The pension fund at Geneva
UNS : What is the history of the Pension Fund at Geneva?
The Geneva office of the Pension Fund dates from 13 May 1975. With the passage of time, its responsibilities gradually increased, and in 1990 a group of consultants recommended a further development of its role. Thus Geneva is now responsible for 15 of the 18 affiliated organizations such as WHO, ILO, IAEA, IMO, UNIDO, UNESCO, etc., as well as nine large offices of the United Nations such as ECA, UNEP or ESCWA. Geographic proximity as well as familiarity with several European languages, better knowledge of national administrative procedures and retirees living conditions helped to deal with records and better assist active participants and retirees living in our region. The objective is to give Geneva responsibility for Europe, Africa and the Middle East. We look after 32,000 people out of 80,000, some 40% of the participants. As for pensioners who look to us for help, they are about 13,000 out of the total of 48,000 in receipt of monthly benefits. We aim to cover from here all the organizations and UN offices based in Europe, Africa and the Middle East, and to serve and assist the pensioners living in these regions. In this way we would have administrative responsibility for 50% of the participants in the Fund, and establishing their benefits.
How many of you are there in the service ? At present we are 21, in two sections: participation, entitlements and contributions (13 persons) and finance and information technology (6 persons), plus an administrative assistant and myself.
What does administrative responsibility imply in this context ? Our role is to assist each employee of the international organizations from the moment he or she joins the Pension Fund until he ceases employment, that is to say initial entry into the UNJSPF system, validation and eventual restoration of previous service, explaining the implications of and choices between various administrative options (such as unpaid leave or breaks in service). Also providing estimates of pension entitlement at the time of retirement, thus assisting a retiree in his choices within a pension system which, although of high quality, is inevitably complex due to the need to cover disparate situations, both as regards place of work and place of retirement. Our role in advising on the different options, on advantages and disadvantages, in the light of what an individual says are his needs, is large and has wide implications. There is a sharing with the future pensioner who confides in us part of his life, his expectations, his fears, his hopes; in a way a certain intimacy develops, and rather than being just a professional job, it is a human relationship that results. He tells us about his life, we advise him so that he can make his choice on what will largely determine his future new life as a pensioner. In accordance with his choice, we therefore have the responsibility of calculating his entitlement and paying it. Paying his entitlement implies paying the first monthly pension (including it in the monthly payroll of the Fund), paying the lump sum if this has been requested, or paying a withdrawal or residual settlement.
What can you say about the choice of taking a lump sum or not ? Various factors have to be taken into account when making this choice. There are technical factors which we can share with the beneficiary. But during our dialogue we also stress the importance of personal factors, and, if he wishes, as is frequently the case, we weigh up all the diverse aspects so as to arrive at the best choice in his particular case. Among the technical factors, two are of greatest importance: On the one hand, remember that, with the well-known exception of Austria, every retired international civil servant resident in Europe has to pay income tax on the basis of his monthly pension. His income tax liability will therefore be reduced if he lowers this monthly amount by taking one-third as a lump sum. That is a positive financial element. In fact the same applies in most countries outside Europe. On the other hand, taking the lump sum does not reduce the survivors benefit which remains at 50% of the total pension entitlement before taking the lump sum. This is a protection for the family. If our client says he intends to take the lump sum, either the maximum one-third or a smaller amount, we suggest that he reflect on whether his needs, his lifestyle and habits will allow him to live on the reduced monthly pension; we urge him to study carefully how he will manage his finances. In a choice such as this, the number of years of contributory service is relevant. If a person has many years to his credit, he or she is much more likely to take a lump sum, the remaining monthly pension amount still being considerable. We remind our interlocutor of the need to plan his life in retirement according to his income, which will normally be in large part his UNJSPF pension. Some people wonder whether taking the lump sum is financially judicious; because longevity is a factor in the calculation of the lump sum, if they were to live to a greater age than the average participant or beneficiary (about 83 years), they would not gain financially in the long run. My reply to this is to ask whether, financial considerations apart, the fact of still being alive when many other colleagues died soon after retirement, is not a far greater advantage than the purely financial one. It is my hope that being alive will always remain the prime consideration.
What about the dollar track and local track The dollar track is stability in that currency and indexing of the basic pension to movements in the consumer price index of the United States. It is an excellent system for those who live in a country where the US dollar is of primordial importance or where substantial regular expenditure is made in dollars. We can, of course, pay a dollar-track pension in a currency other than US dollars. In this case we use the UN exchange rate operating during the month prior to each quarter, and your pension could thus change every three months, up or down, according to the evolution of the exchange rate. For a pensioner living, for example, in Switzerland or another European country where expenditure is mostly in local currency Swiss francs or euros these changes can be upsetting, even difficult if the quarterly exchange rate were to fall substantially. That is where the local track comes in. Choosing the local track is to opt for a stable pension in the currency of your country of residence and to be linked to movements in the consumer price index of that country. It offers security and peace of mind. You know in advance how much your pension will be in the currency of expenditure. Calculation of the pension amount in local currency is based on the average exchange rate during the 36 months preceding retirement. This means that, according to the value of this average at the time of retirement and the quarterly value, it may be preferable to start retirement under the dollar track system and then, if the quarterly value falls below the average, change to the local track. We are ready to give advice both at the time of retirement and when pondering on changing to the local track.
What problems do you encounter with active and retired officials ? The majority of active international civil servants know little about the mechanics of the Fund and of the options available. As retirement approaches, these matters become urgent and people come to us for discussion and advice. We see to it that this is conducted by staff with broad professional competence and a good sense of communication. This is why such matters are handled by chiefs of section and their colleagues.
Is this because of the complexity of the system ?
This also, because it is a system that must function equitably throughout the world, and that cannot be done simply. Pensioners live in countries that have different currencies, different purchasing power and different cultures. There is thus an additional inherent complexity in the reasoning and nature of each client. Our role is to be available to these people, and, more importantly, not to sell a ready-made UNJSPF item, but to listen carefully so as to perceive their nuances, their origins, their destinations, their environments, and to suggest the approach that seems most beneficial to them, and not some ready-made dollar-track or local-track cliché, or perhaps suggest to consider the merit of a monthly pension versus a withdrawal settlement which in some cases is more attractive.
What are the problems for retirees ?
First of all choice of place of residence, then choice of dollar or local track. The latter question is a bit simpler now that twelve countries have adopted the euro. It makes it easier for retirees to move around using the same currency. Moreover, inflation rates are tending to converge, harmonising purchasing power in the different countries. Then again, some wonder what they are going to do with their lump sum. It is delicate to give advice here, our role is principally to warn about the risks inherent in investments offering extraordinary returns. We advocate limiting exposure to such risks. Do as a good head of family would do. Never forget that it is your pension, earned over many years, and supposed to see you through the rest of your life.
And as concerns taxes ?
As we mention above in speaking about the lump sum, we point out that virtually all countries have a fiscal system that taxes monthly pensions. Everything touching on taxation is delicate and complicated, and it is not in our sphere of responsibility nor competence. Nevertheless, we willingly pass on confirmed information that comes to us. For instance, in France and in Switzerland the monthly pension is subject to income tax, but not the lump sum. Only income from its investment is taxable. It is up to each individual to find out about the relevant tax regulations in his chosen country of residence.
When will we have pension values on the internet ?
In a fortnight, mid-July 2002. The aim is to make available on the Funds site: <www.unjspf.org> a system whereby a participant may, by entering certain personal data, find his options and an estimated pension amount for a given date of retirement.