Overview of the Fund’s activities

Overview of the Fund’s activities

1

May 2014

2

Key messages Sustainability Key indicators Environment Main activities and initiatives 61st session of the Pension Board GA Resolutions Conclusions

3

1- The Fund has significantly improved and is now in a very good operational and financial situation

Reversing the clear downward trend since 1999. Following the “inertia” would place the deficit outside the safety margin.

Historical asset value (>52 bn USD) More transparent and complete financial statements. Operationally sound - as evidenced by results of last four internal audits

without a single recommendation. Installed a robust IT infrastructure in Piscataway NJ. Already operating. Developed and implemented Business Continuity and Disaster Recovery plans

to deal with emergencies or catastrophic events. Strengthened internal control framework - internal control policy; fraud

prevention scenarios; introduction internal control statement. Strengthened solvency management (ALM Committee, definition of risk

appetite and risk tolerance, ALM Committee to review investment policy, ALM studies, full-time RSG)

4

2- The Fund’s good financial and operational situation is a direct result of Fund’s actions and projects in line with the strategies and goals approved by the Pension Fund which are necessary to keep the pension promise as well as to improve the Fund’s servicing capacity for the benefit of its participants, retirees, beneficiaries and member organizations.

Strengthening installed capacity for client services (internal redeployments, knowledge management and career progression, self-service features)

Streamlining processing via a new Target Operating Model. New system to address long-standing external audit observations. More agile systems to deal with changes in plan design, payments, interfaces, etc.

(new “calculation engine”) CFA project to lower banking charges in Africa. Drafting financial rules -at the recommendation of the Audit Committee- to introduce

financial control standards. Improved solvency management (improved coordination with RSG, ALM process,

etc.) Improved payment process (new USD accounts in India and Pakistan, etc.);

5

3- The Fund has a very complex plan design, multi-tiered and bifurcated governance and an operation that requires a global reach. Additionally, there are significant changes and challenges in the environment in which the Fund operates

Changes in banking practices (IBAN codes, regulatory changes, new clearing methods, etc.)

Economic, political or social events that prevent (or make difficult) payments in a country or region;

Changes in national legislations regarding the definition of marriage and spouse; Changes in financial reporting (IPSAS and IFRS); Availability of technological improvements Possible aberrations in relationship of inflation and foreign exchange (affecting

administration of PAS) More volatile financial markets Pressure to do more with less Changes in demographic factors (e.g. longevity, participation, etc.)

6

4- The Fund has significantly improved and is in now a good financial and operational situation as a result of very hard work as well as effective guidance and oversight from the Pension Board. However, the Fund cannot remain passive and without continuing to adapt to changes or without continuing to modernize and improve its operations and governance.The Fund faces many risks and challenges. Some of these represent high risks affecting the Fund as a whole and some affect certain aspects (investments, IT, operations, etc.)This is the busiest time for the Fund in a long time. There is significant progress in many aspects of the Fund.Continuing with the excellent progress achieved and maintaining the healthy financial and operational situation of the Fund is dependent on all of the Fund’s stakeholders and its main constituent parties advancing together and supporting the Fund in the implementation of the strategies and goals established by the Pension Board.

7

Sustainability

8

The Fund is in a good financial position

9

31 December 2009 – 0.38 per cent of p.r.


10

Change Estimated Increase on contribution

Reset Of Mortality Improvement Period To 20 Years 0.10

Change Rates Of Withdrawal And Early Retirement (To Better Align With Actual Experience) 0.11

Change Commutation Utilization Rate (From Effective Rate Of 24.2 Per Cent To 21.5 Per Cent) 0.18

Total increase on contribution 0.39

11

Economic Assumption

•Inflation assumption now 3.0% (down 1.0%). Net real investment return assumption stays at 3.5%. This change will have limited effect on funding.

Actuarial Asset Valuation Method

•Alternative method that provides a better recognition of the underlying market value of the assets, to be implemented over a transitional schedule with full implementation no later than 31 December 2019.

12



Deficit still under the actuarial safety-margin

13

14

1. Change in Normal Age of Retirement to 65 and 58 for early retirement for new staff (1/1/2014)

2. Working Group on Sustainability

- Recognized importance of 3.5% real rate of investment return to achieve long-term sustainability

-Important recommendations (Carte Blanche, ALM Committee, etc.)

3. ALM Committee

-Risk appetite, risk tolerance, review of investment policy

4. Full-time RSG terms of reference

15

16

2012 (IPSAS)

2011 (UNSAS)

Contributions 2,163 2,140

Benefit Payments 2,228 2,130

Difference -65 +10

As a % of contributions 3.0% 0.5%

As a % of total assets 0.1% 0.03%

Number of Participants 121,098 120,774

Number of Retirees and Beneficiaries

67,677 63,387

In millions of US Dollars

In 2013, the difference of contribution income and benefit payments grew to 131 million USD. This is indicative of the maturing status of the Fund.

17

Assuming the expected annual 3.5% real rate of return is earned:

The principal of the Fund will not be utilized to cover benefits gap until 2047.

Even in a “catastrophic” scenario if the real return on investments is only 2% per year:

The principal will not start to be utilized until 2037.

18

The market value of investments as of 31/12/13 was 51.3 bn USD

19

Compared to the 3.5% real return objective, long-term investment performance is still in-line with expectations

Annualized Real Rate of Return as of 31 March 2013

1 Year 6.6%

5 years 1.1

15 years 3.7

50 years 3.9

20

0.29% 0.21% 0.23%

1.04%

-0.28%

-1.00%

0.00%

1.00%

2.00%

Investment experience, interest on deficit, contributions at 23.70%

Net effect of change in dollar, actual inflation, etc. affecting pensioneers and actives

Effects of modifying demographic assumptions

Effect of modifying assumptions for commutation and marital status

Other

20

21



Deficit still under the actuarial safety-margin

A change of trend is expected for the 2013 valuation

22

23

130.5%136.2% 132.4%

141.4%

180.1%

160.6%

144.5% 139.9%146.9%

139.6%130.00%

76.7% 80.5% 81.1%88.5%

113.4%106.1%

95.4%92.4% 95.3% 91.0%

86.20%

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

200.0%

1990 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Act

uar

ial V

alu

e o

f Ass

ets

Per

cen

t Fu

nd

ed

Year Ending 31 December

Without Pension AdjustmentWith Pension Adjustment

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Return on Actuarial Assets

16.72% 9.85% 10.99% 14.72% 19.83% 2.72% 5.11% 2.99% 4.59% 3.86% 6.80% 12.59% 13.69% 1.57% 5.58% 4.84% 1.86%

24

Key indicators

• Active participants 120,294 as of 31 December 2013 120,774 as of 31 December 2011 117,580 as of 31 December 2009 2.3% increase since 2009 slight decrease of 0.4% since 2011

• Retirees and beneficiaries 69,980 as of 31 December 2013 65,387 as of 31 December 2011 61,841 as of 31 December 2009 13.2% increase since 2009 7.0% increase since 2011

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

140,000.00

2011 2013

20,000.00

40,000.00

60,000.00

80,000.00

2009 2013

25

25

Over the last 10 years the population serviced by the Fund has grown by approximately 33%

26

*2013 data are estimates

120

,29

469

,980

27

*2013 data are estimates

120

,29

469

,980

28

• In less than a decade, the number of retirees and beneficiaries will reach 90,000

29

Benefits processed after the initial separation from active service

30

31

32

Total User Sessions

Over ½ million sessions

In 2013 the number of recorded website sessions was 576,000 up 15% from 2012

• Market value of assets 51.3 bn USD as of 31 December 2013 $39.8 bn USD as of 31 December 2011 $37.7 bn USD as of 31 December 2009 28.9% increase since 2011 36.4% increase since 2009

10,000.00

20,000.00

30,000.00

40,000.00

2009 2013

33

33

34

In summary …

The Fund is large and growing

The Fund is maturing

The Fund has global scope

The Fund is in a well funded-position

35

Environment

36

1. Changes in banking practices (IBAN codes, regulatory changes, new clearing methods, etc.)

2. Economic, political or social events that prevent (or make difficult) payments in a country or region;

3. Changes in national legislations regarding the definition of marriage and spouse;

4. Changes in financial reporting (IPSAS and IFRS);

5. Availability of technological improvements (driving changes in Member Organizations’ systems and increased demand for self-service options, etc.)

37

10. Catastrophic events that affect retirees or beneficiaries or the Fund’s operations;

11. Possible aberrations in relationship of inflation and foreign exchange;

12. More volatile financial markets (which have a significant impact on a maturing Fund since there is a growing interdependence of assets and liabilities);

13. Pressure to do more with less – difficult economic conditions (need for increased efficiency);

14. Changes in demographic factors (i.e. early retirement rates, longevity, participation, etc.)

38

Illustrative example –Other public DB schemes

39

Source: Government Accountability Office (GAO) Report to Congress: “STATE AND LOCAL GOVERNMENT PENSION PLANS, Economic Downturn Spurs Efforts to Address Costs and Sustainability”. Report number GAO-12-322

40

Challenging environment for any pension fund

But it is more challenging for the UNJSPF because

it is maturing

has a very complex plan design (665 calculations)

has global scope (dealing with multiple currencies and CPI)

has a multi-tiered, complex governance structure

41

Main activities and initiatives

42

IPAS Strengthened Governance and

Operations ALM Committee Statement of Internal Control Other initiatives Financial Statements Audit

43

Integrated Pension Administration System (IPAS)

Assessment

44

• Although there are no “burning platforms”, the Fund’s systems/IT environment are aging.

• The Fund is one of a few UN organizations that still use a mainframe.

• Pensys is based in COBOL.

• The Fund’s operational framework is complex and fragmented.

• The Fund’s system solution has many components and internal interfaces.

Assessment

45

• All hardware has been modernized and standardized.

• All of the Fund’s processes have been re-designed and improved.

• The new solution is fully integrated with better controls, more flexibility and reporting capabilities.

• The implementation of IPAS will represent a very significant positive change in knowledge management.

• The IPAS project will allow the Fund to keep up with the changes in the environment and with increasing client servicing needs.

46

Strengthened Governance and Operations

47

The Fund has embarked on an initiative to reinforce its governance and operations.

Strengthened Governance

Full-time RSG (new post due to the complexity and size of the investment operations and for improved coordination of assets and liabilities)

HR flexibility (provide for better and more progressive career paths that would enhance service experience and knowledge to provide better services more efficiently and allow for required specialization in benefit entitlement, client services, technical matters and investment management)

Financial Rules (provide for clear financial controls and standards to improve transparency, accountability, financial control and operational efficiency. In line with new accounting standards followed by the Fund as well as reflecting the unique nature and needs of the Fund.)

48

1) The Board requested in 2013 the CEO and the RSG "to review and, if necessary and appropriate, update the current MoU with OHRM/UN, with a view to ensuring that the Fund’s human resources management is in line with its operational and investment needs.”

2) There are no plans to either lower any recruitment standards or centralize additional powers to the CEO; there are no plans to outsource jobs of the Pension Fund and there are no plans to otherwise negatively affect the existing staff, including their contractual status.

3) The Working Group on Sustainability supported the joint initiative (RSG and CEO) of administrative flexibility reflected in the Carte Blanche document.

4) The update of the review will be presented to the Pension Board this coming July.

49

5) The Fund has no plans to change anything with regard to its investments or in the way it is financed, managed or administered.

6) The Fund’s HR requirement analysis is being guided and advised by a Pension Board member with over 30 years of HR experience in the UN system.

7) An improved and streamlined HR framework, codified in a revised MoU between the Fund and the OHRM, as mandated by the Pension Board and GA, will allow for more effective processing of pension benefits and payments as well as generally improve client servicing for beneficiaries and retirees and its investment management operation. It will also provide for better and more progressive career paths within the Fund, including professional training and staff development, and minimize risks associated with the loss of institutional memory (e.g. trained and long-serving staff), ultimately improving the Fund’s service to its constituents as well as strengthening its long-term solvency."

50

Strengthened Operations

New IT and Operational Platform (replace aging IT infrastructure and systems with a modern integrated IT solution and new target operating model. This is the most ambitious and large scale IT and operational project in the Fund’s history)

Risk Management and Control (a series of initiatives to improve risk management and mitigate risks)

Fraud Prevention Scenarios

Internal Control and Enterprise Risk Management Policies

Statement of Internal Control

51

ALM Committee

52

In order to improve communications between the Fund’s management and the Board on investment policy and strategy and to enable the Fund to better monitor the balance of assets and liabilities, the Board approved the establishment of an Assets and Liabilities Monitoring Committee.

The ALM Committee will work with the support of the Fund’s management, the Investments Committee, the Committee of Actuaries and the Consulting Actuary to monitor the solvency of the Fund and to provide advice and recommendations to the Board with regard to risk management, funding policy, asset-liability management and investment policy.

Process to identify potential events that may affect the UNJPSF, and manage risks (risk strategies) within the approved risk appetite


Process to provide reasonable assurance regarding: efficiency of operations; reliability of reporting; and compliance with regulations


• Regulations and Rules

• Risk Appetite / Risk Tolerance



• EWRM Policy• Accountability

Statement• Internal Control

Policy• Audit Charter• Investment

Policy


Statement• Internal Control

Policy• Audit Charter• Investment

Policy

• Statement of Internal Control

• Risk Manual• Risk register /

map



map

UNJSPF Internal Control Framework

53










Statement• Internal

Control Policy• Audit Charter• Investment

Policy


Statement• Internal

Control Policy• Audit Charter• Investment

Policy



map



map

UNJSPF Internal Control Framework

54

55

Risk appetite provides the answer to how much risk is acceptable in pursuing the Fund’s mission

56

The Fund recognizes the very long-term nature of its operations, its insurance-like nature which pools resources and risks to provide retirement, death, disability and other defined benefits and related services to its participants, retirees and beneficiaries as well as the importance of ensuring the continuing viability of its operations and finances. The Fund has very low appetite for the risk of losing its long-term sustainability and not being able to meet its long-term financial commitments.

57

Both risk appetite and risk tolerance are defined at the policy level. Risk tolerance provides the specific metrics to define the degree of

variability that is acceptable to the organization.

Performance Objective

Performance with

positive events

Performance affected by negative events

Risk Tolerance

Acceptable level of risk (or volatility)

RiskUniverse

Risks that organization will face (possible ranges of performance)

Amount of risk, on a broad level, that an organization is willing to accept in pursuit of its main or “core” objectives.

RISK Appetite

“The acceptable level of variation relative to achievement of a specific objective, and often is best measured in the same units as those used to measure the related objective. In setting risk tolerance, management considers the relative importance of the related objective and aligns risk tolerances with risk appetite. Operating within risk tolerances helps ensure that the entity remains within its risk appetite and, in turn, that the entity will achieve its objectives.”1

RISK Tolerances

The Fund has very low appetite for the risk of losing its long-term sustainability and not being able to meet its long-term financial commitments.

UNJSPFUNJSPF

- “Safety margin” +/-2% of p.r. (as determined in actuarial valuations)

Risk DefinitionsRisk Definitions

(1) Source: COSO’s Enterprise Risk Management — Integrated Framework

- Stochastically-derived “safety margin” or probability of funding deficit to exceed a pre-determined limit. To be studied during next ALM study.

- Value-at-Risk of total Investment Portfolio

5858

59

Statement of Internal Control

The implementation of IPSAS has fostered the development of the Statement of Internal Control (SIC) initiative

The strategy was presented to the Pension Board during its 60th session in 2013

The SIC would be the means by which the Fund’s management as well as the Fund’s 80 reporting entities state their “ownership” over the internal control framework, transactions and data.

Introduces in its first phase providing for the internal framework/process for the assertion letters to be issued by key functional managers that “feed” the financial statements

Operations Finance Investments

6060

61

Other initiatives

62

In order to significantly reduce the banking charges in 13 countries in West and Central Africa, the Fund implemented a new banking mechanism that directly connects six local accounts (3 in XAF and 3 in XOF) with two regional clearing houses.

This project implied departing from centralized disbursement method and “opening” PENSYS during IPAS implementation.

The Fund developed and tested the new mechanism as well as the changes to the payroll system.

This project benefits some 1,000 beneficiaries. The new mechanism is in place since Q4 2013.

The Fund is working on a similar arrangement for India and Pakistan and is opening USD denominated accounts in those countries that would lower bank charges and would improve operational and financial control.

63

• Increased utilization of Emergency Fund

The Fund has made special arrangements to facilitate processing of Emergency Fund cases under exceptional circumstances which may cause special unforeseen hardship in individual situations.

For example: the significant flooding in Thailand that impacted a region where many of the Fund’s retirees and beneficiaries reside. The Fund processed a total of 224 cases in line with this more proactive approach.

The same approach was utilized in November 2013 to assist Fund’s retirees and beneficiaries residing in the Philippines which were affected by the Typhoon Haiyan.

64

•Project for streamlining the routing of complex (multi-correspondent bank) payment instructions (reducing costs, manual intervention and returned payments)

•Business continuity/disaster recovery is continually tested and kept current

•Significant progress in the Interface Project to link the Fund electronically to 80 reporting entities (transmitting HR and finance data to the Fund)

•Important and very valuable partnership with FAFICS and 56 AFICS offices. Outreach activities (pre-retirement and post-retirement seminars in Geneva and Rome)

65

Financial Statements

66

67

68

Un-qualified audit opinion

Main changes:

A.position (IAS 26) discloses net assets available for benefits, including the actuarial present value of promised retirement benefits in the notes to its financial statements.

B.Reporting of financial instruments Recognition of unrealized AND realized gains and losses (Volatility) Separate presentation of foreign currency gains and losses Recognition and presentation of transaction costs and management fees Extensive disclosures related to financial instruments

C.Recognition and presentation of certain benefit payables

D.Presentation of administrative expenses on an accrual basis and budget reconciliation

E.Capitalization of Fixed and Intangible Assets (included in other assets)

69

Audit

#Fund Secretariat

AuditsStatus Results

1 Audit Actuarial process Final Report issuedSatisfactory

No recommendations

2Audit of Secretariat knowledge transfer

Final report issued

SatisfactoryNo

recommendations

3Audit of IPAS pre-implementation

Final report issued

SatisfactoryNo

recommendations

4Comprehensive review of operations

Draft report (Feb-2014)

SatisfactoryNo

recommendations

The results of the last four audits to Fund Secretariat with no recommendations From all previous audits, the Fund secretariat has only one outstanding audit

recommendation which requires filling a vacant post in the Financial Services Section.

7070

71

Recommendations Total

Target Dates

Not yet due Past due less than 1 year

Past due more than 1 year

IMD

Critical 4 3 0 1

Important 21 7 10 4

Sub-Total 25 10 10 5

Fund Secretariat

Critical 0 0 0 0

Important 1 0 0 1

Sub-Total 1 0 0 0

Fund Secretariat/IMD

Critical 0 0 0 0

Important 1 1 0 0

Sub-Total 1 1 0 0

TOTAL 27 11 10 6

72

61st session of the Pension Board

73

Results Actuarial valuation as of 31 December 2013Investments of the Fund

Investment Policy, Management of Investments, Social responsibility policy

Administrative matters Financial Statements (IPSAS) IPAS Status Options to strengthen client services

Governance matters 2016-2017 Strategic Framework Report from the Assets and Liabilities Monitoring

Committee

74

Governance matters Updated Internal Control Policy Revised Accountability Statement Terms of Reference SPCs Financial Rules HR framework review

Benefit System Application of paragraph 26 of the PAS Small pensions

AuditOther Matters

75

GA Resolutions

76

NAR to 65 and 58 for early retirement for new participants (01/01/2014)

Request a mechanism for tracking withdrawal settlements paid to participants who separate with less than 5 years of contributory service

Stresses the need to avoid any action that would compromise the Fund’s fiduciary responsibilities and long-term sustainability

Approves budget. 22 new posts (19 for IMD and 3 Fund secretariat). 5% reduction to travel expenses

Requests report progress on HR review and policies (governing recruitment, promotion and retention of Fund staff)

Welcomes progress of IPAS

77

Eligibility for early retirement is age 58 for new participants. Early retirement reduction factors for new participants:

For participants with less than 25 years of contributory service: 6 per cent for each year below age 65;

For participants with 25 or more years of contributory service: 6 per cent for each year below age 60, and 4 per cent for each year from age 60 to 64;

The current 1 per cent reduction factor for participants with 30 or more years of contributory service would not be available to new participants.

The updated version of the Fund’s Regulations and Rules has been posted on the Fund’s website http://www.unjspf.org

78

The General Assembly: decided to approve a full time Representative of the Secretary-

General for the management of the assets of the Fund. Approved the corresponding Terms of Reference. Decided not to approve article 19 (c)“(c) In order to assist the Secretary-General in carrying out his or her

responsibilities under these Regulations for deciding upon the investment of the assets of the Fund, the Secretary-General shall appoint, after consultation with the Board, a full time Representative for the Investment of the Assets of the United Nations Joint Staff PensionFund.”

79

Requested the Secretary-General to examine the option of broadening the mandate of the Pension Fund, based on input from the Pension Board, to include the cost-effective, efficient and sustainable administration of after-service health insurance benefits, taking into account the advantages and disadvantages of this option, including its financial and legal implications, without prejudice to the outcome of the examination, and to report thereon at its 70th session;

Underlined that the request above does not prevent the Secretary-General from considering other options.

80

Conclusions

81

The Fund has significantly improved and is in now a good financial and operational situation as a result of very hard work as well as effective guidance and oversight from the Pension Board. However, the Fund cannot remain passive and without continuing to adapt to changes or without continuing to modernize and improve its operations and governance.

The Fund is efficient and compact. The Fund’s number of retirees and beneficiaries continues to grow. The Fund is maturing and its solvency is dependent on reaching 3.5%

investment return. There is greater interdependency of assets and liabilities.

82

The Fund operates in a fast changing and challenging environment. The Fund faces many risks and challenges. Some of these represent high risks affecting the Fund as a whole and some affect certain aspects (investments, IT, operations, etc.)

The Fund needs to continue to modernize and adapt to the changing environment.

The Fund is working to properly address these challenges by strengthening its governance and operations.

This is the busiest time for the Fund in a long time. There is significant progress in many aspects of the Fund.

Continuing with the excellent progress achieved and maintaining the healthy financial and operational situation of the Fund is dependent on all of the Fund’s stakeholders and its main constituent parties advancing together and supporting the Fund in the implementation of the strategies and goals established by the Pension Board.

83

Finally, Fund’s aim is to ensure its retirees and beneficiaries are able to fully enjoy their retirement, secure in knowing that the Fund will be able to pay their benefits accurately and on time.

Documents

Overview of the Fund’s activities