension Board told the Fifth Committee (Administrative and Budgetary) today.


After introducing the Fund’s report on its administrative expenses, Pension Board Chairman Philip R.O. Owade laid out the ways in which the Pension Fund’s Secretariat and Investment Management Division aimed to keep the Pension Fund fiscally solid in a challenging operational environment that included an ongoing global financial crisis, political instability and natural disasters.


To improve its ability to understand key solvency issues and provide integrated analysis, the Pension Fund secretariat aimed to create a new technical capacity, the Risk Management and Legal Service, he said.  Even after redeployment and consolidating existing staff, two new posts would be needed for the service:  a D-1 Chief of Service and a General Services post as a team assistant.  In addition, a new P-3 accountant for the financial services section was requested.  The Investment Management Division had requested 24 new posts in order to restructure and meet its objectives.  That request would include a proposal for a full—time Representative of the Secretary-General within the Investment Management Division.


Weighing in with the report of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), Vice-Chairman Richard Moon said the Advisory Committee did not object to the Pension Board’s staffing proposals for 2014-2015 under administrative costs, which included, inter alia, the redeployment of three existing posts and the creation of two new posts for the proposed Risk Management and Legal Service.  Under investment costs, the Advisory Committee did not object to the proposed establishment of a full-time position of Representative of the Secretary-General for Investments at the Pension Fund at the Assistant-Secretary-General level using the current terms of reference.  Yet he called for full justification for the position’s requirement.  The Advisory Committee also wanted the provisions of the revised terms of reference for the full-time Representative included with the Pension Board’s report on the Pension Fund’s proposed administrative expenses for 2016-2017.


Speaking on behalf of the “Group of 77” developing countries and China, Fiji’s delegate said the Group wanted to know the Pension Fund’s rationale for the establishment of the Representative of the Secretary-General, including its added value.  The representative from the United States commended the Pension Fund’s continued growth and strong performance, but encouraged it to keep minimizing administrative expenses to ensure its long-term health.  He repeated support for the creation of a full-time Representative of the Secretary-General dedicated to managing the Investment Management Division.  This post should be resourced by the Pension Fund.


Johannes Huisman, Director, Programme Planning and Budget Division, Office of Programme Planning, Budget, and Accounts, Department of Management, introduced the Secretary-General’s report that detailed the Pension Fund’s financial implications on the regular budget.


The Committee will reconvene at 10 a.m. on Wednesday, 13 November, to discuss the United Nations Common System.


Background


The Fifth Committee met today to consider the administrative expenses of the United Nations Joint Staff Pension Fund, which is part of the proposed programme budget:  biennium 2014-2015 agenda item.  It had before it a report of the United Nations Joint Staff Pension Board on the Administrative expenses of the United Nations Joint Staff Pension Fund and amendments to the regulations of the Fund (document A/68/303), the fourth report of the Advisory Committee on Administrative and Budgetary Questions (ACABQ) by the same name (document A/68/7/Add.3), and the Secretary-General’s report on the Administrative and financial implications arising from the report of the United Nations Joint Staff Pension Board (document A/C.5/68/2).


Introduction of Reports


PHILIP R.O. OWADE, Chairman, United Nations Joint Staff Pension Board, introduced the Pension Board’s report on the administrative expenses of the United Nations Joint Staff Pension Fund (document A/68/303), which covered the Pension Fund’s estimated expenditure and performance report for the biennium 2012-2013 and its proposed budget estimates for 2014-2015.  Also included was an ad hoc item requiring consideration of amendments to the Pension Fund’s regulation as of 31 December 2013.  Section VI of the report contained the recommended action to be taken by the Assembly.


By 2020, the Pension Fund was expected to have more than 85,000 beneficiaries, he said.  Annual benefit payments exceeded $2 billion and at the end of 2012, its assets had reached nearly $45 billion, he said.  The Pension Fund had experienced unprecedented growth over the past 15 years with an increase in participants of 68 per cent, or 3.8 per cent annually, and had nearly 190,000 active participants as of 31 December 2012.


To deal with a downward trend in the results of the last seven actuarial valuations, from a surplus of 4.25 per cent of pensionable remuneration at 31 December 1999 to a deficit of 1.87 per cent of pensionable remuneration at the end of 2011, a Working Group was created to develop measures to ensure the Pension Fund’s long-term sustainability, he said.  Its conclusions and recommendations were analyzed by the Pension Board and approved and incorporated into the 2014-2015 proposed budget estimates.  They were reflected in Section VI of the report.  While the current actuarial deficit did not warrant any other immediate action, it was imperative that no additional funding or administrative burdens be placed on the Pension Fund to jeopardize its long-term solvency or ability to deliver accurate and timely benefit payments.


The details of the Pension Fund’s administrative expenses showed that total expenditures for the biennium 2012-2013 were now estimated at $185.73 million, down $8.37 million from the approved 2012-2013 appropriation of $194.1 million, he said.  The 2014-2015 budget approved by the Pension Board tallied $178.85 million, he said.  The overall level of resources requested by the Pension Board for the Pension Fund secretariat’s administrative costs was $88.37 million before recosting, a net decrease of $9.55 million, or 9.8 per cent, from the previous budget cycle appropriations.  The decline resulted primarily from a reduction of $10.9 million in the information technology sector, of which $6.9 million stemmed from the finalization of the Integrated Pension Administration System and $4 million from the efficiencies gained through the use of this system.


To enhance the Pension Fund’s ability to understand key solvency issues and provide integrated analysis, the Pension Fund secretariat proposed creating a new technical capacity, he added.  The Pension Fund would use efficiencies, redeployment and consolidation of existing staff yet this new service needed new two new posts: a D-1, Chief of Service, and a General Services (other level) as a team assistant.  In addition, a new P-3 Accountant for the Financial Services Section was requested.  The Pension Board supported all proposed posts.


Turning to the Investment Management Division, he said the global financial crisis, political instability and natural disasters had created a very challenging operational environment.  As such, the Division had requested 24 new posts in order to restructure and meet its objectives.  The overall level of resources for the Division in 2014-2015 totalled $83.37 million before recosting, down 10.7 per cent from the 2012-2013 budget cycle.  This had been approved by the Pension Board.  The decrease resulted primarily from a change in the reporting of external management fees, which had been excluded from the 2014-2015 budget proposal.  This change was explained in Annex III of the supplements document.


He said the Pension Board had supported the Secretary-General’s recommendation, submitted at the Pension Board’s sixtieth session, to appoint a full time Representative to help him carry out his fiduciary duties while performing his other full-time duties.  The Pension Board decided that the position should be at the “expense of the Fund”, within the meaning of Article 15 of the Pension Fund’s Regulations.  Its creation meant a proposed change to the Regulations:  a new section to Article 19 as contained in Section V of the Pension Board’s report.  This change would require consultations with the Pension Board on the appointment of this full-time Representative of the Secretary-General and setting minimum qualifications, competencies and performance standards, as had been established with the Chief Executive Officer and his deputy.


In this regard, it was important to recall that the Pension Board had not considered it necessary to recommend any changes to the Pension Fund’ existing governance structure and it strongly recommended that the current governance framework and managements structure be maintained.  That meant the Pension Board would continue to administer the Pension Fund and the Secretary-General would continue to decide on the Pension Fund’s investments.  This meant the Representative of the Secretary-General, representing the Secretary-General, would continue to have full responsibility and managerial accountability for the Pension Fund’s investments.


In 2012, the Pension Fund’s financial statements were prepared for the first time using International Public Sector Accounting Standards (IPSAS) and the Pension Fund had received a non-qualified external audit opinion, he said.  From an internal audit perspective, the Pension Fund had made great strides in eliminating outstanding audit recommendations.  The Pension Fund secretariat had addressed all but one observation and the Investment Management Division had eliminated 15 observations.  During the 2014-2015 budget cycle, the Pension Fund expected a drop of about 4.7 per cent in internal and external audit expenses for the Pension Fund secretariat and the Investment Management Division.


The Pension Board also was asking the Assembly to make changes in the Pension Fund’s regulations to carry out the Assembly decision, made last year, to boost the Pension Fund’s normal retirement age from 62 years old to 65 years old for new participants who joined the Pension Fund on or after 1 January 2014, he said.  This change would impact the Pension Fund’s long-term solvency by reducing the actuarial deficit by about 1 per cent of pension remunerations.  The Regulations had to be formally amended to reflect the change and its early retirement provisions also need to be modified to ensure appropriate coordination of the Pension Fund’s provisions.


Finally, Mr. Owade turned to the references, made by the Advisory Committee on Administrative and Budgetary Questions (ACABQ) in its accompanying report, concerning the management of After-Service Health Insurance (ASHI) liabilities.  He said the Advisory Committee’s proposal for finding a system-wide solution to the increasing ASHI liabilities raised many issues, including potential systemic, legal and financial problems, as well as risk for the Pension Fund’s operations and governance.  Also to be legally correct, any request to review the Pension Fund’s mandates had to be directed by the Assembly to the Pension Board, not the Secretary-General.


JOHANNES HUISMAN, Director, Programme Planning and Budget Division, Office of Programme Planning, Budget and Accounts, Department of Management, introduced the Secretary-General’s report (document A/C.5/68/2) on the financial implications for the regular budget arising from the United Nations Joint Staff Pension Board’s report.  The United Nations’ share of the administrative and audit costs related to the Pension Fund was $21.33 million, of which $13.37 million would represent the share of the regular budget, with the $7.95 million balance representing the share to be reimbursed to the United Nations by its funds and programmes, namely the United Nations Development Programme (UNDP), United Nations Population Fund (UNFPA) and United Nations Children’s Fund (UNICEF).  Under the proposed 2014-2015 programme budget, $13.93 million was already included to cover the regular budget’s share in the expenses of the Fund’s central secretariat.  That excluded reimbursements anticipated from the Organization’s funds and programmes, he said, noting that General Assembly approval of the Pension Board’s proposals and recommendations would lead to a $561,400 reduction of the appropriation after recosting.


RICHARD MOON, Vice-Chairman, Advisory Committee on Administrative and Budgetary Questions (ACABQ), introduced that body’s report on the administrative expenses of the United Nations Joint Staff Pension Fund and amendments to the Pension Fund’s regulations (document A/68/7/Add.3).  The Advisory Committee did not object to the Pension Board’s staffing proposals or to the proposed establishment of a full-time position of Representative of the Secretary-General for the Investments of the Pension Fund.  However, he called for full justification of the requirement for the position and provision of revised terms of reference for the full-time Representative when the Board reported on the proposed administrative expenses of the Fund for 2016-2017.  The division of responsibilities between the administration of the Pension Fund and the management of investments did not necessarily require bifurcation of its management structure.


He called on the Pension Fund to examine its governance arrangements and management structure to ensure optimal use of its resources and achievement of long-term objectives, calling for submission of the results to the General Assembly for consideration in the context of the budget for the 2016-2017 biennium.  The review should account for the possibility of a single position of leadership of the Pension Fund guiding administrative and investment management components, elaborating the roles, responsibilities and reporting lines of senior positions.  Therefore the Assembly should not approve the proposed revision to the Fund regulations requiring the Secretary-General to consult with the Pension Board prior to appointing the Representative.  In addition, he said the existing D-2 position should retain responsibility for coordinating and managing the Investment Management Division.


Implementation of the Integrated Pension Administration System had been expected to produce resource requirement reductions in future budget submissions, he said, noting that the $19.47 million reduction in the budget for 2014-2015 was mainly due to proposed changes in the accounting treatment of external management fees for small capitalization funds and publicly traded real estate.  The Advisory Committee would therefore keep growth of the Pension Fund’s budget under close review, expecting the Pension Fund’s future submissions to reflect efficiencies and savings due to implementation of the Administration System.


PETER THOMSON (Fiji), speaking on behalf of the “Group of 77” developing countries and China, noted several parts of the report relating to administrative expenses of the Pension Board, including a stable number of member organizations and small increase in the number of active participants in the Pension Fund, information on current and future payments to retirees and beneficiaries and a $5 billion growth in the Pension Fund’s balance over the course of the previous year.  He welcomed alignment of reporting on operations with reporting on the Pension Fund’s investments following IPSAS implementation.  Turning to the Performance Report, he said the Pension Fund had under-spent in the 2012-2013 biennium compared to its original appropriation and had requested a lower amount under the proposed budget for 2014-2015 biennium than the revised appropriation for 2012-2013, he said.  Meanwhile, the Pension Board’s requirements for the 2014-2015 biennium, due to a change in methodology for formulating the budget for administrative expenses, would be $1.8 million higher than in 2012-2013.


As well as noting the proposal to establish 27 new posts and 10 temporary ones, he noted the proposal to establish an Assistant Secretary-General level position for a Representative of the Secretary-General to the Pension Fund.  He wished to learn the rationale for that proposal, its added value and the extent to which it accounted for the pending review of the Pension Fund’s governance arrangements and management structure.  He would also follow closely several thematic issues related to the Fund, such as recruitment, after-service health insurance, medical standards and diversification of the Pension Fund’s investment.  He also looked forward to information on progress in IPSAS implementation.


STEPHEN LIEBERMAN ( United States) applauded efforts made to minimize the impact of considerable recent market volatility on the Pension Fund’s sustainability.  He was pleased by the Pension Fund’s continued growth and strong performance but encouraged the United Nations Secretariat to continue minimizing administrative expenditures to ensure its long-term health.  Recognizing the delicate balance between adequacy and sustainability that the Committee of Actuaries had to pursue, he encouraged that body to continue adjusting its methodology and the economic assumptions it used to accurately reflect necessary changes to staffing and compensation in the United Nations system.  To respond to the strain of rising staff costs, the Organization had few options beyond streamlining, relying on more temporary staff and demanding the slowing or reduction in annual growth of salaries.  Actuarial assumptions would need to reflect a leaner Organization with fewer participants and lower contributions.


It was necessary to explore all avenues to ensure the Pension Fund’s long-term sustainability, including increasing staff contribution rates to reflect participants’ longer longevity, he said.  The Chief Executive Officer’s proposed simplification of the small pension adjustment system was encouraging and “both reasonable and equitable”.  He urged the Secretariat to turn a critical eye to other benefits to ensure that no single segment of the population received substantially higher benefits than any other and also reiterated his support for installing a full-time Representative of the Secretary-General dedicated to managing the Investment Management Division, which should be resourced by the Pension Fund.


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