POSITIVE RESULTS ON UN PENSION FUND PRAISED IN FIFTH COMMITTEE

Press Release
GA/AB/3408

POSITIVE RESULTS ON UN PENSION FUND PRAISED IN FIFTH COMMITTEE

The investments of the United Nations Joint Pension Fund had met their objective of obtaining an optimal investment return while avoiding undue risk, the Fifth Committee (Administrative and Budgetary) was told this morning, as it began its consideration of the United Nations common and pension systems.

Introducing the report on the investments of the United Nations Joint Staff Pension Fund, Under-Secretary-General for Management Joseph E. Connor said that the management of the investments of the Fund continued to rely on broad diversification in terms of currency, types of asset class and geographical areas as the most reliable method of reducing risk and improving returns over the long term. The Fund was unique in its commitment to global investment.

Several speakers in this morning’s debate noted that a second consecutive actuarial evaluation of the Pension Fund had shown a positive result. They supported recent measures by the Pension Board to reduce the interest rate used for lump-sum computations to 6 per cent and the threshold for cost-of-living adjustments to 2 per cent. They also approved the establishment of a tripartite working group to undertake a more comprehensive and fundamental review of the benefit provisions of the Fund in light of the evolving remuneration and contractual policies.

Introducing the report of the International Civil Service Commission (ICSC), the Chairman of that body, Mohsen Bel Hadj Amor, said that the centrepiece of this year’s work of the Commission was the development of an integrated framework for human resources management, which identified the main elements of a new plan for human resources. Also addressed by the Commission were post adjustment matters; conditions of service of the General Service; recognition of language knowledge; education grant; and children’s and secondary dependants’ allowances. In producing updated, flexible human resources policies for the common system, the ICSC was making a major contribution to reform process currently under way.

Introducing the report on strengthening of the international civil service, the Assistant Secretary-General for Policy Coordination and Inter-Agency Affairs, Patrizio Civili, said that the proposed review of the ICSC was conceived to strengthen the Commission’s role. That initiative would not succeed if approached within a narrow, bureaucratic framework. In was necessary to further elaborate the mission of the ICSC and the modalities for the selection of its members. It was also important to develop the advisory role of the Commission within the common system.

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The Commission’s independence, its decision-making authority, and the integrity of its Statutes were not in question, he stressed. On the contrary, the review should result in the most faithful application of the spirit and letter of the provisions of the ICSC Statute.

On the issue of revised 1954 standards of conduct of international civil servants, the President of the Coordinating Committee for International Staff Unions and Associations of the United Nations System (CCISUA), Mehri Madarshahi, said that those rules should give expression to ideal parameters of behaviour and attitudes. Despite considerable efforts by all parties participating in the working group, the final text did not meet the requirements of any of them. The staff found it difficult to accept that the standards were subjugated to internal rules and policies of each member organization, rather than representing an overarching and unifying document for all organizations.

Speaking on behalf of the European Union and associated States, the representative of France said that the net salaries of United States federal civil servants seemed to be consistently growing faster than the salaries of United Nations officials. The Union approved the raising of the minimum basic salary scale for administrators and officials of higher rank, as recommended by the Commission; however, the ICSC should also consider raising the minimum basic salary scale in real terms.

The report of the United Nations Pension Board was presented by its Chairman Walter P. Scherzer. Introducing the report of the Advisory Committee on Administrative and Budgetary Questions (ACABQ) on the United Nations pension system was Chairman of the Advisory Committee C.S.M. Mselle.

Also speaking this morning were the representatives of the United States, China, Russian Federation and Tunisia. The President of the Federation of International Civil Servants’ Associations, Bernard P. Grandjean, also addressed the Committee.

The Committee will continue its work at 10 a.m. on Monday, 13 November, when it is scheduled to continue its general discussion of results-based budgeting and the United Nations common and pension systems. It will also begin its consideration of the financing of the United Nations Interim Force in Lebanon (UNIFIL).

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Committee Work Programme

The Fifth Committee (Administrative and Budgetary) met this morning to begin its consideration of the United Nations common and pension systems.

United Nations Common System

The Committee had before it a report of the International Civil Service Commission (ICSC) for the year 2000 (document A/55/30), which contains information on the latest recommendations of that body concerning conditions of services of international staff, remuneration of the Professional and higher categories and other matters on coordination of civil service regulations throughout the United Nations system.

One of the key instruments developed by the ICSC over the last year in support of the work of the Organization is the Framework for Human Resources Management, setting certain priorities for future work in that respect. The Framework enables those engaged in human resources reform to understand the impact that change in one area of the common system might have on another. It also allows the Commission to issue broad policy guidelines on human resources issues.

Identifying the main tendencies of human resources strategies, the Framework addresses six major human resources areas, including ethics/standards of conduct for the international civil service, compensation and benefits, employment, career management, good governance, and human resources information management. The report states that the Framework has been strengthened by definitions that had been developed for each major area, the identification of core/non-core areas, and links to other components and underlying guiding principles. Core areas are defined as those that bind the United Nations family together to avoid competition in the employment of staff that might result from fundamental differences in compensation packages, those that promote common values of the international civil service, and those that facilitate mobility of staff across the system.

At its fifty-first and fifty-second sessions, which took place in April and July-August this year, the first priority of the Commission was the revision of the 1954 Standards of Conduct for the International Civil Service. The ICSC also commenced work on the system of pay and benefits. The Commission also adopted the Framework (outlined in Annex II of the report) and concluded that it was a dynamic tool, which should be continuously updated as needed.

The report says that the Standards of Conduct are a cornerstone of the international civil service and should, therefore, reflect the best current thinking and the relevant language of the time. The Standards should be introduced by all organizations and should be acceptable to all governing bodies. The goal of the revision was to provide the United Nations family with updated Standards of Conduct, which would be as inspirational as the 1954 model. The existing text, whatever its substantive shortcomings, lacked gravitas. The Commission was asked by the Consultative Committee on Administrative Questions (CCAQ) to consider constituting a new tripartite working group to consider texts that had been put forward with a view to achieving consensus. The tone and style of the final product must reflect the unique ideals and goals of service of the organizations in the United Nations system.

The Commission asked organizations to present their complete views and, to the extent possible, reach consensus on a draft before the matter was taken up at its next session, at which time the Commission would finalize the Standards and go forward with its proposals to the General Assembly in 2001.

Among other issues discussed during the session was the recognition of language knowledge in the United Nations system, the education grant, and implementation by organizations of its decisions and recommendations. The Commission also reviewed the common scale of staff assessment. It decided to report to the Assembly that the current scale of staff assessment should continue to apply and should be reviewed again at the time of the next comprehensive review of pensionable remuneration, currently scheduled for 2002. As the study of the salary system might affect the determination of pensionable remuneration, the Commission decided to postpone its comprehensive review of pensionable remuneration from 2002 to 2004.

The Commission also reviewed the conditions of service of the Professional and higher categories. The Commission has a standing mandate from the Assembly to review the relationship between the net remuneration of United Nations staff in the Professional and higher categories in New York and that of United States federal civil service in Washington, D.C. The net remuneration margin for 2000 was estimated at 113.8.

The Commission also reviewed the base/floor salary scale (the minimum net amounts received by staff members around the world). Periodic adjustments are made on the basis of a comparison of net base salaries of United Nations officials at the mid-point of the scale with the corresponding salaries of their counterparts in the United States federal civil service. The Commission decided to recommend to the Assembly that the current base/floor salary scale for the Professional and higher categories should be increased by 5.1 per cent through standard consolidation procedures, on a no-loss/no-gain basis, with effect from 1 March 2001.

Among the other issues discussed by the Commission was the review of the rationale, scope, methodology and level of children's and secondary dependant's allowance, and the establishment of grade equivalencies between the United States federal civil service and the United Nations system. It also addressed the conditions of service of the General Service and other locally recruited categories.

Also before the Committee was a note by the Secretary-General on review of the ICSC (document A/54/483).

According to the document, in his reform programme, the Secretary-General had recommended that the General Assembly initiate a review of the ICSC, including its mandate, membership and functioning, to increase its effectiveness in meeting the challenges facing the United Nations system of organizations. On the basis of information provided by the Secretary-General, the Assembly requested the competent intergovernmental bodies to consider the modalities for such a review.

The report says that the Administrative Committee on Coordination (ACC) reviewed the request of the Assembly and endorsed the proposal that a small, geographically balanced group be created to undertake an examination of the mandate, membership and functioning of the Commission. It proposed that the review group be appointed by the Assembly on the recommendation of the Secretary- General in his capacity as Chairman of the ACC. The report contains the Secretary-General's recommendation concerning the composition of the proposed review group, as well as its proposed terms of reference.

Another document before the Committee is a report of the Secretary-General on strengthening the international civil service (document A/55/526). In the Secretary-General's programme for reform, he stressed that urgent efforts were needed to enhance the effectiveness, with which human resources are managed in the United Nations and to strengthen the international civil service. He recommended that the Assembly initiate a review of the ICSC, including its mandate, membership and functioning, to increase its effectiveness in meeting the challenges facing the United Nations system of organizations. In 1997, the Assembly decided to examine the Secretary-General's recommendation. In December 1999, the Assembly decided that the review process should be impartial and transparent, that the Commission should participate fully in the process.

In recent years, major reforms have been carried out in all organizations of the United Nations common system, the report states. Integral to management reforms has been the need to align the human resources capacity of each organization with its mission, structure and culture. The common system's most valuable asset is its staff. They are a unique civil service, with a degree of geographic, linguistic and cultural diversity not matched by any other public sector workforce in the world. Staff costs are the largest single component of the budget of almost all organizations. Sound management and development of staff must, therefore, be viewed as an investment in the future success of each organization.

The review proposed by the Secretary-General and executive heads should be seen as an integral part of the reform processes under way in all organizations, designed to strengthen the United Nation system and its capacity to effectively meet the new, complex challenges facing the common system and the international civil service, the report states. The goal is to reinforce and modernize the common system and to determine how the contribution of the Commission to those objectives can best be maximized. The review should be independent, carried out under the authority of the General Assembly. It should enhance the leadership role of the Assembly as the legislative organ for the common system. It should also ensure that the ICSC has the necessary capacity and technical expertise to provide timely advice and guidance to its constituents on a range of matters impacting on organizational change.

United Nations Pension System

The report of the Secretary-General on the investments of the United Nations Joint Staff Pension Fund (document A/C.5/55/3) describes the economic and investment conditions for the period ending 31 March 2000 and provides information on investment returns, diversification of investments and the development-related investments of the Fund. The statistical data is based on the audited financial statements for 1998 and 1999 and the unaudited appraisals for the period ending 31 March 2000. In order to provide the General Assembly with timely information, some data has been updated to 30 June 2000.

According to the report, the Fund remains committed to its strategy of wide diversification by asset class, geography and currency, the report states. Allocation of equities during the reporting period was increased, because of the expected investment environment, such as falling interest rates, low inflation and healthy growth in corporate profits in most major markets. This strategy proved beneficial to the Fund as the equity portfolio outperformed the bond portfolio and contributed most to the Fund’s positive return. It also helped to cushion the Fund during volatile swings in the financial markets. Most of the securities in which the Fund is invested are large multinational companies with sound management and financial base.

The long-term strategy to increase the Fund’s equity exposure has reflected the changed global investment environment, in which pension funds are investing more in equities, the report states. However, the bond portfolio has generated more income than the equity portfolio. The combination of high capital appreciation from equities and high income from bonds has been beneficial to the Fund. The Fund remains conscious of investment risks and of the need to adhere to a strict discipline in tailoring its portfolios to ensure a real return on investments without undue risk. This is ensured by a commitment to broad diversification of assets and the criteria of safety, profitability, liquidity and convertibility. The market value of the Fund's assets increased by some $5.89 million to some $26.06 million on 31 March 2000, or 29.2 per cent. The total return for the year ended 31 March 1999 was 11.3 per cent; for the year ended March 2000, the return was 18 per cent. The period reviewed represented the seventeenth and eighteenth consecutive years of positive investment returns for the Fund.

Also before the Committee was the report of the United Nations Joint Staff Pension Board (document A/55/9) submitted following the conclusion of its fiftieth session, held in Geneva in July 2000. Among the major items dealt with by the Board were actuarial matters, including the twenty-fifth actuarial valuation of the Fund as at 31 December 1999; management of the investments of the Fund; longer-term administrative arrangements; entitlement to survivor's benefits for spouses and former spouses; reviews of several features of the pension adjustment system; and status of the proposed agreement between the Fund and the Russian Federation concerning the pension-related claims of former Fund participants from the former USSR.

The Board examined and approved the financial statements and schedules for the year ended 31 December 1999 and considered the report of the Board of Auditors on the accounts and operations of the Fund and report on the internal audits. It also considered possible penalties in cases of fraud. Also included in the report are a summary of the operations of the Fund for the biennium ended 31 December 1999; a proposed transfer agreement between the Fund and the World Trade Organization (WTO); review by the ICSC of the common scale of staff assessment for pensionable remuneration purposes; and a change in the pension adjustment system of the Fund, following a judgement of the United Nations Administrative Tribunal.

Annexed to the report is a draft resolution proposed for adoption by the General Assembly, which consists of eight parts. By its terms, the Assembly would take note of the improvement in the actuarial situation of the Fund since December 1997 -- from an actuarial surplus of 0.36 per cent of pensionable remuneration to one of 4.25 per cent as at 31 December 1999. It would also note the decision of the Board to lower the interest rate used to determine lump-sum commutations, from the current 6.5 per cent to 6 per cent, with respect to contributory service performed as from 1 January 2001.

The Assembly would further note the establishment of a working group to review the benefit provisions of the Fund, and take into account new developments in staffing and remuneration policies. The group should also make proposals on the future long-term needs of the Fund and its constituent groups, for eventual submission to the General Assembly at its fifty-seventh session. The Assembly would concur with the Transfer Agreement with the WTO, which was approved by the Board to secure continuity of pension rights between the two bodies, and take note of the intention of the Board and the International Bank for Reconstruction and Development (IBRD) to pursue a new transfer agreement.

Regarding the pension adjustment system, the Assembly would take note of the results of the monitoring of the costs/savings of recent modifications of the two- track feature of the pension adjustment system, and of the intention of the Board to continue to monitor those costs/savings every two years. It would also approve changes in the pension adjustment system. Recently, decisions were made to lower the threshold for implementing cost-of-living adjustments of pensions in award from 3 per cent to 2 per cent, with effect from the adjustment due on 1 April 2001; and to modify, provisionally, the pension adjustment system in order to implement Judgement 942 of the United Nations Administrative Tribunal regarding the cost-of-living differential factor, pending possible future proposals by the Board to the General Assembly in that regard.

Expressing satisfaction at the fair presentation of the financial statements of the Fund for the biennium ended 31 December 1999, the Assembly would also note that the transactions tested as part of the audit had been in accordance with the Financial Regulations and legislative authority. On longer-term administrative arrangements of the Fund, the Assembly would take note of the strategic plan for its operations, which addresses development of computer systems, process re- engineering and technological improvements, delegation of personnel, procurement decisions and office space needs. The Assembly would welcome efforts to improve the Fund’s administrative operations through greater use of the latest developments in information technology, including electronic exchanges of information between the Fund and its member organizations, as well as with participants and beneficiaries of the Fund, using Internet/Intranet Web sites. In that regard, the Standing Committee would be requested to provide detailed information on the costs and benefits related to the project.

Further by the terms of the draft, the Assembly would approve several amendments to the Regulations of the Fund. One of them would extend benefits to the divorced surviving spouses of former participants separated before 1 April 1999. Another amendment would restore the surviving spouse’s benefit that had been eliminated for those who had remarried prior to 1 April 1999, subject to recovery (with interest) of the lump-sum payment made at the time of remarriage. The third amendment would modify the payment facility approved in resolution 53/210. Also, effective from 1 April 2001, another amendment would eliminate the partial commutation option for some participants electing to receive a deferred retirement benefit. Taking note of the responses to the arrangements approved in resolution 53/210 for the optional purchase of surviving spouses’ benefits, on cost-neutral terms, in respect of marriage after separation from service, the Assembly would further request the Board to continue to monitor the experience with these issues and to report to the General Assembly, as necessary.

Operative paragraphs concerning the proposed agreement with the Government of the Russian Federation are to be formulated following further discussion, the draft notes. In that connection, the Assembly would recall that the General Assembly, on the recommendation of the Board, had given its concurrence to the proposed agreement, and the information provided by the Board on developments.

By other terms of the draft, the Assembly would take note of the observations of the United Nations Joint Staff Pension Board and the conclusions of the ICSC on the changes in average tax rates at the seven headquarters duty stations, which formed the basis for the development of the current common scale of staff assessment for pensionable remuneration. Taking note of the review of the size and composition of the Board and the Standing Committee, the Assembly would note the provisional allocation of the seat vacated by the former Interim Commission for the International Trade Organization upon the termination of its membership in the Fund as at 31 December 1998. A further review would be undertaken by the Standing Committee in 2001 and by the Board in 2002.

As of 1 January 2001, the Assembly would also approve amendments to articles of the Regulations of the Fund, which would set the terms of office for the elected members and alternate members of the United Nations Staff Pension Committee at four years, instead of the current three years; and determine the frequency of the audits of the accounts of the Fund to be every two years, instead of annually. The Assembly would also approve, with effect from 1 January 2001, an amendment to article 43 of the Regulations which would provide for the recovery of indebtedness to the Fund.

On the subject of the investments of the Fund, the Assembly would take note of the report of the Secretary-General on those investments, as well as the observations of the United Nations Joint Staff Pension Board. It would also take note of the observations of the Board of Auditors on the outstanding tax refunds due to the Fund from some Member States in respect of direct taxes imposed on the Fund’s investment income. It would urge Member States with outstanding balances on foreign tax accounts receivable to provide the reimbursement due and reiterate its request to those Member States which do not grant tax exemptions to make all possible efforts to do so as soon as possible.

According to the report of the Advisory Committee on Administrative and Budgetary Questions (ACABQ) on the United Nations pension system (document A/55/481), the ACABQ agrees that it would be prudent to set aside, for adverse contingencies, a portion of the surplus equivalent in present value to between 2 and 2.25 per cent of pensionable remuneration, subject to future review. The present contribution rate of 23.7 per cent should be retained. According to General Assembly resolution 53/210, the Pension Board should continue to monitor closely the evolution of the actuarial valuation of the Fund and no attempt should be made to reduce the present rate of contributions to the Fund or change any other features, unless a pattern of surpluses emerges in future valuations.

The ACABQ further confirms conditional decisions by the Pension Board to change the interest rates applicable to lump-sum computations of periodic benefits from 6.5 to 6 per cent with respect to contributory service performed as from 1 January 2001; and to reduce the threshold for effecting cost-of-living adjustments of pensions from 3 to 2 per cent, effective for the adjustment due on 1 April 2001. Regarding the decision of the Pension Board to establish a tripartite Working Group to undertake a fundamental review of the benefit provisions of the Fund, the ACABQ trusts that the Group would eventually be in a position to focus on specific issues and to make specific recommendations.

Aware that the market value of the Fund is subject to fluctuation, the Advisory Committee notes that, pursuant to General Assembly resolution 49/224, a benchmark introduced in 1997 has been used to compare the Fund's performance with major international equity and bond indexes. During the two years under review, the Fund underperformed its benchmark in the first year and outperformed in substantially in the second year.

According to the report, having reviewed the relevant reports of the Board of Auditors and the Office of Internal Oversight Services, the ACABQ agrees with the view of the Board of Auditors and recommends that Oversight Office redouble its efforts to complete its work programme in a timely manner, requesting staffing resources commensurate with the responsibilities to be carried out. With regard to future requirements of the Fund, electronic exchange of information between the Fund and its member organizations, participants and beneficiaries would be the key to effecting major efficiencies. The ACABQ strongly urges the United Nations to take the necessary measures in that respect. On the issues concerning the entitlement to survivor's benefits for spouses, the ACABQ agrees with the recommendations of the Pension Board contained in its report.

Statements

Introducing the report of the International Civil Service Commission (ICSC), the Chairman of that body, MOHSEN BEL HADJ AMOR, said he was pleased to address the Committee for the second time this week. The aim of the Commission was to strengthen the United Nations system through application of common standards and methods. He was pleased to present the outcome of this year’s work of the Commission, which would have great impact on future work on human resources management. The centrepiece of this year’s report was the completion of the integrated framework for human resources management. The framework identified elements which would constitute a modern and integrated plan for the management of human resources. It described the links between various elements and stated the principles that should govern management. As such, it represented the work programme of the ICSC for the foreseeable future, as the Commission intended to study each area and provide policy guidance thereon.

An important area in the human resources framework was the subject of pay and benefits, he continued. Despite some adjustments, the remuneration system dated from the early days of the United Nations was in need of a major overhaul. The Commission intended “to start the ball rolling” by the end of this year, when it would meet with a cross-section of staff at three headquarters duty stations to analyse problems and propose options. In the past year, the Commission had also taken up updating of the 1954 standards of conduct in the international civil service. It was decided that the Commission would put final draft standards to the Assembly next year.

The ICSC also reviewed, as part of the regular five-year cycle, grade equivalencies between officials in comparable positions within the system and the comparator United States federal civil service, he said. The report before the Committee contained details regarding the recent grade equivalency study, approved by the ICSC. The outcome of the study in net remuneration margin calculations resulted in a margin of 113.3 for the calendar year 2000. Other items considered by the Commission included post adjustment matters; conditions of service of General Service category of staff; recognition of language knowledge; the education grant; and children’s and secondary dependants’ allowances. In producing updated flexible human resources policies for the common system, the ICSC was making a major contribution to reform process currently under way.

Presenting the report of the United Nations Pension Board, its Chairman, WALTER P.SCHERZER, said that the document contained key data on the operations of the Fund and its financial statements for the period under review. The Pension Board took note of the report of the Board of Auditors, which recognized that the Fund’s operations were carried out satisfactorily. The comments in the audit report reflected the complexities and sensitivities involved in determining and monitoring appropriate control procedures for a global pension system serving more than 115,000 participants and beneficiaries in 191 countries. The central responsibility of the Pension Board was that of monitoring the actuarial position of the Fund and making recommendations to the General Assembly. Actuarial valuations were normally carried out every two years to determine whether the assets of the Fund would be sufficient to meet its liabilities. Projections were made into the distant future using various actuarial assumptions as to economic and demographic developments.

He went on to say that the Committee of Actuaries had reviewed the valuation results and advised the Board that, should it decide to recommend to the Assembly that a portion of the surplus be made available to improve benefits and/or reduce contributions, it would be prudent to set aside, for adverse contingencies, a portion of the surplus equivalent to between 2 and 2.25 per cent of pensionable remuneration, subject to future review. The report also contained the Board’s approval of several conditional decisions taken in 1998, which involved decreases in the interest rate used for lump-sum commutations and the threshold for cost-of living adjustments of pensions. As for possible future changes, the Board had decided to establish a tripartite working group to undertake a fundamental review of the Fund’s benefit provisions.

As requested last year by the Standing Committee, the Chief Executive Officer of the Fund presented to the Board a strategic plan focusing on the current state of the Fund’s computer systems and related possibilities for process re-engineering and technological improvements, he continued. Electronic exchange of information between the Fund and its member organizations, participants and beneficiaries would be the key to securing major efficiencies. The ultimate objective would be to create a viable infrastructure for data sharing. The project would be carried out in two phases. As for personnel arrangements for the staffing the Fund’s secretariat, the Board was informed that a memorandum of understanding had been concluded with the United Nations administration in June 2000, which provided guidance as to the procedures and policies for the appointment and promotion of staff, for conditions of service, for employment of consultants, and for reporting arrangements. Agreement was also reached with the United Nations administration on procedures for direct procurement of contractual services, equipment and supplies.

Sensitive issues related to entitlements for surviving spouses and former spouses had been debated by the Board, in one form or another, for more than 20 years, he said. In its current recommendations to the General Assembly, the Board continued to break new ground in addressing problems arising from the dissolution of marriage. The Board decided, by consensus, to recommend extending provisions to cover divorced surviving spouses of former participants who had separated from service before 1 April 1999, if other eligibility conditions were met. The cost of the new benefit would not be actuarially significant, because if would apply to a “closed” group of divorced surviving spouses. The Board also recommended that the remarriage penalty be lifted for surviving spouses who had remarried before 1 April 1999. The report also contains information about several other amendments to the Fund’s regulations.

Turning to the status of proposed agreement between the Board and the Government of the Russian Federation regarding former Pension Fund participants from the former USSR, he said that he must report, with regret, that the Government of the Russian Federation had not approved the proposed agreement, notwithstanding the extensive exchange of communications since 1996. The Board had been informed that the Government intended to pursue alternative arrangements at the national level. As indicated in the report, the majority of Fund members in Moscow were opposed to the intended internal arrangements, which would involve minimal additions to the current national pensions. It seemed most unlikely that the former participants concerned would accept the arrangements now being developed by the Russian Federation, if the amount envisaged under the internal approach were to bear little relationship to the amounts transmitted by the United Nations Joint Staff Pension Fund on behalf of the former participants from the former USSR.

The Board had also considered the review undertaken by the ICSC, in close cooperation with the Board, of the common scale of staff assessment for pensionable remuneration purposes, he said. The Commission had decided to report to the General Assembly that the common scale of staff assessment should continue to apply. It would be reviewed on the occasion of the next comprehensive review of pensionable remuneration, at which time the issue of tax deductions related to retirees would be addressed.

Introducing the report of the ACABQ on the United Nations pension system, the Chairman of the Advisory Committee, C.S.M. MSELLE, said that the ACABQ agreed that the current rate of contribution should be retained subject to comments of the Committee. It also agreed with the Board on the change in the interest rate applicable to the commutations and on the threshold affecting cost-of-living adjustments in award. Some comments regarding audit services to the Fund were also contained in the report.

The ACABQ was of the view that the terms of reference of the audit were somewhat broad, and that specific issues would be addressed, he said. It also recommended that in reviewing the existing surplus, it was necessary to consider directing part of those resources to the re-engineering of the operations of the Fund. The ACABQ was requesting the Oversight Office to redouble its efforts to complete its work in a timely manner. It was important to improve the communication between member organizations and participants of the Fund. Action in that respect was critical, and the ACABQ strongly urged the United Nations to provide proper interface between the United Nations and the Fund’s participants.

JOSEPH E. CONNOR, Under-Secretary-General for Management, introducing the report on the investments of the United Nations Joint Staff Pension Fund, said that over the two-year period that the report covered (1 April 1998 to 31 March 2000), the Fund had increased by some $5.88 million or about 29.2 per cent. At 31 March 1999, the highest return was provided by the equity portfolio, which had a total return of about 13.9 per cent, followed by short-term investments 9.9 per cent. At 31 March 2000, the equity portfolio provided the highest total return of some 28.5 per cent while real estate was the second-best performing asset class with a healthy total return of about 15.0 per cent. During the biennium, equities, particularly in the United States, Japan, the United Kingdom and Scandinavia, had performed well. Selection of securities had made a positive contribution to the total return, particularly in Japan and Europe. The performance was negatively affected by bonds, which had much lower returns than equities for the year to 31 March 1999 and a negative return of 2.5 per cent for the year to 31 March 2000. The Fund was negatively affected by the persistent decline of the euro since its introduction in January 1999. The Fund’s exposure to United States equities contributed more to the total return than did any other asset class held by the Fund.

Short-term results had little meaning in the context of the Fund’s long-term investment strategy since they were largely influenced by the volatility of securities markets, which was difficult to predict and impossible to control, he said. The management of the Fund was geared towards maintaining a careful balance between the expectations of risk and reward over the medium to long term, rather than towards taking the risk inherent in seeking very short-term returns. Those considerations were all the more pertinent now, if one took into account the current wide fluctuations in the financial and currencies markets. Since the reporting period, worldwide economic growth continued to be strong but inflation had become a reasonable risk as oil price had increased by more than 30 per cent. The increase in interest rates seemed to have had an impact, especially in the United States where economic growth was slowing. The Fund had avoided investing in Internet-related companies since they did not meet the four criteria of safety, profitability, liquidity and convertibility.

The market value of the Fund at 31 March 2000 was $26 billion, he continued. As of 8 November 2000, the value of the Fund was $24.8 billion. The value of the Fund had, therefore, declined by $1.6 billion or 6.2 per cent. The decline was attributed to both the decline in share prices, which accounted for 2.7 percentage points, and adverse movements in currencies, which accounted for 3.5 percentage points. During the year ended 31 March 1999, the Fund slightly underperformed its benchmark, with the return of 11.3 per cent compared with the 11.8 per cent return on the benchmark. For the year ended 31 March 2000, the Fund strongly outperformed the benchmark with the return of 18.0 per cent versus a 12.8 per cent return of the benchmark.

The most widely accepted definition of risk was the variability of the rate of return, he continued. The more uncertain the rate of return, the greater the risk. The uncertainty of the rate of return was a useful measure of risk. The degree of risk in any portfolio was usually associated with the degree of uncertainty about the return. The investments of the Fund had met very well the objective of obtaining an optimal investment return while avoiding undue risk. The Fund had a better risk return profile because of a well-diversified portfolio that included all major asset classes, and because its major holdings were concentrated in large multinational companies. The management of the investments of the Fund continued to rely on broad diversification in terms of currency, types of asset class and geographical areas as the most reliable method of reducing risk and improving returns over the long term. The Fund was unique among major pension funds in its commitment to global investment.

Since the Fund maintained its accounts in United States dollars, a stronger dollar had a negative impact on the total return of the Fund’s investments denominated in other currencies, he said. Normally, however, the movements of currencies against the United States dollar were not synchronized and thus geographical diversification could enhance return and reduce risk. In managing the Fund’s investments, changes were not only made within the proportions of the various asset classes in the portfolio, but also within each asset class. Over the biennium, the proportion of investments in North American currencies was increased from 54 to 54.7 per cent; in European currencies, from 30 to 30.9 per cent, and in Asian currencies, from 11 to 14 per cent. In terms of geographical diversification, the proportion of the Fund invested in North America rose to 49 per cent in March 2000 from 46 per cent in March 1998. Investments in Europe decreased to 32 per cent from 36 per cent, while in Asia and the Pacific, the proportion of investments rose slightly to 15 per cent from 13 per cent.

The Fifth Committee had played an invaluable role in the management of the Fund, he said. Its financial health was due in no small measure to the deep personal interest which the Committee had taken in guiding the Fund’s investments. The management of the Fund would continue to be guided by the established criteria of safety, profitability, liquidity and convertibility. While the current volatility in financial markets was worrisome, a long-term investment strategy and the wide diversification of the Fund's assets would assist in avoiding undue risk and protect the Fund from large losses.

PATRIZIO CIVILI, Assistant Secretary-General for Policy Coordination and Inter-Agency Affairs, and Secretary of the Administrative Committee on Coordination (ACC), then introduced the report on the strengthening of the international civil service. He said that when the Secretary-General had addressed the ICSC at its session last July he had focused on the new challenges facing the international civil service, the key role of the human resources management in ensuring the success of the wide-ranging reforms under way throughout the system, and the new, broader demands facing the ICSC. The Secretary-General had also highlighted the unique asset that the staff of the system represented for Member States. Noting that the success of the system hinged on its continuing ability to attract talented and motivated individuals, he had stressed that executive heads look to the Commission to assist in improving conditions of service and promoting a results-oriented culture.

The Secretary-General also described the current climate in the United Nations as one of renewal and reform, he said. While there was widespread consensus on the need to make the United Nations a more modern organization, unless there was a firm commitment to real, comprehensive and structural reform, the United Nations would continue to be limited in what it could achieve. The support and partnership of the ICSC in implementing reforms was crucial to their success. The Secretary-General was encouraged by the recent work of the ICSC in developing an integrated framework for the management of human resources. He also welcomed the intention of the ICSC to review the pay and benefits system.

Regarding the inspiration behind the proposal for a review by the Assembly of the ICSC, he said he wished to dispel any misapprehensions that might have accumulated over time. The support of the ACC was strongly reiterated during its last session in New York at the end of October. That session included a useful exchange of views with the Chairman of the ICSC. Furthermore, the review was not conceived as a review of the Commission in isolation, but rather of the Commission’s role in developing a more effective international civil service. The ultimate objectives of the proposed review were entirely positive. They included strengthening of the international civil service, strengthening of the common system and maximizing the capacity of the Commission to advance those objectives.

He said that the initiative would not succeed if it was approached within a narrow, bureaucratic framework. The issues identified in the report included the need to further elaborate the mission of the Commission, the modalities for selection of prospective members, and the need to strengthen the advisory role of the Commission and its capacity to offer expert and proactive advice to the common system. The impetus for the review should not come only from the knowledge that there were specific concerns that needed to be addressed, but should stem from the priority that was accorded to the future of international civil service and of the common system. The objectives of any review should be clear from the outset.

The Commission’s independence, its decision-making authority, and the integrity of its Statutes were not in question, he stressed. On the contrary, what was being sought was a review that would result in the most faithful application of the spirit and letter of the provisions of the ICSC Statute. Indeed, the ACC wished to prevent any dispersion of that system. The need to inject some flexibility in the functioning of the common system was a concern of executive heads. However, there was no contradiction between cohesion and flexibility. By initiating consultations with Member States, the ICSC, the ACC and other partners on modalities for the review, the Fifth Committee would be signalling to the system that it attached the necessary priority to strengthening the international civil service. While suggestions had been put forward on modalities for the review in previous reports the proposed review would succeed if it was “owned” from the inception by the Assembly.

MEHRI MADARSHAHI, President of the Coordinating Committee for International Staff Unions and Associations of the United Nations System (CCISUA), expressed her appreciation for the opportunity to address the Committee. The CCISUA had experienced how swiftly valuable channels of communication and interaction could be blocked, be it by seemingly innocuous arrangements or deliberate action. Such a situation had arisen a few days ago, when the Committee celebrated the twenty- fifth anniversary of the ICSC. That occasion should have involved Member States, management and staff. On behalf of 25,000 staff, she saluted the efforts and dedication of the ICSC to the cause of staff rights and equitable policies.

The participation of the CCISUA in the working group on human resources reform proved satisfactory and the report submitted to the Assembly on that issue met its concerns, she said. However, she called on the member organizations of the ICSC to observe and properly adhere to the guidelines and principles established by the Commission. Owing to the importance she attached to the Standards of Conduct for international civil servants, she had participated in the tripartite working group established by the Commission in 1999 for revising the 1954 text. The Standards of Conduct should give expression to ideal parameters of behaviours, attitudes and conduct. Despite considerable efforts by all parties participating in the working group, the final text submitted to the Commission was insufficient. The final version, as amended, met the requirements of neither party. The staff found it difficult to accept that the Standards were subjugated to internal rules and policies of each and every member organization, rather than representing an overarching and unifying document for all organizations. The Standards would neither serve as inspirational guidelines nor would they engender individual wisdom and loyalty. They were a set of dry and bureaucratic rules.

She said that since 1997 more people had left the Organization than were recruited. The Organization stood today at a crossroads, where it could hardly compete in the world market and attract qualified individuals. Desperate to maintain an edge, reformers were now ready to experiment with any idea -- new or old -- to reshape pay packages, to nibble around the edges of entitlements or to rewrite the basic principles and rules of employment. Among the ideas supported by a number of administration representatives was the system of “broadbanding”. That idea had been tested and applied in certain countries. Out of 430 private sector organizations applying that system, only 70 had reported some positive results. Broadbanding advocated the collapsing of a great number of jobs into one “band” and a pay scheme based on the market value for those jobs. The system did not require job evaluation or comparison. “Broadbanding” would also open the door to a very different way of managing salaries.

In following the road to “broadbanding”, the concepts of job evaluation and equal pay for equally defined work would be abandoned, she added. That would cause uncertainty as to how to establish a new base for determining salaries and could prove extremely risky. She asked why staff should submit to a new system based only on promises and assumptions, but which was not supported by any convincing proof. As a unique multilateral entity, the CCISUA was not convinced that the United Nations should follow the untested path of commercial companies. The CCISUA did, however, support the necessity for a new focus in the pay system. It was comfortable with the idea of basing pay and promotion on performance and merit, but was not convinced that a drastic shift in paradigm was feasible or practical. She advocated a deliberate process of change.

Regarding the recognition of language knowledge, she said her organization was pleased that the Commission had accepted the benefit as part of the “acquired” rights of staff and had decided not to establish a dual system of pay. The CCISUA had advocated the equal right of General Service staff to an education grant and had supported a more streamlined and harmonized practice in that regard. The calculation of the margin between the net remuneration of the United States civil service and that of the United Nations system continued to be a concern. The Organization had lost its edge in attracting and retaining the most qualified staff mainly due to the uncompetitive salaries. The basic methodology applied by the Commission concerning the calculation of the margin and the best-paid civil servants was far from adequate. The new pay system proposals would not address the basic problem. Eliminating social benefits for Paul and offering a merit gift to Peter would neither restore balance nor provide effective incentives. BERNARD P.GRANDJEAN, President of the Federation of International Civil Servants’ Associations (FICSA), said that he was speaking on behalf of some 30,000 staff members of 27 organizations, funds and programmes of the United Nations system. This year, the ICSC had drafted its report in the usual fashion, presenting under each item the “views of the staff representatives”. That was misleading, for the views of his organization were not presented. The Federation had maintained its long-standing policy of non-participation in the sessions of the Commission. The reason for that policy was the fact that staff did not have a voice in the Commission’s proceedings. At best, they were listened to, but not heard.

Turning to the framework for human resources management, he welcomed the statements on good governance and on strong involvement of staff in the decisions affecting the organizations. However, the Federation also noted that the framework had deficiencies. Any future revision of the Commission’s report should place the staff, rather than the human resources strategies, at the centre. It should also develop a legal basis of employment in an international organization and take into consideration the latest developments in staff-management relations.

As far as the standards of conduct for the international civil service were concerned, he said that it was necessary to set the record straight, for during the Commission’s session in April 1999 the representatives of the administrations and staff had heavily criticized the draft produced by the Commission. Later, FICSA participated in several meetings of a working group, which was created to undertake consensus-building, and the fresh draft was broadly acceptable to all parties until the last day of the February meeting, when a representative of the United Nations was allowed to roll back some essential provisions. The second working group was never convened. In 2000, the Commission wanted to conclude work despite the many objections by administration and staff representatives alike. To sum up, the decision set out in the report of the ICSC was a thin cover for the fact that organizations and staff had fundamental objections to the draft, and the Committee had not been told the truth. The Commission should be instructed to either work from the draft prepared by the working group, or leave the matter to the administrations and the staff.

On the subject of human resources management and review of the pay and benefits system, he said that the Federation was open to a review of the latter. However, it considered that the timetable was not realistic, unless the results were “pre-cooked”. It also appeared that the exercise provided an excuse for not addressing the issue of a real salary increase and the issue of the non-existence of margins at the Director levels. The Federation would have been happy to go along with the Commission’s recommendations on recognition of language knowledge, except for the proposal that the language bonus should not be pensionable. He also expressed his dismay at the decision to postpone to 2004 the revision of the common scale of staff assessment. The Commission should be instructed to make proposals for a real salary increase to restore the competitiveness of the United Nations system as an employer.

Returning to the issue of his organization's participation in the work of the Commission, he said that both staff organizations had decided to decline the invitation to attend the “focus groups” on the review of the pay and benefits system, because the modalities of those groups were clearly not conducive to a discussion between partners. That meant that the authors of the report before the Committee had succumbed to wishful thinking when they wrote that the arrangements for the focus groups had been welcomed by both the organizations and staff representatives.

The review of the mandate, membership and functioning of the Commission was very important for the Federation, he said. This year, the General Assembly had asked for justification for the review, which would require, in essence, presentation of evidence of past failures and shortcomings. The Federation did not wish the review to be placed in such a context. On the contrary, it welcomed a forward-looking approach, according to which the review should lead to such changes as necessary for the Commission to increase its effectiveness. In fact, the review should be broadened to cover the entire framework of definition of terms and conditions of employment and service.

Speaking on behalf of the European Union and associated States, HELENE DANTOINE (France) said that the conditions of employment of international staff were vital in attracting and retaining the most competent employees. Thus, the Union was convinced of the importance of the common system for ensuring consistency in the conditions of employment in the system as a whole. Staff in different organizations should be treated equally. However, consistency in conditions of employment must not be to the detriment of improvements in the flexibility of the common system. She supported the role played by the ICSC and reaffirmed the importance of its independence.

The European Union noted with interest the framework for human resources management adopted by the Commission and welcomed the fact that a set of guidelines for human resources management had been drawn up for the common system organizations to assist in the formulation of their human resources management policies. She also welcomed the Commission’s decision to focus its efforts on the issues of pay and the benefits system, which were crucial for maintaining the attractiveness of the Organization. It was necessary to develop comprehensive and innovative approaches to create a more dynamic system of remuneration, directly linked to competence, responsibility and results. Also important was a system of effective incentives for staff to learn and use more languages.

The Union was concerned that the margin between grades at the senior managerial levels was so narrow, she continued. The net salaries of American federal civil servants seemed to be consistently growing faster than the salaries of United Nations officials. The Union approved of the raising of the minimum basic salary scale for administrators and officials of higher rank, as recommended by the Commission. Nevertheless, the Commission should also consider raising the minimum basic salary scale in real terms. The Union also welcomed the Secretary- General’s report on the strengthening of the international civil service. A study of the ICSC, in which the Commission itself would take part, could be a useful step in the process of modernizing the Organization’s personnel management. She agreed with the issues to be addressed by the review group as set out in the Secretary-General’s report. It was now essential to proceed with that exercise.

Turning to the work of the United Nations Joint Staff Pension Fund, she noted with satisfaction that the actuarial assessment revealed a surplus for the second time in succession, after 20 years of deficit. She also noted the positive returns on the Fund’s investments in the last 18 years. It was important to follow prudent rules and comply with General Assembly resolution 53/210, according to which the pensions system should not be changed until a pattern of surpluses emerged in future valuations.

As for the rights of spouses and ex-spouses to a survivor’s pension, the Union was in favour of making the conditions listed in the Statutes of the Fund more flexible. That issue would be raised in informal consultations. In conclusion, she noted that, in a multicultural environment, the Joint Committee of the Pension Fund had not yet considered the case of partners of the same sex or of different sexes, although the legislation of some countries did so. The current rates of pensions could still give rise to discrimination in that respect.

SUSAN McLURG (United States) said that the report of the Pension Board this year contained a number of issues she wished to address. It was important to maintain a balance between ensuring the financial health of the Fund and meeting the needs of its beneficiaries. She noted with interest that the total value of the assets of the Fund on 31 October 2000 was $24.4 billion. That figure represented a decrease of $1.6 billion reported on the figure in the Board’s report, which was from seven months earlier. That clearly showed the volatility of the Fund’s assets, which the Committee should always bear in mind. Nevertheless, she noted with appreciation the overall long-term investment strategy adopted by the Pension Board, which had proven to be successful and secure.

As a logical follow-up to investments, she said she would turn to the actuarial situation of the Fund. The second actuarial evaluation in a row had demonstrated a positive result. The measures proposed by the Board in that respect had previously been accepted, in principle, at the 1998 session of the Board, pending the outcome of the most recent actuarial evaluation. Her delegation supported those measures. As for the more long-term approach, she noted with approval the establishment of a tripartite working group to undertake a more comprehensive and fundamental review of the benefit provisions of the Fund in light of the evolving remuneration and contractual policies.

The United States considered the matter of entitlements to survivors’ benefits for spouses and former spouses a priority social issue. If approved, the new benefit proposed by the Board would have financial consequences on the assets of the Fund. For that reason, she approved the amount and criteria recommended by the Board, but would be reluctant to go any further at this time. It should be recalled that the Board may, at its own discretion, review any of those provisions should that be necessary.

She further noted the elimination of the “remarriage penalty” for surviving spouses who had remarried before 1 April 1999. She also supported the amendment of the regulations to eliminate de facto the requirement for a participant’s agreement for direct payment of a part of his or her benefits to a former spouse, subject to a court order. That amendment would go a long way to overcome many of the difficulties some former spouses encountered in having court orders for support honoured.

She was aware that the Russian Federation had informed the Fund that a normative legal instrument was now being prepared, under which former Pension Fund participants from the former USSR would receive an additional monthly payment on top of their State pension. That was intended as a solution to the plight of the former USSR pension fund participants living in the Russian Federation. She maintained the position that the Fund had consistently acted in a responsible and legal manner and in accordance with the expressed written wishes of the participants. Taking note of a communication, dated October 31, 2000, from the Fund’s Chief Executive Officer to the Deputy Prime Minister of the Russian Federation, she expressed hope that it would be acted upon expeditiously by the appropriate Russian authorities. That should end an unfortunate and difficult period for the former participants directly concerned.

LI TAIZHANG (China) said that in the past year the ICSC and its subsidiary bodies had done a great deal of work to effectively implement the relevant resolutions of the Assembly, as well as promoting the development of the United Nations system. It had produced preliminary results in the establishment of a framework for human resources management, the drafting of the Standards of Conduct and the review of the pay and benefits system. China appreciated that effort. The Framework for Human Resources Management should be a forward-looking strategy for human resources management. It should not only be able to guide and promote the development and refinement of the common system, but also act as a bridge between the United Nations and other international organizations in carrying out human resources management reform. China had already expressed its support for the development of an integrated framework for human resources management and a human resources information system by the Commission. He hoped that the purpose of the Framework would be realized in a timely and effective way.

Effective measures should also be taken to conduct a comprehensive review of the pay and benefits system, he said. The present system needed to be replaced by a more flexible, streamlined and competitive one. Performance, skills, capability and responsibility should be the main criteria for staff appraisal. China hoped that the Commission would submit to the Assembly as soon as possible a report on the comprehensive review of the current pay and benefits system. The United Nations common system needed to be improved and strengthened so that its human resources management system would be equipped to meet the daunting challenges facing the organizations of the system in the wake of major reforms. The reform of the common system should focus on improving the quality of work of its staff, enhancing management capability and strengthening multi-disciplinary skills. China hoped that the ICSC would play a greater role in the reform. The Commission must also enhance its administrative capacity.

NIKOLAI V. LOZINSKI (Russian Federation) said that the positive trend in the Pension Fund confirmed forecasts that the maturity of the Fund would become a reality. He could talk with a certain degree of confidence about the liberalization of the Fund. Nevertheless, he shared the caution about the need to monitor the situation closely, taking into account future actuarial valuations. The first step should be a reduction in contributions of States to the Fund, following the terms of the General Assembly resolution 53/210. On the Fund’s investment policy, its investment activities should be highly commended. The market value of assets had increased by nearly 30 per cent, despite a very volatile financial situation. The Fund’s investment activities confirmed the rightness of its strategy to adhere to the four criteria of safety, profitability, liquidity and convertibility. He could not, however, pass over the problem of its information systems. The ACABQ had also noted that problem in its report. He wanted to know what impact it had had on the Fund’s work and what future measures were being considered. Regarding the Fund’s proposal to establish automated

exchanges of personnel action data between the Fund’s computer systems and those of member organizations, the Russian Federation supported the ACABQ recommendation that the project be carried out in two phases.

On the question of pensions of international civil servants from the former USSR, he said that the problem of non-settlement had received close attention. One option for its solution was considered in the draft agreement between the Board and the Russian Government. The Russian Government had taken measures to find an acceptable way out. In order to resolve the problem of pension provision for former officials who were Soviet citizens, the Russian Federation had prepared a draft normative legal instrument under which former officials of international organizations in the United Nations system, on their retirement on a State pension, would receive additional monthly compensation payments established without reference to other forms of income received. The amount of such payments would depend on the amounts transferred to the USSR Social Security Fund and on the length of their employment at the international organization. Clarification was needed, however, in order not to infringe on the rights of former United Nations officials. He expected that the problem would be resolved in the near future.

RADHIA ACHOURI (Tunisia) expressed strong reservations regarding comments made by the staff representative in the meeting that the issue of the review of the Commission had become “quite personal”. Tunisia had always supported the participation of staff in discussions, and felt that their opinions were valuable. However, she did not feel that it was right for representatives of staff to pass value judgments on the way in which intergovernmental bodies conducted their work. Tunisia would take that statement duly into account in its approach to the participation of staff in the discussion of intergovernmental bodies.

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