Welcoming Increased Market Value of United Nations Pension Fund Assets, Speakers at Fifth Committee Urge Action to Reduce Backlog in Payment to Beneficiaries
Speakers today welcomed a surge in the market value of the assets of the United Nations Joint Staff Pension Fund, 70 years after its establishment, but reiterated concerns about a backlog of payments to beneficiaries as well as governance issues, as the Fifth Committee (Administrative and Budgetary) tackled the Organization’s multibillion‑dollar pension system, its operations and performance.
The representative of the United States, underscoring the size of the Fund — valued at more than $60 billion at the end of 2017, with more than 126,000 active participants, including about 75,000 beneficiaries, across 190 countries in 15 different currencies – was among delegates who noted its failure to process 38 per cent of actionable cases within a 15‑day benchmark period. “We reiterate that all efforts should be made to reduce the backlog of cases,” she said, calling for better utilization of the Fund’s new Integrated Pension Administration System and the establishment of a proper grievance mechanism.
The representative of Egypt, speaking on behalf of the “Group of 77” developing countries and China, said ongoing delays in payments to some retirees and beneficiaries is an issue that has been flagged in previous years. Out of 15,125 actionable cases, more than one third were not processed, he said, adding that many cases have been outstanding for many years.
Japan’s representative said the situation risked undermining the overall credibility of the Organization’s pension system. He also pointed to a report from the Office of Internal Oversight Services (OIOS) on the Fund’s governance structure, saying it revealed several issues including conflict of interest, Standing Committee oversight, fair and equitable representation in the United Nations Joint Staff Pension Board, effective performance management and the issue of integrity and ethical values.
The European Union’s delegate said, “We call on the Fund to step up action to mitigate the impact on retirees who have been deprived of their benefits and to prevent this from happening in future years.” However, he noted with satisfaction that the Fund’s total assets have grown to a record $64 billion – exceeding its aim for a 3.5 per cent real rate of return for long‑term investments.
China’s representative said that the Fund should continue to optimize its portfolio by increasing investment in eligible developing countries and multiple currencies. He added that a sound governance structure is the basis for ensuring the Fund’s efficient operation.
The Russian Federation’s representative, welcoming efforts to diversify the Fund’s investments in geographic terms, agreed with the Advisory Committee on Administrative and Budgetary Questions (ACABQ) that the Secretariat should, in its next report, give more details about the Fund’s long‑term investment strategy. He also voiced concern about the recommendations of OIOS, saying his delegation is unable to support most of them.
The representative of Uganda, however, said the OIOS recommendations are a road map for much‑needed improvements to the Pension Board’s structure and processes and the General Assembly must ensure the Board addresses issues raised by OIOS as a matter of urgency. Implementation of recommendations from the ACABQ and the Board of Auditors will also help strengthen the Pension Board’s governance role while promoting accountability.
John Levins, Pension Board Chair, presenting the report of its sixty‑fifth session, noted good progress in reducing the outstanding number of cases. More than 75 per cent of initial separations were processed within 15 business days during the last three months, in line with the Fund’s benchmark. “In summary, the Board can report that the Fund is in good financial and operational condition as a result of clear priorities, coordinated strategies and actions, as well as effective guidance and oversight at all governance levels,” he said.
Sudhir Rajkumar, Representative of the Secretary‑General for Pension Fund investments, introduced his report on the Fund’s investments and measures to increase diversification. While investment performance exceeded the long‑term rate of return goal of 3.5 per cent during the biennium 2016‑2017, thanks largely to investment returns of 16.2 per cent in 2017, the Fund cannot realistically expect to always meet that objective, he said. Returns so far in 2018 are running close to zero amid significant financial market volatility. The Fund’s fully funded status provides a financial cushion to withstand a period of low returns, he said, confident that the Office of Investment Management, with the General Assembly’s support, can address whatever challenges the market presents.
Parama Sen, Director of External Audit (India) and Chair of the Board of Auditors’ Audit Operations Committee, introducing the related reports of the Board and Pension Fund, said the Fund should take proactive steps to work with member organizations to expedite the receipt of documents for processing pension benefits. Steps are also needed to address deficiencies in the Integrated Pension Administration System and improve the client grievance management structure.
Paul Dooley, Acting Secretary‑General of the Board; David Kanja, Assistant Secretary‑General for Internal Oversight Services; and Babou Sene, the ACABQ Vice‑Chair, introduced the related reports of their respective entities.
Also today, the Fifth Committee took up the Secretary‑General’s report on revised estimates relating to the United Nations Truce Supervision Organization (UNTSO) and its gradual return to the Bravo side of the Golan Heights following improvements in the security situation.
Chandramouli Ramanathan, Acting Controller, introducing the Secretary‑General’s report, explained that, owing to the timeline for considering the UNTSO budget proposal and the uncertainty of future security conditions, no resources were included in the initial UNTSO budget proposal for the biennium 2018‑2019. The revised estimate calls for $2.3 million in 2019 to fund the gradual resumption of observation activities on the Bravo side, construction costs for accommodation and office space in Camp Faouar, logistical support, and the deployment of observers.
Syria’s representative, while emphasizing the importance of the oldest ongoing United Nations peacekeeping operation, said UNTSO should not replace the need to end the main cause of the conflict: Israel’s occupation of Arab territories. He said the report’s authors had failed to address the occupation and called on the Secretariat to condemn Israeli violations.
Mr. Sene introduced the Advisory Committee’s related report.
The Committee will meet again at a date and time to be announced.
Revised Estimates: United Nations Truce Supervision Organization
CHANDRAMOULI RAMANATHAN, Acting Controller, introduced the Secretary‑General’s report titled “Revised estimates relating to the United Nations Truce Supervision Organization under section 5, Peacekeeping operations” (document A/73/402). The revised estimates relate to the gradual return and re‑establishment of the United Nations presence on the Bravo side of the Golan, following improvements in the security situation.
With the escalation of the conflict in Syria in 2014, the United Nations Disengagement Observer Force (UNDOF) needed to withdraw temporarily from observation posts and other positions, he said. After recent security improvements in the Golan, the technical assessment on the resumption of activities on the Bravo side determined that conditions would permit the accelerated return of observers. Owing to the timeline for considering the United Nations Truce Supervision Organization (UNTSO) budget proposal and the uncertainty of future security conditions, no resources were included in the budget proposal for UNTSO for the biennium 2018‑2019. The report contains the resources requirements of UNTSO for the period 1 January to 31 December 2019 of $2.3 million. These requirements would fund the gradual resumption of observation activities on the Bravo side of the Golan for 2018-2019 and cover the costs of construction of accommodation and office space in Camp Faouar, logistical support and the deployment of observers.
BABOU SENE, Vice-Chair of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introduced its eponymous report (document A/73/492). He said the proposed additional requirements of $2.3 million (net) would provide for non‑post requirements necessary for the gradual return of UNTSO to the Bravo side of the Golan, after improvements in the security situation and the resumption of UNTSO operations in support of the mandate of UNDOF. The requested resources relate primarily to the reconstruction and rehabilitation of observation posts 71 and 72. The ACABQ trusts that the Secretary‑General will provide the General Assembly with additional information on the amount sought for the projected refurbishments, particularly with the low implementation rate of funds already approved to improve the premises in the biennium 2018‑2019. The Advisory Committee recommends the approval of the additional resources, he said.
AMMAR AWAD (Syria) said UNTSO is the oldest peacekeeping operation and its work is important. Yet the role of the United Nations should not replace the need for putting an end to the main cause of the conflict: Israel’s occupation of Arab territories. The authors of the report failed to address the occupation by Israel and its supporters. He called on the Secretariat to condemn these violations. UNTSO should continue its mandate. He reaffirmed his Government’s commitment to support UNTSO. Syria is waiting for an end to the occupation of the Arab territories. He expressed hope for peace in the region and called on the Fifth Committee to employ all necessary resources to achieve that goal.
United Nations Pension System
JOHN LEVINS, Chair of the United Nations Joint Staff Pension Board, presented the report of the Board’s sixty‑fifth session (document A/73/9), which contains recommendations and decisions that require action by the General Assembly. Among other things, the Board recommends that the General Assembly admit the Preparatory Commission for the Comprehensive Nuclear‑Test‑Ban Treaty as a member of the Fund effective 1 January 2019; that it concurs with the Board’s decision to approve the African Development Bank Transfer Agreement; and that it approves amendments to the Regulations of the Fund as set out in annex XI of the report. In addition, the Board is requesting the General Assembly approve an exception to the Regulations in order for the Fund to shift from a biennial to an annual budget on a trial basis from 2020.
Highlighting other topics discussed by the Board, he said the thirty‑fourth actuarial valuation of the Fund as of 31 December 2017 indicated a small actuarial deficit of 0.05 per cent of pensionable remuneration. “The Fund is, in effect, in actuarial balance, exactly where it should be,” he said, adding that the Board of Auditors issued a “clean” unqualified audit opinion of the Fund’s financial statements for the year ending 31 December 2017. The Board gave in‑depth consideration to a report from the Office of Internal Oversight Services (OIOS) on the Board’s governance structure, with a working group assisting in its response to the audit and its recommendations.
Good progress was made in reducing the outstanding number of cases, he said, noting that in August, September and October 2018, more than 75 per cent of initial separations were processed within 15 business days, meeting the Fund’s benchmark, with the median processing time being 8 business days. Noting the dual challenge of the extended absence of the Fund’s Chief Executive Officer and the impending retirement of the Deputy Chief Executive Officer, he said the Board established a succession planning committee to help it adopt a long‑term strategic approach to succession planning in the Fund’s senior executive levels.
“In summary, the Board can report that the Fund is in good financial and operational condition as a result of clear priorities, coordinated strategies and actions, as well as effective guidance and oversight at all governance levels,” he said. With the Fund marking its seventieth anniversary, the Fund’s job is to ensure that a 25‑year‑old joining the United Nations anywhere in the world today will get her pension payments, on time and in full, 70 years from now, in 2087, “perhaps in the last month of her life”.
SUDHIR RAJKUMAR, Representative of the Secretary‑General for investments of the United Nations Joint Staff Pension Fund, introduced the Secretary‑General’s report on the Fund’s investments and measures undertaken to increase its diversification (document A/C.5/73/3). Making his first appearance before the Committee, he said the Fund’s investment performance exceeded the long‑term objective of 3.5 per cent in United States dollars, net of inflation, during the biennium 2016‑2017, primarily due to high real investment returns of 16.2 per cent during 2017. He stressed, however, that the Fund cannot realistically expect to meet its objective every quarter or every year. As of 8 November, investment returns for 2018 are close to zero amid significant volatility in financial markets. That being said, annualized return on assets have comfortably exceeded the Fund’s long‑term objectives for 1, 2, 3, 5, 10, 15, 20, 25 and 50‑year periods ending 30 September 2018. It is in beneficiaries’ best interest that pension fund investments focus on the long term in the face of short‑term market volatility.
He then discussed the Fund’s nominal returns to the policy benchmark, a weighted average of individual benchmarks for various asset classes that serves as a near‑term indicator of investment performance. While the nominal return of 18.6 per cent exceeded the return of the policy benchmark in 2017 by 0.5 per cent, it was lower than the policy benchmark during the 2016‑2017 biennium by 0.7 per cent, due primarily to significant underperformance in 2016. In 2018, nominal returns as of 30 September were ahead of the policy benchmark. In terms of market value of assets, the Fund stood at $63.8 billion as of 8 November 2018, slightly down from $64.1 billion at the end of 2017. “The value of the Fund has been largely preserved so far during 2018 despite a challenging market environment,” he said.
Turning to other topics, he said a new asset liability management study – conducted every four years to reconfirm the continued feasibility of achieving the Fund’s long‑term objective and to make appropriate adjustments to the strategic asset allocation – is expected to be completed in mid‑2019 by a third‑party service provider. Together with a currency management study in 2017, the new asset liability study will enable the Fund to reduce uncompensated currency exposures relative to liabilities wherever feasible.
He emphasized that the Fund’s Office of Investment Management has one of the most globally diversified investment portfolios of any major pension fund, with investments in 100 countries as of 31 December 2017. During the biennium 2016‑2017, investments in North America decreased from 53.4 per cent to 50.6 per cent. Investments in Europe meanwhile increased from 22.7 per cent to 22.8 per cent and those in Asia grew from 14.8 per cent to 19.2 per cent. Direct and indirect investments in developing countries grew 13.1 per cent, totalling $6.62 billion at cost as of 31 December 2017, he said, adding that the Office of Investment Management has committed $1.075 billion for future investments in emerging and frontier markets. He emphasized the efforts being made to incorporate environmental, social and governance metrics into the Fund’s investment processes, which were recognized in the Principles for Responsible Investment Sustainability Report 2018.
Looking forward, he said financial markets are likely to be volatile over the near term as they adjust to a reversal of 10 years of quantitative easing. In such an environment, the Fund’s fully funded status provides a financial cushion to withstand a period of low returns. He expressed confidence that the Office of Investment Management can deal with whatever challenges the markets present, with the General Assembly’s support and encouragement.
PARAMA SEN, Director of External Audit (India) and Chair of the Audit Operations Committee, Board of Auditors, introduced the report of the Board of Auditors, United Nations Joint Staff Pension Fund financial report, and audited financial statements for the year ended 31 December 2017 (document A/73/5/Add.16), on behalf of the Chair, Rajiv Mehrishi, Comptroller and Auditor General of India, and other Board members. The Board has issued an unqualified audit opinion on the financial statements for the period under review.
She said the Fund should take proactive steps to work with member organizations to accelerate the receipt of documents for processing pension benefits. There is a need to address the deficiencies in the Integrated Pension Administration System and streamline the process for obtaining the certificate of entitlement and improving the client grievance management system. The Board also notes the need to strengthen risk management, management of foreign currency exposure and planning for the acquisition of critical software, such as Trade Order Management software. During 2017, the Fund processed 9,588 cases leaving an outstanding balance of 5,537 cases, an increase of about 53 per cent outstanding cases over the previous year. Turning to recommendations, she said that of the 41 outstanding recommendations up to the period ending 31 December 2016, 20 recommendations, or 49 per cent, have been implemented, 19 recommendations, or 46 per cent, are under implementation and 2 recommendations, or 5 per cent, have not been implemented.
PAUL DOOLEY, Acting Secretary‑General of the United Nations Joint Staff Pension Board, introduced the report of the Board Secretary and the Secretary‑General’s representative for the investment of the Fund’s assets on implementation of the Board of Auditors’ recommendations contained in its report for the year ended 31 December 2017 on the Fund (document A/73/342). Both the Fund secretariat and the Office of Investment Management accepted all the Board of Auditors’ recommendations and have made every effort to ensure their implementation within specified timetables. Regarding 20 recommendations relating to previous financial periods, he said they have either been implemented or are in the process of being implemented.
He noted the “considerable progress” made by the Fund’s secretariat to meet the benchmark of processing 75 per cent of cases within 15 business days from the receipt of required documents and the implementation of new client servicing mechanisms with improved response times. He added that the Office of Investment Management, with support from the OIOS, started an internal fraud risk assessment in October 2018, alongside the hiring of a specialized information and communication technology (ICT) security consultant to analyse and recommend solutions for ICT gaps.
DAVID KANJA, Assistant Secretary-General for Internal Oversight Services, introduced the report of the OIOS on a comprehensive audit of the governance structure and related processes of the United Nations Joint Staff Pension Board (document A/73/341). He said the audit - carried out at the request of the General Assembly in its resolution 72/262 - showed that the Board needs to strengthen its governance in several critical areas, including fair and equitable representation of member organizations on its Board, entrusting the Board’s Standing Committee to provide more effective oversight of the Fund’s operations, separating the functions of the Board’s Secretary and the Fund’s Chief Executive Officer to ensure the Board’s independence from the Fund’s management, effective performance management to promote a culture of accountability, and setting the appropriate tone with regard to integrity and ethical values.
He said the Board accepted seven recommendations, but rejected six others, including the critical recommendations concerning fair and equitable representation of member organizations and separating the functions of the Board’s Secretary and the Fund’s Chief Executive Officer, he said. According to the Board, four of the six unaccepted recommendations, including the two critical recommendations, were acceptable to the United Nations Staff Pension Committee participants’ representatives on the Board, but not to the other constituent groups. For the OIOS, he said, the two critical recommendations need to be addressed.
Mr. SENE introduced ACABQ’s report on the Fund (document A/73/489), stating that the Fund has been able to speed up processing of cases in 2017 and 2018. However, there remains a delay in the receipt of payment to some retirees and beneficiaries. The Advisory Committee therefore recommends that the General Assembly request the Secretary‑General and the Pension Board to take concrete steps to address the relevant issues raised in current and previous reports. He regretfully noted the high vacancy level among the General Service of the Fund secretariat and expected that appropriate measures will be taken to fill those posts expeditiously. Regarding the amendments to the Regulations of the Fund, the ACABQ views adoption of the amendments as having legal consequences, and therefore refers them to the appropriate bodies of the General Assembly, he said.
MOHAMED FOUAD AHMED (Egypt), speaking on behalf of the “Group of 77” developing countries and China, and reaffirming the General Assembly’s prerogative on matters pertaining to the Fund, noted with serious concern ongoing delays in the payments to some retirees and beneficiaries – an issue flagged in previous years. Out of a total of 15,125 actionable cases, more than one third were not processed, he said, adding that many cases – actionable and non‑actionable - have been outstanding for many years. “While acknowledging that some progress has been made, the Group once again urges the Fund to exert all efforts to reduce the backlog and, in cooperation with the participating entities of the Pension Fund, to address the causes of delay in the payment of benefits, which put retirees and other rightful beneficiaries in stressful and vulnerable situations,” he said. He urged the Fund to make progress in implementing the Board of Auditors’ recommendations to enhance the Integrated Pension Administration System and welcomed that Board’s recommendation that an electronic signature verification system be implemented.
The Group notes with strong interest that the latest actuarial valuation of the Fund as of 31 December 2017 revealed a deficit of $184.3 million, the first in recent years, he said, reaffirming the importance of being vigilant on the Fund’s ability to generate a return adequate to cover its liabilities, notably to achieve its 3.5 per cent investment target. The Fund’s expenses should also be watched carefully and benchmarked to credible international comparators. Turning to the Fund’s investment activities, he noted that the Fund had an annualized real return of 9.4 per cent during the biennium 2016‑2017, thus exceeding the annual real rate of return target of 3.5 per cent. Nonetheless, cognizant of the volatile market conditions of the global capital markets, the Group urges the Secretary‑General, through his representative and those responsible for the Fund’s investments, to constantly exercise their fiduciary responsibility over these assets.
He recalled the General Assembly’s request to the Secretary‑General that the Fund keep diversifying its investments between developed, and developing and emerging markets, where it serves the interests of the participants and beneficiaries. He stressed the importance of implementing all of the Board of Auditors’ recommendations in a timely manner, with annual updates to explain any delays. Expressing appreciation to the OIOS for its audit of the Fund’s governance structure and related processes, he said that effort produced some useful and far‑reaching recommendations that are appropriate for the Assembly to consider.
TAULANT ZEQIRI of the European Union said that since it created the Pension Board in 1948 with a dual governance structure, the Assembly has remained vigilant to ensure the Fund is managed effectively and transparently and is accountable to the Fund’s members and, ultimately, Member States. European Union member States will continue to take a close interest in all issues relating to the efficient operations, regulations and governance of the Fund. He noted the persistent delays in the receipt of payment by some Fund retirees and beneficiaries, with problems remaining in the processing of applications. “We call on the Fund to step up action to mitigate the impact on retirees who have been deprived of their benefits and to prevent this from happening in future years, including by ensuring vacancies are filled in a timely manner,” he said.
The European Union notes the Advisory Committee’s relevant recommendations and hopes the Assembly can set a clear course of action during the current session to prevent further delays and ensure clear and efficient operation of the Fund’s duties, he said. He noted with satisfaction that the Fund’s total assets have increased from $54 billion to $64 billion and that they exceed its 3.5 per cent real rate of return objective for long‑term investments.
CHERITH NORMAN-CHALET (United States) said the Fund is valued at more than $60 billion and has more than 126,000 active participants with about 75,000 beneficiaries across 190 countries in 15 different currencies. A Fund of this size comes with great responsibility and risk, including to its beneficiaries. Effective management of the Fund and the administration of benefits are very important to the United States. She expressed concern about the Board of Auditors’ findings that while there have been some improvements in benefits payment processing, the Fund has not processed 38 per cent of actionable cases within the 15‑day benchmark. “We reiterated that all efforts should be made to reduce the backlog of cases,” she said, and added: “We believe IPAS [Integrated Pension Administration System] should be better utilized to support the timely processing of benefits, as would the establishment of a proper grievance mechanism that addresses concerns raised.” She thanked the OIOS for its comprehensive audit of the Fund’s governance structure aimed at ensuring proper accountability for the management of benefits and the Fund’s effective operations. She agreed with the OIOS assessment that several areas require structural reforms so the Pension Board can fulfil its critical oversight role of the Fund.
FU DAOPENG (China) noted that the Pension Fund has more than 127,000 participants and close to 78,000 beneficiaries with a market value of $64.14 billion, as of 31 December 2017. That is an increase of $12.2 billion over the past two years. The real rate of return on investment in 2017 was 16.2 per cent, while it was only 3.1 per cent in 2016. He expressed hope that while maintaining a minimum real long‑term return rate of 3.5 per cent, the Fund should continue to optimize its investment portfolio and increase its investment in eligible developing countries and in multiple currencies. A sound governance structure is the basis for ensuring efficient operation of the Fund. He noted that OIOS has made observations on the Fund’s governance structure and the Pension Board has accepted part of the observations. He expressed hope that during the informal consultations more details would be made available and that all sides would explore ways to improve the Fund’s governance structure.
DAISUKE WAKABAYASHI (Japan) emphasized that the pension system is a backbone of the United Nations that lets its staff work with peace of mind. Its stability is crucial to attract and retain high‑performing staff. While welcoming the Fund’s recent investment performance, Japan is seriously concerned that there have been a significant number of outstanding cases every year and the Fund has various issues regarding the Integrated Pension Administration System. “This situation will undermine the overall credibility of the pension system as a whole,” he said. Japan read the relevant reports of the OIOS and Board of Auditors with great interest. The OIOS report indicates several issues facing the Pension Board, including the conflict of interest, the oversight by the Standing Committee, fair and equitable representation in the Board, effective performance management, and the issue of integrity and ethical values. “My delegation is committed to taking part in the negotiations constructively to reach consensus for the betterment of the Fund,” he said.
CAROLINE NALWANGA MAGAMBO (Uganda), associating herself with the Group of 77, said the OIOS conducted the Fund audit in a professional manner. Adding that its recommendations serve as a road map for much‑needed improvements to the Pension Board’s structure and processes, she said the General Assembly must ensure the Board addresses issues raised by OIOS as a matter of urgency. Implementation of recommendations made by the Advisory Committee and Board of Auditors will also contribute considerably to strengthening the Pension Board’s governance role and promote accountability of the Fund’s management to all stakeholders.
EVGENY KALUGIN (Russian Federation) noted the significant work by the Pension Board in considering the system of processing pension benefits. He noted the increase in fund assets to $64.3 billion and welcomed the efforts to diversify investments in geographic terms, including into emerging markets. The Russian Federation agrees with the Advisory Committee that it would like the Secretariat to include in its next report more detailed information on the long‑term strategy and its effectiveness. He noted that the investment performance of the Fund has exceeded the long‑term objective of 3.5 per cent real growth (net of inflation) per year. He expressed concern about the recommendations of OSIS and said his delegation would not be able to support most of them. He was also concerned that OIOS had exceeded its purview and his delegation will discuss the issue during informal consultations.