Budget Committee Examines Retirement Age Rules, Strategies to Control Salary Costs while Offering Attractive Compensation Package for United Nations Employees

GA/AB/4125
27 October 2014
Sixty-ninth session, 8th Meeting (AM)

Budget Committee Examines Retirement Age Rules, Strategies to Control Salary Costs while Offering Attractive Compensation Package for United Nations Employees

The International Civil Service Commission’s ongoing efforts to shape a more modern, flexible compensation package for thousands of workers in the United Nations common system while bringing escalating salary costs under control was discussed at today’s meeting of the Fifth Committee (Administrative and Budgetary).

Secretariat officials also gave delegates an update on the United Nations Joint Staff Pension Fund, which reached a historically high value of $51.4 billion at year-end 2013 — up from $44.7 billion in 2012.  The Fund, which provided retirement, death, disability, and related benefits for staff participants, posted a return of 15.5 per cent, said Mustafizur Rahman, Vice Chair of the United Nations Joint Staff Pension Board, as he introduced the Board’s report.

Kingston P. Rhodes, Chairman of the International Civil Service Commission, introduced its fortieth annual report.  While recognizing the hard work and progress made by the Commission’s three working groups to reshape the compensation package for dozens of United Nations agencies, funds and programmes, Mr. Rhodes said much work remained to be done.  The Commission wanted to give the Organization “a modern compensation system that will attract and retain highly skilled and engaged staff to support the evolving requirements of the Member States.”

The United States’ representative said the General Assembly had given the Commission two mandates regarding the United Nations common system compensation package.  The first focused on short-term financial relief for the Organization by temporarily suspending annual increases in post-adjustment payments — a primary factor behind increasing staff costs.  The second mandate aimed to provide long-term financial relief by reviewing the existing compensation package and developing a new package that recognized the financial realities faced by the common system’s organizations and Member States.  The United States was encouraged by the Commission’s work and hoped the new compensation package would be more flexible and cost-effective.

Bolivia’s representative, speaking on behalf of the Group of 77 developing countries and China, said the Group would use the Commission’s new analysis to re-examine the body’s recommendation to increase the mandatory age of separation to 65 for current staff members, effective 1 January 2016.  Last year, the Commission had issued that recommendation on retirement age, which would mirror the policy for staff recruited as of 1 January 2014.  The mandatory separation age is now 60 for staff who began working and entered the Fund before 1 January 1990, and 62 for those who began working after that date.

Expressing support for the Commission’s recommendations, the Russian Federation’s delegate said the proposal to increase the retirement age to 65 should apply to all existing staff, not just new hires.  Current staff should be able to choose whether to use the new threshold or not.

Johannes Huisman, Director of the Programme Planning and Budget Division of the Department of Management, introduced the Secretary-General’s statement on administrative and financial implications of the decisions and recommendations contained in the report of the International Civil Service Commission for the year 2014.  Carlos G. Ruiz Massieu, Chair of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introduced that body’s related report.

Regarding the Pension Fund, Carolyn Boykin, the recently appointed Representative of the Secretary-General for the Investments of the United Nations Joint Staff Pension Fund, introduced the Secretary-General’s report on the Fund’s Investments.  Mr. Massieu then introduced the Advisory Committee’s related report.

Also speaking at today’s meeting were delegates of Japan and Paraguay, as well as the European Union.

Diab El-Tabari, President of the Federation of International Civil Servants’ Associations, and Ian Richards, President of the Coordinating Committee for International Staff Unions and Associations of the United Nations System, also spoke.

The Committee will reconvene at 10 a.m. Thursday, 30 October, to discuss two 2014-2015 Programme Budget issues: African descent and the United Nations Office for Partnerships.

United Nations Common System

Kingston P. Rhodes, Chairman of the International Civil Service Commission, (ICSC) introduced the Report of the International Civil Service Commission for the year 2014 (document A/69/30), the Commission’s fortieth annual report.  It included a summary of recommendations which required decisions by the General Assembly and legislative organs of other participating organizations.  It made recommendations on conditions of service, including health insurance and the mandatory age of separation; the remuneration of the Professional and higher categories; and conditions of service of the General Service and other locally recruited staff.  Regarding conditions of service, it recommended that the current share of health insurance premiums between the Organization and both active and retired staff in the United States and non-United States health insurance plans be maintained at their existing ratios, and it told the Assembly it had carried out the required analysis on workforce and succession planning.

Turning to the mandatory age of separation, the Commission followed the Assembly’s request for additional analysis and consultations.  Last year, the Commission had recommended increasing the mandatory age of separation to age 65, effective 1 January 2016, for current staff members.  That would mesh with the policy for staff recruited as of 1 January 2014.  The mandatory separation age is now 60 for staff who began working before 1 January 1990, and 62 for those who began working after that date.  The Commission’s analysis of costs, succession planning, performance management and gender/geographical balance, found there would be no negative consequences by changing the retirement age to coordinate with the policy for new staff.

Regarding remuneration of the Professional and higher categories, the Commission recommended in its report that the Assembly approve, effective 1 January 2015, the revised base/floor salary scale for the Professional and higher categories, as shown in annex III of the report.  Mr. Rhodes said the Commission had been devoting most of its time and energy to carry out its review of compensation for staff in that category, mindful of the financial situation of the organizations participating in the United Nations common system and their capacity to attract a competitive workforce.  Three working groups had studied matters relating to: the remuneration structure; competitiveness and sustainability; and performance incentives and other human resources issues.  The conclusions of the extensive, comparative study found that the approaches used by other employers to compensate expatriate workforces were not applicable to the common system, as they would tie the compensation package to either the employees’ home countries or the country of their assignments.  Given the diversity among United Nations common system staff and the wide variation in the nature and location of assignments, the current globalist approach continued to be the one best-suited for Professional-level staff in an international civil service.

While noting that salary and benefits were significant elements in the compensation package, the Commission considered the total rewards concept an important part of its review as it expanded the review beyond monetary aspects, he said.  A total rewards system placed high value on the intrinsic worth of non-financial, intangible elements such as work-life balance, job satisfaction, and the notion of working for a greater good.

As part of its work on the remuneration structure, the Commission had evaluated the pros and cons of the common system salary scale, which had single and dependency rates, he said.  It had determined that a single scale, eliminating the current distinction for dependency status and focusing on the job performed, should be introduced.  The Commission aimed to finalize several pending issues, particularly the review of the National Professional Officer category.  The Assembly expected its final report on the review next year.  While recognizing the Commission’s accomplishments over the past months, Mr. Rhodes said the Commission had much work to complete so as to “hand over to you a modern compensation system that will attract and retain highly skilled and engaged staff to support the evolving requirements of the Member States.”

JOHANNES HUISMAN, Director of the Programme Planning and Budget Division of the Department of Management, introduced the Secretary-General’s statement, submitted in accordance with rule 153 of the Assembly’s rules of procedure, titled Administrative and financial implications of the decisions and recommendations contained in the report of the International Civil Service Commission for the year 2014 (document A/C.5/69/3).  It set forth the budgetary implications stemming from the Commission’s decisions and recommendations on base/floor salary scale, and review of staff assessment rates used in conjunction with gross salaries for Professional and higher categories, as well as a survey of the best prevailing conditions of employment for General Service and related categories in Madrid.

Additional requirements of $65,000 for the biennium 2014-2015 programme budget would be addressed in the second performance report for that period, while additional requirements of $131,600 for 2016-2017 would be taken into account in the proposed programme budget for that biennium, he said.  For peacekeeping operations, additional requirements of $66,400 for the period from 1 July 2014 to 30 June 2015 would be addressed in the related performance reports.  Also, additional requirements of $132,800 for the period from 1 July 2015 to 30 June 2016 would be taken into account in the proposed budget for that period. 

CARLOS G. RUIZ MASSIEU, Chair of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introducing that body’s related report (document A/69/546), said the Advisory Committee had no objection to the Secretary-General’s statement.

DIAB El-TABARI, President of the Federation of International Civil Servants’ Associations, made brief remarks from his statement.  He said the staff union had serious concerns with the Commission’s review of the compensation package.  It believed the endeavour was a cost-cutting exercise, and did not see how the Organization could maintain a high level of staff through such an exercise.  The freezing of compensation for General Service staff was concerning.  The staff union also was concerned with the mandatory age in separation and the use of various ages.  The union was pushing for a unified age of separation for all staff.  Another concern was the continuing use of non-staff as a cost-saving measure.  That practice would affect the integrity of the Organization’s work.

IAN RICHARDS, President of the Coordinating Committee for International Staff Unions and Associations of the United Nations System, said that a survey in the United States showed 74 of likely voters believed the United Nations to be relevant and needed — the highest since the poll started five years ago.  The globally mobile, diverse, and performing staff recruited to the United Nations system must be the brightest and the best.  Naturally, the right compensation package was needed to attract them.  That was why professional staff was paid in accordance with the best-paid national civil service — the so-called Noblemaire principle.  Much hinged on the outcome of the ongoing, once-in-a-generation compensation review, which needed to be fit for the performance goals over the next five, 10 and 20 years.

He recalled how a colleague’s husband had given up his job to accompany his wife to a country where he would find no employment.  The higher salary for staff with non-working spouses was, therefore, a clear motivating factor.  The education grant allowed staff to send their children to school abroad to benefit from instruction in their mother tongue, which was not available at their duty stations.  The compensation package must be family friendly, respect cultural and linguistic diversity, and address the sacrifices that staff’s families must make. 

It was important to retain the best staff, he said.  It was regrettable that some of the most experienced and productive staff were still required to retire at 60 or 62 while the comparator service had no retirement age at all.  Last year, the Fifth Committee asked for an in-depth study on the impact of increasing the retirement age to 65.  The results were clear.  The measure would reduce after-service healthcare liabilities by $31 million and the United Nations Joint Staff Pension Fund’s actuarial deficit by almost a fifth.  “The principle concerns raised last year can be put to rest,” he said, noting that the measure would affect none of the following factors: gender diversity, geographic diversity, rejuvenation and organizational performance.

On the net margin, his Committee did not agree with the freeze, but the current margin management system had broadly proved itself, he said.  The Commission and the Assembly, however, should pay greater attention to the fact that in 15 of the last 20 years, United Nations staff had received less than the 115 margin.  

His Committee was concerned that the management team at the Fund was actively seeking waivers to four important elements of the staff regulations, he said.  Management had requested exemption from the United Nations mobility policy and was seeking discretionary authority to keep some staff beyond retirement.  Management also sought to promote certain General Service staff to the “professional” categories without passing the exam, and had asked for the right to laterally assign staff, in contravention of instructions that all vacancies be advertised externally.  If approved, those waivers would reduce opportunities for qualified pension experts around the world to work at the Fund and weaken the ability of the Office of Human Resources Management (OHRM) to check abuses of authority.

He concluded by stressing that many staff members were serving in hardship and extremely difficult locations, “far removed from this elegant conference room”.

DAYANA ANGELA RIOS REQUENA (Bolivia), speaking on behalf of the “Group of 77” developing countries and China, said the Commission played a crucial role in aligning the common system with the new contractual framework set down by Assembly resolution 63/250.  Regarding the Commission’s recommendation that the Assembly increase the mandatory age of separation to 65 for current staff members, effective 1 January 2016, the Group would again examine this recommendation in light of the Commission’s analysis. 

Turning to the evolution of the United Nations/United States net remuneration margin, the Group noted that the margin for 2014 was 117.4 and its five-year average over 2010-2014 was 116.4 at reporting time, she said.  The Group would examine the Commission’s decisions concerning the suspension of the normal procedure for management of the margin within the established range, and the continuing freeze in the net remuneration in New York, until the margin was returned to its desirable mid-point.  The Group was very concerned about the insufficient progress made by organizations in the common system in achieving gender balance, especially at the D-1 level.  The Group supported the Commission’s recommendations aimed at improving the representation of women, and believed greater effort should be made to recruit women from developing countries.

FRANCESCO PRESUTTI, a representative of the European Union Delegation, welcomed the action by the Commission to maintain the freeze in net remuneration, saying the measure would bring the one-year average margin closer to the desirable midpoint.  Continued margin management would be necessary to also bring the five-year average margin down to the desirable midpoint.  The Union welcomed the Commission’s comprehensive review of the compensation package, and looked forward to its final recommendations next year.  The Union would also look closely into other matters, including the mandatory age of separation, the proposed revised base/floor salary scale for the Professional and higher categories, and the conditions of service for General Service and other locally recruited staff.     

 

ERIKO YAJIMA KOYAMA (Japan) stressed that the greatest asset of the United Nations was its staff.  Its compensation system should be transparent, fair, simple, and sustainable to meet the high motivation and confidence of staff.  The results of the comprehensive review of the compensation package should bring about an effective, efficient, flexible, and performance-oriented work force.  Her delegation looked forward to receiving the details leading up to the Commission’s final conclusions and recommendations next year.  It also paid particular attention to the Commission’s analysis on the impact of raising the mandatory retirement age of the work force, succession planning, and all relevant human resources management policies.  Japan was also interested in the study on recruitment policies in the context of diversity within United Nations organizations, including such issues as geographical distribution and gender balance.          

CHERITH A. NORMAN CHALET (United States) said the trend of increasing staff costs over the last decade had created a crisis across the 24 organizations of the United Nations common system.  “Budgets are being squeezed, mandates are being endangered and posts are being left vacant,” she said.  Eight organizations — the Food and Agriculture (FAO), International Maritime Organization (IMO), World Intellectual Property Organization (WIPO), United Nations Industrial Development Organization (UNIDO), Universal Postal Union (UPU), International Civil Aviation Organization (ICAO), World Health Organization (WHO) and the World Meteorological Organization (WMO) — had asked the Assembly and Commission for relief.

Post-adjustment payments reaffirmed each year by the Assembly let United Nations pay be 10 to 20 per cent higher than pay for United States federal civil servants in any given year, she said.  During the sixty-eight Assembly session, the five-year average margin was above 15 per cent for the first time in history.  In August, the Commission decided to continue the freeze in pay until the calendar year margin, now 17.4 per cent, returned to 15 per cent.  “We welcomed this decision but note that it only brings the five-year margin closer to the desirable mid-point, not all the way there,” she said.

The Assembly had given the Commission two mandates regarding the United Nations common system compensation package, she said.  The first focused on short-term financial relief for the Organization by temporarily suspending annual increases in post-adjustment payments, a primary factor behind increasing staff costs.  The second mandate aimed to provide long-term financial relief by reviewing the existing compensation package and developing a new package that recognized the financial realities faced by the common system’s organizations and Member States.

Regarding the Commission’s mandate to provide long-term financial relief for the Organization, she said the ongoing freeze in pay was insufficient to solve the longer-term problem: “The current compensation package is too complex, outmoded, inflexible and expensive.”  The United States believed that only the Commission had the standing and expertise with relevant stakeholders to resolve that problem.

While staff should be well compensated for their work, the definition of well compensated was less about the value or structure of the current package and more about finding a “total rewards” package that recognized good performance with incentives and provided opportunity for development and advancement.  While organizations valued their membership in the United Nations common system, the current compensation package was not flexible enough to account for their variable mandates.  “These observations give the ICSA significant room to make the new compensation package more simple, modern, flexible and cost-effective than the current one,” she said.  The United States was encouraged that the Commission was carrying out its work with these objectives in mind.  “We will judge the results of this exercise in UNGA 70 on that basis,” she added.

Regarding the Commission’s mandate to provide long-term financial relief for the Organization, she said the ongoing freeze in pay was insufficient to solve the longer-term problem: “The current compensation package is too complex, outmoded, inflexible and expensive.”  The United States believed that only the Commission had the standing and expertise with relevant stakeholders to resolve that problem.

While staff should be well compensated for their work, the definition of well compensated was less about the value or structure of the current package and more about finding a “total rewards” package that recognized good performance with incentives and provided opportunity for development and advancement.  While organizations valued their membership in the United Nations common system, the current compensation package was not flexible enough to account for their variable mandates.  “These observations give the ICSC significant room to make the new compensation package more simple, modern, flexible and cost-effective than the current one,” she said.  The United States was encouraged that the Commission was carrying out its work with these objectives in mind.  “We will judge the results of this exercise in UNGA 70 on that basis,” she added.

JULIA ANSELMINA MACIEL GONZÁLEZ (Paraguay), associating herself with the Group of 77 and China, stressed the need to further analyse the recommendation for raising staff retirement age to 65 in January 2016.  That proposal must be considered in conjunction with the rejuvenation of the work force, gender balance, and geographical representation.  The Organization should recruit more women from developing countries.    

EVGENY V. KALUGIN (Russian Federation) expressed support for the recommendations of the Commission, including the proposal to increase the retirement age to 65, as it reflected a relevant trend in Member States.  That should apply to all existing staff, not just new hires.  Current staff should be able to choose whether they use the new threshold or not.  His delegation was ready to engage in informal consultations on various issues, including the freeze on net remuneration in New York and the 1.1 per cent adjustment to the base/floor salary scale.

United Nations Pension System

MD. MUSTAFIZUR RAHMAN, Vice Chair of the United Nations Joint Staff Pension Board, introduced that body’s report (document A/69/9) of its sixty-first session held from 10 to 18 July 2014.  He introduced the report on behalf of Theresa Panuccio, the Board’s Chair.  The first part of Chapter II provided a summary of the recommendations and decisions that required action by the Assembly and which the Fifth Committee was invited to endorse.

The thirty-second actuarial valuation of the Fund, as of 31 December 2013, had revealed a deficit of 0.72 per cent of pensionable remuneration, compared to a 1.87 deficit revealed by the 2011 actuarial valuation, he said.  The decrease was largely due to the increase in normal or early retirement ages for new staff whose participation in the Fund commenced, or re-commenced, on or after 1 January 2014.   The Board noted the significance of the reversal of the downward trend observed in the actuarial valuation results since 1999, and was pleased by the significant improvement in the Fund’s actuarial condition.

The Fund’s market value as of 31 December 2013 was $51.4 billion, a historically high valuation and up from $44.7 billion the previous year, he said.  For 2013, the Fund had a return of 15.5 per cent, which outperformed the Fund’s market benchmark by 198 basis points.  The Fund had achieved a 4-per-cent real rate of return over the last 50 years, exceeding the target of 3.5 per cent by 0.5 percent.  Mr. Rahman said he was pleased to note that the Secretary-General had recently announced the appointment of Carol Boykin as his full-time representative for the investment of the Fund’s assets.  That important post was approved by the Assembly in April 2014 in view of the complexity and size of the Fund’s investment operations.

CAROLYN BOYKIN, Representative of the Secretary-General for the United Nations Joint Staff Pension Fund Asset Investments, introduced the Secretary-General’s report titled Investments of the United Nations Joint Staff Pension Fund and measures undertaken to increase the diversification of the Fund (document A/C.5/69/2) and his note on the membership of the Investments Committee (document AC. 2141).  The report provided information on the performance of the Fund’s investments during the fiscal biennium from 1 April 2012 to 31 March 2014; information on the diversification of investments; changes made during the biennium; investments in developing countries; and the membership of the Investments Committee.

For the fiscal biennium ending 31 March 2014, the Fund’s market value had increased by about $8.7 billion, or 20.3 per cent, to $51.8 billion, she said.   That compared to $43.1 billion on 31 March 2012.  The Fund’s performance had exceeded the 3.5-per-cent real rate of return target, generating a real rate of return of 6.6 per cent for the fiscal year ending 31 March 2013, and 10.6 per cent for the fiscal year ending 31 March 2014.  The Fund had exceeded its long-term investment objective of a 3.5 per cent real rate of return over the past 10 years.

The Fund was committed to a policy of broad diversification of its investments by geographical area, currency type, and asset class, she said.  That was a reliable method to improve the portfolio’s risk-return profile over the long term.  The Fund had invested in 39 countries through its internally managed direct investments as of 31 March 2014, and its equities portfolio was invested in 23 currencies.  Investments in developing countries totalled $5.2 billion as of 30 March 2014, and the Fund continued to explore investment opportunities in Africa, Asia, and Latin America. 

Mr. RUIZ MASSIEU introducing the report of the ACABQ on the United Nations pension system (document A/69/528), said that the Advisory Committee concurred with the opinions of the Board of Auditors in Annex X to the Pension Board’s report (document A/69/9), and was pleased to note that the Pension Fund’s actuarial valuation marked a reversal of the downward trend since 1999.

Regarding a possible broadening of the Fund’s mandate to include the administration of after-service health insurance benefits, the Advisory Committee felt that the issue was of concern to the entire United Nations.  He said it would best be resolved over the long term through a system-wide approach, welcoming the initiative by the High-level Committee on Management to establish a working group on the matter.  While acknowledging the role played by favorable market conditions, ACABQ commended the Fund’s success in meeting its investment objectives for the biennium ended March 2014 and over the long term.  The Advisory Committee also welcomed the appointment of Secretary-General’s full-time representative for the investments of the Fund, whose experience and leadership would be valuable. 

He called for an expeditious conclusion of the ongoing discussions between the Fund and OHRM regarding the proposals made by the Fund’s management, including some exceptions to United Nations human resource policies and procedures.  Regarding withdrawal settlements and contributions made by the member organizations on behalf of participants who left with less than five years of contributory service, ACABQ felt the issue merited further consideration and expected that the Fund would continue to track and report on those contributions.

Ms. RIOS REQUENA welcomed the improvement of the Fund’s actuarial position and its achievement of 3.5 per cent real return in the past 10, 15, 20, 25, and 50 periods.  As for investment diversification, the Group looked forward to more detailed discussion on related issues, especially investment in developing countries.  Regarding the after-service health insurance, the Group considered managing pension and health care benefits as separate and independent businesses that required different systems, processes, procedures, and expertise with a limited opportunity for efficiency gain.  The Group, therefore, welcomed the initiative of the High-level Committee on Management to establish a working group on the matter. 

She said that the Group noted with attention the information related to the selection process of the new Representative.  It would be interested in learning about the recruitment process, including matters on the mechanism to track the performance of the representative as mandated by the General Assembly.  The Group sought progress updates on revising the Human Resources Memorandum of Understanding between the Secretariat and the Fund.  The Fund should fully implement all the recommendations made by the Board of Auditors relating to financial management, financial statement disclosure, investment management, contribution collection, benefit payment management, as well as information technology system management.

Ms. NORMAN CHALET said her delegation was pleased with the Fund’s strong performance this year, expressing appreciation for continued efforts to diversify the Fund’s investments by currency, asset type, and geographical area.  She also encouraged the Secretariat to continue to be innovative and pursue efficiencies to ensure the long-term health of the Fund.  Her delegation also noted that the Fund’s actuarial deficit had improved from last year, due largely to increases in normal and early retirement ages for new staff.  Welcoming the appointment of Ms. Boykin as the full-time Representative of the Secretary-General, she said her Government recommended and supported the creation of that position. 

She said her delegation wished to delve more into the issue of broadening the Fund’s mandate to include the cost-effective, efficient, and sustainable administration of after-service health insurance benefits, and was eager to hear more details about the Fund’s human resources arrangement with OHRM.  Consultants and other individuals working on non-staff contracts represented a significant percentage of the United Nations common system global work force, but were not eligible to participate in the Fund.  Her delegation appreciated the Board monitoring the issue and looked forward to further discussions on it.

For information media. Not an official record.