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THIRTEENTH ITEM ON THE AGENDA

Pensions questions

Report of the United Nations Joint Staff Pension Board

1. The United Nations Joint Staff Pension Board held its forty-seventh session at the International Training Centre of the ILO, Turin, from 8 to 19 July 1996. It was chaired by Mr. Chotard, member of the ILO Staff Pension Committee, who will present the Board's recommendations to the United Nations General Assembly this autumn. Copies of the report are available on request.

2. The main issues examined by the Board included the comprehensive review of pensionable remuneration and the development of a common salary scale in consultation with the International Civil Service Commission (ICSC), the actuarial evaluation of the Fund as at 31 December 1995, the investments of the Fund, and the transfer agreements between the Fund and the former USSR, Ukrainian SSR and Byelorussian SSR.

Review of pensionable remuneration and development
of a common salary scale

3. As requested by the UN General Assembly in its resolutions 45/242, 47/203 and 49/224, the ICSC, in close cooperation with the Board, began its comprehensive review of the pensionable remuneration and consequent pensions of staff in the Professional and higher categories and in the General Service and related categories. The Board had been asked to address the "income inversion" anomaly that occurs particularly in duty stations which are more expensive than New York when, for the same salary level, General Service staff have higher pensions than Professional staff. This is primarily due to different rates of staff assessment. There are two separate salary scales and different factors are applied to gross-up salaries to account for after-service tax in deriving pensionable remuneration: 46.25 per cent for Professional staff and 66.25 per cent for General Service staff.

4. The Board adopted the following conclusions and recommendations, which were considered by the ICSC at its 44th session, which was held from 31 July to 13 August 1996:

1. there is no need to change the special index for pensioners that is used to reduce cost-of-living factors applicable to the pension adjustment system when local taxes are lower than staff assessment rates reflected in pensionable remuneration;

2. Methodology for determining Professional
   pensionable remuneration

3. the income replacement approach and the current methodology related thereto, including the use of a 46.25 per cent grossing-up factor, should continue to serve as the basis for the determination of pensionable remuneration of staff in the Professional and higher categories;
4. the current interim adjustment procedure should be continued;
5. the UN/US pensionable remuneration and income replacement ratios should continue to be monitored between comprehensive reviews, at least biennially, and reported to the UN General Assembly whenever deemed necessary;
6. it concurred with the views of the Committee of Actuaries as regards the actuarial comparisons of benefits under the United Nations Joint Staff Pension Fund (UNJSPF) with those under the retirement schemes of the United States Federal Civil Service;

7. Methodology for determining General Service
   pensionable remuneration

8. the income replacement approach and the methodology related thereto, including the use of 66.25 per cent of the net pensionable salary for grossing-up purposes, should continue to be used for the determination of pensionable remuneration of staff in the General Service and related categories;
9. the current interim adjustment procedure should be continued;
10. a joint ICSC/Pension Board working group should be established to address the non-pensionable component issue, as part of the review of the salary survey methodology scheduled for 1997 (the Board designated three members, one from each of the constituent groups represented in the Board, to serve on this working group);

11. Development of a common scale of staff assessment

12. the Board favoured the use of retiree tax deductions which would raise pensionable remuneration; however, it could not agree to any of the common scales of staff assessment that had been proposed by the ICSC, and effectively left this decision to the ICSC.⁽¹⁾

Actuarial situation

5. The Board approved the twenty-third actuarial valuation of the Fund as at 31 December 1995. As the actuarial imbalance had slightly improved during the two-year reporting period, the current contribution rate was considered to be sufficient. The results of the next actuarial valuation as at 31 December 1997 will be considered by the Board at its regular session in 1998.

Investments of the Fund

6. During the two-year period ended on 31 March 1996, the market value of the assets of the Fund increased by $3,005 million, from $12,534 million on 31 March 1994 to $15,539 million on 31 March 1996. The total investment returns for the years ended 31 March 1995 and 31 March 1996 were 8.7 per cent and 14.6 per cent respectively. After adjustment by the United States consumer price index (CPI), the "real" rates of return for the years in question were 5.6 per cent and 11.5 per cent, respectively. The average annual inflation-adjusted rate of return over the last 36 years was 3.7 per cent.

Transfer agreements between the Fund and the
former USSR, Ukrainian SSR and Byelorussian SSR

7. According to the transfer agreements concluded in 1981 between the UNJSPF and these three countries, nationals who belonged to the UNJSPF were required to transfer their pension rights to the Social Security Fund of the former Union of Soviet Socialist Republics (USSR) when they left UN-system employment. The application of these agreements resulted in a number of anomalies that were brought to the Board's attention and the agreements were suspended in 1992. The Board noted, inter alia, that the pension rights accorded by the national retirement schemes did not offer any increase proportional to the rights transferred from the UNJSPF. In 1991 the Board authorized the Secretary-General to enter into negotiations with the permanent missions to the United Nations of the three member States concerned. The Board later authorized the Secretary of the Fund to pursue discussions with the governments concerned.

8. After extensive negotiation by the Secretary of the Fund, the Board recommended that the UN General Assembly approve a new accord, with the Russian Federation, whereby the Government would assume all actuarial costs of reinstating, without retroactive adjustment, the UNJSPF United States dollar pension entitlements of former participants who had more than five years of UNJSPF membership and were citizens of the Russian Federation. It suggested that the UN General Assembly might request the other independent States that had separated from the former USSR to reach similar agreements and asked the Secretary to attempt to find a solution for former participants who had separated before the transfer agreement of 1981 went into effect. After its approval by the UN General Assembly, the proposed agreement must be formally approved by the Government of the Russian Federation.

Other business

9. The Board approved a temporary measure for the pension adjustment system that would apply to countries that had experienced high rates of inflation and successive depreciations of local currencies against the United States dollar, such as Argentina, Brazil and Uruguay.

10. Due to a lack of consensus, the Board deferred decision on the following items: review of the interest rates applicable to lump-sum commutations; review of the procedure for determining final average remuneration; suspension of benefits in cases of re-employment in a member organization; extension of the time-limit governing the cessation of participation; and entitlement to survivor's benefits for spouses and former spouses (remarriage after separation and pension splitting in the case of divorce).

11. The World Tourism Organization in Madrid became a member of the Fund on 1 January 1996. Two newly formed international organizations have requested to join the Fund: the International Seabed Authority and the International Tribunal for the Law of the Sea. Subject to the approval of the General Council of the World Trade Organization, the ICITO/GATT will withdraw from the Fund.

Geneva, 7 October 1996.

¹ GB.267/PFA/12.