Our pension fund: doing fine !
Jean Michel Jakobowicz, participant representative on the pension Board
The Board of the Joint Pension Fund met last July at ICAO in Montreal.
First let me reassure you, our pension fund is doing quite well. After
the financial crisis when we lost quite a lot of money and were left
with $19 billion, our investments recovered. During the first semester
of 2004 they reached $27 billion, a record high in its history.
However, despite the recent experience where our assets in stocks lost 40% of their value between 2000 and 2003, the policy advised by the investment committee remain the same: our exposure in stock should remain at about 60%. This policy which has been quite catastrophic during the crisis years has enabled us to “recover” part of our losses during the first part of 2004. But is the risk worth it? One of the argument used by experts is that in the long run stocks are more profitable than bonds. Data of our funds prove exactly the opposite over the last 20 years. Let us hope that the Secretary General in his great wisdom will make the right choice.
What is an actuarial evaluation?
An actuarial evaluation consists in computing all the commitments of the fund until the last beneficiary dies and to actualize. It is obvious that to do such computations a number of hypotheses have to be made, whose value are more or less reliable, such as the life expectancy of the average civil servant, the future evolution of inflation, the future composition of the secretariat etc. The future assets of the fund are also estimated using a strange procedure which is a five year moving average in order to avoid extreme fluctuations. All in all these computations are very complicated. They are done by a consulting actuary and verified by a committee of actuaries who work for free for the pension fund. This committee meets once a year.
The second item on the agenda was the actuarial evaluation of the fund. There also all indicators are positive. For the fourth time in a row (these evaluations are done every two years) the fund has an actuarial surplus. This year the surplus is slightly inferior to the one of 2001, but it is still a surplus of 1.14% against 2.92% in 2001. in other words the assets of the funds cover more than its commitments.
So, you are immediately going to conclude that if the fund is in such a good shape our pensions are going to increase. It would be too simple. Two years ago in Rome a working group prepared for the board a report recommending a number of measures to improve our pension. Nothing really revolutionary, it was mainly to reinstitute a number of advantages which we had lost when the fund was facing a deficit. The Board finally adopted, after a very tough negotiations, a number of these recommendations. However the General Assembly, which has the final word, refused them giving as an argument that such measures would be granted only if a positive trend in surplus would occur. Apparently 4 surplus was not enough to be a “trend”. By prudence the majority of the Board refused to consider these data as a trend and to keep a surplus in case … Only victory of the participants some cuts which had been made in pensions linked to inflation have been suppressed and a promised was made that if things were continuing to improve …
As certain number of other points have been discussed among which: final average remuneration which determines the level of our pension and the possibility of purchasing added years of contribution. This last point will be discussed anew in 2 years.
Be aware, danger! The International Civil Service Commission will be studying during the two coming years our pensionable remunerations. The last review took place in 1996. at that time nothing really happened thanks to the fight of the participants. This time again the ICSC wants to study the famous “income inversion” for the layman it means that the ICSC cannot accept that certain G-7 have in some duty stations a pension which is higher than professionals. Instead of proposing a reevaluation of the pensions of the professional staff they want to lower the pensions of general services. The final decision will be taken jointly by the ICSC and the Pension Board in July 2006 with a implementation in January 2007. In the meantime a joint working group will study the matter. We will keep you posted on the development of the work and ask for your support in case it is needed.
One word seems to sum up was is done in the pension fund: prudence. My only concern is that we seem to be very prudent with our spending but when it comes to our investments we are still gambling on the stock market.
How are our investments done?
The Secretary General of the United Nations is the sole responsible of our investments. He delegates his authority to the Head of Administration currently Mrs Bertini. The Secretary General also appoints an investment committee. This Committee is composed of specialists, bankers and other investment experts who offer free of charge their expertise to the pension fund. The investment committee meets three to four times a year. As far as advises are concerned there are also a number of external, paid experts who help the secretariat to make our investments. Investments are then decided upon by the IMS (Investment Management Section) currently managed by Ms. Chieko Okuda. However, it is Ms. Bertini who, on behalf of the Secretary General authorizes the purchases and the sales. The Pension Board has only a consultative role, which of course limits its implication in the investment decision with, however, the advantage of limiting political interferences.
How does the Board function?
The Board is a tri-partite entity. Its 33 members meet every 2 years. In between the standing committee meets with only 15 members to discuss budgetary matters. Are represented on the Board: participants (you and me), Governments and administrations. Retirees have up until now two seats as observers.
This structure is rather odd for three reasons. The first one, is why are administrations present? There is absolutely no justification for their presence. Why would colleagues from the administration have different views to those of yours and mine? The second reason is why are government participating in as far as the final saying is anyhow with the General Assembly which is an inter- governmental body? Last but not least, why are retirees not fully participating in the debate. The only answer to this question is that in 1945 when the fund was established there were no retiree.
Currently a working group is studying ways and means to change this system. But I am certain that the mountain will give birth to a mouse!