ICSC Section 5.10 Compendium Page 1

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1 Compendium Page 1 CHAPTER 5 PENSIONS SECTION 5.10 PENSIONABLE REMUNERATION rd and 4th sessions: ICSC continued its review of the UN salary system in all its aspects. It recommended that the GA should: (a) adopt, with effect from 1 January 1977, the revised scales of staff assessments, gross and net salary and rates of post adjustment set out in annex VII (or VIII, as appropriate) of its 2nd annual report (A/31/30); (b) authorize the payment to staff members whose total net remuneration would, by the application of these scales, be less than under the existing rules, the difference, as a temporary transitional measure, ICSC being authorized to determine the modalities for the gradual absorption and ultimate elimination of such transitional payments; (c) decide that the existing scale of pensionable remuneration (PR) be maintained temporarily where it was higher than the revised level of PR until such time as it was overtaken by the new level following an adjustment by the movement of the WAPA index; (d) decide that terminal payments which were expressed in terms of base pay should be expressed in terms of PR less staff assessment [A/31/30, para. 247]. ICSC noted that the application of the existing staff assessment rates to GS salaries had resulted, in some localities, in levels of gross salary and of PR which overlapped to a very considerable extent with those of the P category. It concluded that it would have to pay particular attention to the level of GS gross and PR in its further studies of problems of the GS category and might then have to reexamine the rates of staff assessment to be applied to that category [A/31/30, para. 343] In resolution 33/119, the GA approved ICSC's intention to make, as a matter of priority, a comprehensive examination of the functioning, methods of establishment and adjustment and appropriate level of PR, in particular with a view to preparing, in co-operation with UNJSPB, proposals to be submitted to the GA at its 34th session for correcting anomalies in the UN pension system brought about by the current economic and monetary circumstances.

2 Compendium Page th session (February/March): After hearing the views of the working group of UNJSPB as well as those of FICSA, ITU, ILO and GATT, ICSC reviewed the rationale, objectives and characteristics of the UN pension scheme. It reaffirmed the various reasons which had led the UN system to establish its own pension scheme, rather than relying on national schemes to provide post-service coverage for its staff members, i.e. the need to ensure that the equitable treatment of all staff members was not vitiated by differences between various national pension schemes as regards both contributions and benefits; the necessity of maintaining the link, implicit in most pension systems, between employment and pension, between income during employment and pension benefits; the effect on the exclusively international character of the obligations of staff members if they depended on national authorities for their pension; the social responsibility of the UN as an employer [A/34/30, para. 47]. ICSC noted that there were various conceptions of the nature of the pension; for example, that it is a form of deferred earnings, that it is an insurance against certain risks, or that it has characteristics of a social security scheme. It concluded that the UN pension scheme was indeed each of these, but more than all of them, as was noted by the 1960 Pension Review Group (Official Records of the GA, 15th Session, Annexes, agenda item 63, document A/4427, para. 11) [A/34/30, paras. 48 and 49]. In ICSC's view, the central purpose which is common to these different conceptions is to ensure to the staff member when he retires (or becomes disabled or to his survivors if he dies) the maintenance of a proportion of the income he received while in service. That criterion, of the income replacement value of the pension, was seen by ICSC as crucial and had been applied by it in judging the adequacy of various alternative solutions [A/34/30, paras. 50 and 51]. ICSC noted that the measures introduced by the GA from 1 January 1979 on the recommendation of UNJSPB, which concerned the rate of exchange used for the conversion of the initial pension into local currency was, as the Board itself described it, a palliative; it provided a partial cushion against even greater losses which would otherwise be suffered in countries against whose currency the dollar might continue to decline. Only in those countries whose currency depreciated against the dollar will the pensioner be better off than he is in the US; in all other countries (including all the headquarters countries except Canada), the initial value of the pension in local currency would drop back still further in relation to its value in dollars [A/34/30, para. 71]. ICSC did not accept the argument that the resulting pension, however inadequate it might seem to be by other standards, was still adequate by the standards of national civil service pensions in the pensioner's home country; this approach was wholly incompatible with the Noblemaire principle and with the concept of a homogeneous international civil service. The whole salary system was built on the foundation of equal treatment of all staff members, irrespective of nationality; and in the view of ICSC that same principle should consequently apply also to pensions [A/34/30, para. 72]. Given its concern for

3 Compendium Page PR and pension entitlements as part of the overall system of remuneration, ICSC was convinced that the ultimate solution must be based on the principle of equitable treatment of all staff members and of all pensioners [A/34/30, para. 80]. In the same vein, ICSC, conscious of the terms of the third preambular paragraph of GA resolution 33/120, which stated: "No change in the pension adjustment system should entail an increase in the present or future liabilities of Member States", could not submit a recommendation to the GA unless it was able to report fully on its financial implications, both budgetary for the contributions of Member States and actuarial for the resources of the Fund. ICSC could say that the budgetary implications of any of the proposals it might have considered making would not be significant, thus satisfying the stipulation of resolution 33/120. ICSC regretted that up to the close of its 10th session it had been unable to obtain from the Pension Fund any estimate of the actuarial implications of the various alternatives which it was studying. It was therefore prevented from recommending a long-term solution that year [A/34/30, para. 83]. ICSC expressed the opinion that, provided the condition set out below was met, the GA should decide to freeze the operation of the mechanism for adjustment of PR instituted by its resolution 1561 (XV) pending the adoption of a long-term solution. However, ICSC could not recommend the freezing of the WAPA adjustment system - that was, the freezing of PR at its 1979 level - without having been assured that that measure would not be prejudicial to those who were already disadvantaged by the inequitable working of the present system. ICSC therefore considered it indispensable that, concurrently with the freezing of the WAPA adjustment system, an appropriate interim measure should be enacted to prevent the pensions in question from falling below a predetermined minimum level. Such a measure was necessary not only to protect the category of staff members concerned against further inequitable treatment but also to preserve the cohesion of the common system. ICSC could not ignore - nor could the GA - the implications for the common system of the indications given by some of the organizations - in some cases by resolutions adopted by the Governments in the legislative organs of those organizations - that unless action was taken to correct the anomalies of the present pension system, they would feel obliged to take action outside the common system. ICSC expressed the hope that those organizations would continue to show patience if suitable interim measures were adopted while the search for a long-term solution continued [A/34/30, paras ]. As to what the interim measure should be, ICSC noted that, insofar as it would take the form of an adjustment of the initial pensions concerned and would not modify the way in which PR is established, it would fall within the competence of the Pension Board. ICSC further noted that the Board had instructed its Secretary "to study the possibility of interim measures intended to deal with at least some manifestations of the anomalies referred to in the GA resolution on an interim basis". It was informed by the Secretary of UNJSPB of the lines along which he was working in preparing the interim measure which the Board had asked him to prepare [For details see A/34/30, paras ] By resolution 34/221, the GA authorized UNJSPF to implement in 1980 interim measures,

4 Compendium Page 4 recommended in paras. 34 and 39 of the report of ACABQ [A/34/271]. In the same resolution, the GA requested ICSC and UNJSPB to conclude in 1980 their comprehensive examination of the functioning, methods of establishment and adjustment and appropriate level of PR with a view to submitting proposals to the GA at its 35th session for correcting, no later than January 1981, anomalies in the UN pension system brought about by the current economic and monetary circumstances, giving due consideration in the elaboration of those proposals to the fact that the adverse effects of currency fluctuations and inflation could less readily be absorbed by those with smaller pensions than by those with higher pensions and to that end; invited ICSC and UNJSPB to take full account of the views expressed on this and related matters in the Fifth Committee during the 34th session of the GA th session (February/March): ICSC resumed its study of the question of PR in response to the above request of the GA. 12th session (July/August): ICSC decided to endorse the proposal formulated at the UNJSPB session held in Washington, D.C. This rectified to some extent the anomalies created by currency fluctuations by selectively compensating staff members retiring in countries where the cost of living was substantially higher than at the base (New York), while maintaining the universal system of pensions as well as the two-track adjustment system ("Washington proposal") [A/35/30, para. 59]. ICSC further recommended that PR on 1 January 1981 should be: (a) for the P and higher categories expressed as a function of the gross remuneration after consolidation of a number of points of post adjustment taking account of the concurrent revision of staff assessment rates [A/35/30, paras ]; (b) for the GS and other locally recruited categories the gross remuneration derived from a proposed revised scale of staff assessment which would be applied as and when revisions in the salary scales became effective after 1 January 1981 [A/35/30, paras ]. Subsequent adjustments of PR for the P and higher categories would be based on the consumer price index of the USA for the purpose of computing basic dollar pension entitlements and on the WAPA index for the purpose of computing pension contributions [A/35/30, para. 68]. The movement of each index would be measured twice a year, in January and in July. A change in PR would be effected on the following 1 April or 1 October respectively, if the movement amounted to 5 per cent or more of the rates of PR then in effect. The full extent of the index movement would be applied, but with the provision that the rates of PR for contribution purposes could never fall below the rates used for benefit purposes [A/35/30, para. 69] By resolution 35/215, the GA decided to revise the pension adjustment system contained in

5 Compendium Page 5 GA resolution 33/120 (1978), with effect from 1 January 1981, in accordance with the recommendations of UNJSPB contained in section IV C of its report to the Assembly for 1980 and in annex V thereto th session (March): ICSC considered the intention of the ILO DG to present to his Governing Body a complementary pension scheme for P staff. It agreed that: (a) the ILO action would be contrary to the principle of equal pay for work of equal value which was inherent in the Noblemaire principle as used for the determination of remuneration of staff in the P and higher categories; (b) the value of pension benefits in the current UN/US total compensation comparisons would be affected, in-so-far as one organization was concerned, with possible implications for others. ICSC therefore was of the view that the proposed action by ILO would be inconsistent with the goals set by ICSC in the execution of the mandate contained in its statute [ICSC/17/R.28, para. 246]. ICSC noted that the GA, by resolution 36/223 (1981), had called upon the UN/SG, in his capacity as Chairman of ACC, to ensure that adequate measures were taken in promoting uniform and coordinated action in the common system. It further noted that the ILO/DG intended to place the matter of the ILO complementary pension scheme on the agenda of the 1983 first regular session of ACC. It therefore requested the Chairman to convey ICSC's views to the SG, requesting the latter, in turn, to place the full details of ICSC's opinions before ACC [ICSC/17/R.28, para. 247]. 18th session (July/August): The representative of ILO summarized the proposed pension scheme which had been primarily motivated by the premise that the existing retirement benefits for ILO pensioners of the P category failed to achieve an adequate rate of income replacement, particularly for the 70 per cent of ILO officials who retired in high-cost countries. He indicated that the ILO DG would propose to the next meeting of the ILO Governing Body in November 1983 a scheme consisting of a complementary pension payable in all cases on retirement, death or disability, and a compensatory pension payable selectively if the pension paid by the UNJSPF in the country of a pensioner's residence resulted in an income replacement value significantly lower than that achieved for a comparable official retiring in the US. The overall cost of the scheme was estimated at 7 per cent of PR to be shared by the organization (4 per cent) and participants (3 per cent) [A/38/30, para. 182]. ICSC noted that according to the ILO estimate the total cost of its 4 per cent contribution would be in the order of $2 million per annum. It agreed that: (a) the ILO action would be contrary to the principle of equal pay for work of equal value which was inherent in the Noblemaire principle as used for the determination of remuneration of staff in the

6 Compendium Page Professional and higher categories; (b) the value of pension benefits in the current UN/US comparison of total compensation would be affected, in so far as one organization was concerned, with possible implications for others [A/38/30, paras. 185 and 186]. The GA in resolution 38/233 drew to the attention of ILO the strong concern expressed during the 38th session of the GA over the need to maintain the unity, cohesion and integrity of the UN staff pension system and to avoid any action which might have an adverse effect on the said system. In the same resolution, the GA requested ICSC: (a) in cooperation with UNJSPB, to submit to the GA at its 39th session recommendations on the appropriate level of PR for the P and higher categories; (b) in examining the comparative levels of PR in cooperation with the Board, to compare the levels of pension entitlements in the light of all the factors it had brought to the attention of the GA in its 5th annual report, as part of the total compensation comparisons to be carried out within the framework of the Noblemaire principle, and to report thereon to the Assembly by the beginning of its 39th session on the basis of the latest available data in The GA decided that the implementation of any adjustment which may become due in 1984 on the basis of article 54 (b) of the Regulations of UNJSPF should be deferred until the GA, at its 39th session, had considered the recommendations of ICSC and the Board on the level of PR th session (July): ICSC was informed that, at the 38th session of the GA, the Fifth Committee had considered a comparison of the PR amounts applicable to P and higher level staff in the UN system in 1971 and 1983 with the corresponding amounts applicable to employees of the federal civil service of the US for the same years. ICSC noted the concern expressed by some members of the Fifth Committee that the PR amounts for the federal civil service employees had increased by between 93 and 108 per cent for the period from 1971 to 1983 as against a corresponding increase of between 218 and 234 per cent in the same period for UN officials [A/39/30, para. 24]. It expressed the view that this type of comparison was inappropriate for various reasons [A/39/30, para. 26]. ICSC also recognized substantial differences in the way the two systems were funded [A/39/30, para. 30]. ICSC was of the view that direct comparisons of the amounts of PR in the US federal civil service and those applicable to UN officials in grades P-1 and above should be avoided. It further agreed that if there were significant differences in the levels of pension benefits calculated within the framework of total compensation comparisons, it would then undertake further studies [A/39/30, para. 31]. ICSC decided to take an approach to comparisons of UN/US pension which would enable it to determine the appropriate levels of PR for UN officials in the P and higher categories in a manner 1984 consistent with its comparisons of the other elements of compensation in the two civil services. Specifically, it agreed to the following approach: (a) the information provided by

7 Compendium Page 7 the US Government indicated that the average length of service for US federal civil service employees in grades GS-9 through GS-18 and SES grades 1 through 6 who had earned pension annuities was approximately 27 years. Therefore the average pension applicable to US federal civil service employees was calculated on the basis of an average length of service of 27 years. The average PR (average gross salaries) applicable for each one of these grades over the period 1 January to 31 December 1984 had been used in the exercise; (b) the relationships of the average pension for each grade calculated under (a) above to the net salaries over the period 1 January to 31 December 1984 were then determined [A/39/30, para. 38]. Following that approach ICSC recommended to the GA a new scale of PR for staff in grades P-1 through USG with effect from 1 January 1985 [A/39/30, para. 46, and annex VI]. Staff in service prior to 1 January 1985 whose PR on 31 December 1984 was higher than the amount applicable as of 1 January 1985 would retain their PR as at 31 December 1984, until such time as it was overtaken by the new scale adjusted in the manner described below. For staff members receiving promotions or step increases after 1 January 1985, the PR amount determined in accordance with the new scale should be compared with the amount applicable as at 31 December 1984, and the higher of these two amounts should be used [A/39/30, para. 47]. ICSC noted the concern expressed by some Fifth Committee members with regard to the procedure used for automatically adjusting the levels of PR of staff in the P and higher categories. It recalled that, prior to the recommendation of the current WAPA/CPI mechanism to the GA, ICSC had had an opportunity to consider various relevant issues after close consultation with the Pension Board. If ICSC were to re-examine the automatic adjustment procedure at its current session, it would not have had the benefit of the views of the Pension Board in this regard. As changes in the adjustment procedure would have serious implications for the Board, it would be essential for ICSC and the UNJSPB to have close consultations on the matter. ICSC therefore decided to inform the GA that it had addressed the Assembly's concern to the extent possible and practicable within the time assigned by it, and that if the GA wanted ICSC and the Pension Board to re-examine the adjustment procedure, it might wish to request these two bodies to undertake studies in this regard and report thereon to the Assembly at its 40th session. ICSC, nevertheless, decided to bring to the attention of the GA that the adjustment mechanism should be examined at the time of the next comprehensive review of PR amounts for staff in the P and higher categories. By that time the dual adjustment mechanism would have been in effect for a sufficiently long period of time to permit conclusions regarding its operation to be drawn [A/39/30, para. 51].

8 Compendium Page ICSC proposed to the Pension Board that the dual mechanism for adjusting PR amounts between comprehensive reviews should continue to be used with the following modifications: (a) in the procedure outlined in the 10th annual report (A/39/30, paras. 38 to 46) a comparison of gross pension benefits to UN officials was made with the corresponding amounts of net remuneration at the base of the system, New York. For adjusting the PA classification of New York, CPI data applicable to that city were used. In view of this, for adjusting PR amounts for benefit purposes the New York CPI should be used rather than the US CPI which had been in use since 1 January 1981; (b) adjustments to PR amounts should be made on 1 April of each year on the basis of movements of WAPA and CPI as of the preceding 1 January [A/39/30, para. 52]. The base date of 1 January 1985 should be used for the determination of the movements of WAPA and CPI. The first adjustment to the amounts of PR proposed in annex VI (A/39/30) should be made on 1 April 1986, provided an increase in accordance with the adjustment procedure was called for on the basis of the movement of WAPA or CPI readings taken on 1 January 1986 [A/39/30, paras. 52 and 53]. ICSC reminded the GA that the last adjustment to the levels of PR for P and higher category staff had been made on 1 October 1982 in accordance with the procedure approved by the GA for adjusting PR amounts. The US/CPI as of 1 July 1982 had been used to effect this increase. ICSC considered two possibilities with regard to the forthcoming increase. It noted that some organizations of the common system had provisions identical to those of article 54 (b) of the Pension Fund Regulations in their staff regulations. Consequently, if the GA were to decide that the forthcoming increase in PR amounts in accordance with article 54 (b) were not to be granted in view of ICSC's recommendations concerning appropriate levels of PR, these organizations would nevertheless have to implement the forthcoming increase. Thus, current amounts of PR would be applicable to staff working for some organizations of the common system while higher amounts would be applicable to others working for organizations where the adjustment mechanism is a part of the staff rules. ICSC was of the view that this would be most damaging to the unity of the common system [A/39/30, paras. 55 and 56]. On the other hand, if PR amounts were increased, while for some staff members the resulting levels would be higher than those considered to be appropriate this would be only a temporary phenomenon. ICSC therefore held that the forthcoming increase in the levels of PR for P and higher category staff resulting from the application of article 54 (b) of the Pension Fund Regulations should be implemented [A/39/30, paras. 60 and 61]. In resolution 39/246, the GA: (a) approved for implementation with effect from 1 January 1985 for all staff members in the P and higher categories in the member organizations of the Fund, the scale of PR recommended by ICSC; (b) noted from para. 53 of the 10th annual report of ICSC (A/39/30) that no interim adjustment of the scale was contemplated in 1985; (c) requested ICSC, in cooperation with UNJSPB, to re-

9 Compendium Page examine the procedure for adjusting PR between comprehensive reviews, taking into account the views expressed in the Fifth Committee, and to report thereon to the GA at its 40th session, and in the meantime suspended the operation of the adjustment procedure in article 54(b) of the Regulations of the UNJSPF and deferred until its 40th session, pending further consideration of the recommendation of the Pension Board regarding amendment of the said article; (d) requested ICSC, in cooperation with UNJSPB, taking into account the views expressed in the Fifth Committee, to review the methodology for the determination of PR for the P and higher categories and for monitoring the level of PR, and to submit a report thereon to the GA at its 40th session, so that the Assembly could consider whether it would be appropriate to request ICSC to propose a new scale of PR to its 41st session; (e) invited all member organizations of UNJSPF to take the necessary measures to implement the above provisions nd session (July): ICSC recalled that when it had recommended the methodology that was used to arrive at the revised scale of PR, it had also indicated that a number of elements were taken into account in determining the levels of PR. Changes in one or more of these factors could affect the outcome of the calculations substantially. It would, therefore, be essential for ICSC to monitor these factors on a continuous basis and report thereon to the GA as appropriate [A/40/30, para. 17]. ICSC agreed that, irrespective of whether it addressed the issue of the methodology on the basis of information on the revised civil service retirement scheme (CSRS) applicable to US federal civil service employees, it would be essential for it to address the concerns expressed by the GA and report thereon to the Assembly at its 41st session [A/40/30, para. 24]. ICSC also considered the issues of: (a) reflection of the expatriate margin in the amounts of PR; (b) reflection of the cost-of-living differential between New York and Washington, D.C.; (c) application of extrapolated ratios at the ASG and USG levels; adjustments for differences in the lengths of service; and the procedure for adjustment of PR in between comprehensive reviews. It decided to revert to all these matters in In resolution 40/245 (Report of UNJSPB), the GA: (a) took note of chapter II of the report of ICSC and section III.C.5 of the report of UNJSPB; (b) requested ICSC, in cooperation with UNJSPB, to: (i) carry out a comparative study of the levels of pension benefits and the ratios of pensions to salaries under the UN pension scheme and that of the comparator country; (ii) complete its review of the methodology for the determination of PR for the P and higher categories, for monitoring the level of PR and for adjustment of PR in between comprehensive reviews, taking into account the margin range established for net remuneration, the views expressed at the current session, including those concerning the evolution of the levels of PR and pensions in recent years and the different characteristics of the two services, and to submit its recommendations to the GA at its 41st session; (c) deferred until its 41st session further consideration of the recommendation of UNJSPB regarding amendment of article 54(b) of the Regulations of

10 Compendium Page UNJSPF contained in the Board's report for 1984 and in the meantime extended the suspension of the operation of the adjustment procedure in the said article rd and 24th sessions (March and July): ICSC considered the above GA request. It agreed that, while some or all of the factors taken into account in the net remuneration margin would also be applicable in the context of PR, there might well be a difference in the relative importance of their values. ICSC therefore agreed to recommend a margin range of between 110 and 120 with a desirable mid-point of 115, around which the margin between the UN/US PR amounts should be maintained over a period of time [A/41/30, para. 23]. In summary, the approach which ICSC agreed to pursue to arrive at the scale of PR for recommendation to the GA could be translated into the procedure outlined below: (a) net remuneration amounts (net base salary, plus PA at the current level of multiplier 43 at the dependency rate) were calculated for UN officials in grades P-1 to D-2 in New York; (b) 96 per cent of the net remuneration amounts in (a) above were calculated; (c) per cent of the adjusted net remuneration amounts referred to in (b) above were calculated at all grades and steps; (d) the amounts in (c) above were grossed up by the reverse application of the scale of staff assessment for those with dependants as shown in annex I to the annual report [A/41/30]. The resulting amounts represented gross pension benefits that would be earned after 25 years of contributory service; (e) PR amounts that would produce gross pension benefits in (d) above after 25 years of service were calculated using the formulae below: (i) the gross pension benefit after 25 years of service equals PR multiplied by divided by 100; (ii) therefore, PR equals the gross pension benefit after 25 years of service multiplied by 100 divided by [A/41/30, para. 29]. According to the proposed scale, the PR of a D-2, step IV, would be $88,308. The maximum pension benefit of a D-2, step IV, (after 35 years of service) would be $88,308 multipled by of $58,504. Hence, one limit on the pensions of ASGs and USGs would be $58,504. ICSC was of the view that it would be possible to arrive at a PR amount for ASGs/USGs such that the second condition also produced the same figure. In that regard it noted that if the PR amount for both ASGs and USGs were fixed at $97,507, then 60 per cent of that amount would result in a pension of $58,504 and hence both conditions laid down by the GA would produce the same result. ICSC was of the view that an amount equal to the pension benefit of a D-2, step IV, with 35 years of service was a reasonable retirement benefit. It therefore agreed that a PR amount of $97,507 for both ASGs and USGs could be considered to be reasonable [A/41/30, para. 36].

11 Compendium Page ICSC recalled that, in its 11th annual report [A/40/30], it had indicated that the interim adjustment procedure used for adjusting PR amounts should be compatible with the procedure used for determining those amounts as at the base date. The methodology ICSC decided to pursue to arrive at the scale of PR established a certain relationship between net remuneration of UN officials in New York and their pension benefits. A reasonable relationship between PR amounts for the officials of the two services within the limits of the range for the PR margin, as defined by ICSC above, was also established as at the base date. It therefore stood to reason that the interim adjustment procedure used for adjusting PR amounts between comprehensive reviews should maintain, grosso modo, the above-mentioned relationships for at least a reasonable period of time, for example, five to ten years until the next comprehensive review. If the relationships established by ICSC were acceptable to the GA and if those relationships were maintained, at least for the foreseeable future, it would obviate the need for frequent reviews. Bearing this in mind, ICSC proposed the following interim adjustment procedure for the Assembly's approval [A/41/30, para. 39]. The scale of PR amounts in annex III of the annual report, if approved by the GA, would become effective as at 1 April Beginning as of the base date of 1 April 1987, PR should be adjusted on the same date as net remuneration in New York. Noting that remuneration was adjusted on a net basis while PR was determined and must, therefore, be adjusted on a gross basis, ICSC was determined that every 5 per cent movement of the scale of PR would require a 4.1 per cent adjustment of the net remuneration amounts in New York [A/41/30, para. 40]. ICSC recommended to the GA that it should approve: (a) the range for the PR margin as set forth above; (b) the methodology for the determination of PR of UN officials in grades P-1 through D-2, as outlined above; (c) the procedure outlined above for the determination of PR amounts at the ASG and USG levels; (d) the scales of staff assessment contained in annex I of the ICSC report for implementation with effect from 1 April 1987; (e) the scale of PR amounts for the P and higher categories, contained in annex III, for both benefit and contribution purposes for implementation with effect from 1 April 1987; (f) the interim adjustment procedure for adjusting PR amounts between comprehensive reviews, as outlined above [A/41/30, para. 44]. Implementation of the scale of PR recommended by ICSC would represent a reduction in costs of some $11.83 million per annum for all organizations and all sources of funds [A/41/30, para. 45]. The recommendations of ICSC deviated from those of UNJSPB. The GA therefore settled, in resolution 41/208, for a scale of PR in between the one recommended by ICSC and that by UNJSPB. The GA stated, inter alia, that the establishment of clearly defined criteria for the determination of PR for the P and higher categories and the

12 Compendium Page introduction of a new scale based on such criteria would contribute to a period of stability, which was essential for the common system; that in order to achieve this goal full cooperation between ICSC and UNJSPB and adequate reflection of the views of all parties concerned were necessary; recognized that there was a need, within the framework of the ICSC recommendations to take into account the reservations of UNJSPB; having examined the ratios of pension benefits to final net remuneration and the levels of pension benefits, on a gross and net basis, for UN officials and officials of the comparator service; taking into account the following elements relating to the structure of a scale of PR for the common system: (a) the introduction of a new scale of PR should not, except for the transitional measures, have any significant adverse actuarial impact on UNJSPF; (b) the scale of PR for the P and higher categories should be determined in relation to pension benefits earned after 25 years of service and should take into account: (i) income replacement ratios of net pension benefits (calculated as gross pension minus staff assessment) to net remuneration for UN officials in New York at different grades and steps; (ii) income replacement ratios of gross pension benefits to net remuneration for UN officials in New York at different grades and steps; (c) the scale should not create distortions upon promotion; (d) PR for the USG level should continue to be higher than that for the ASG level. The GA: (a) approved, for implementation with effect from 1 April 1987 for all participants in the P and higher categories in the member organizations of UNJSPF, the scale of PR set out in the appendix to the annex to its resolution; (b) approved the procedure for adjusting PR in between comprehensive reviews, as described in para. 40 of the ICSC report; (c) approved the transitional measures in respect of final average remuneration as recommended in the report of UNJSPB; (d) requested ICSC, in cooperation with UNJSPB to monitor regularly the PR for staff in the P and higher categories of the UN and that of US federal civil service employees in comparable grades, and to report thereon to the GA as appropriate; (e) requested ICSC to undertake, in full cooperation with UNJSPB, a further comprehensive review of the methodology for the determination of the scale of PR for the P and higher categories, for monitoring the level of the scale and for its adjustment in between comprehensive reviews and to present its recommendations thereon to the GA at its 45th (1990) session th session (August): ICSC recalled that the scale of PR for staff in the P and higher categories was adjusted on the basis of the weighted average percentage movement in New York net remuneration multiplied by a factor of 1.22 (representing the ratio of gross to net salary movements). ICSC noted that the UN/US PR ratio had widened from when the April 1987 scale was adopted to in May This was due primarily to two factors: (a) the increase in the Washington/New York cost-of-living differential from 4.5 per cent in 1986 to 12.1 per cent in May 1989; and (b) the 1.22 multiplicative factor [A/44/30, paras. 29 and 31].

13 Compendium Page ICSC also noted that US federal income tax brackets were now adjusted once a year for inflation. Consequently, salary increases corresponding to cost-of-living increases were no longer taxed at a higher rate and the percentage increases in gross and net salary were virtually the same. This suggested that the use of the 1.22 multiplicative factor to derive the percentage increase in UN PR from the percentage increase in New York net remuneration was no longer justified. In reviewing this issue, ICSC further observed that income replacement ratios for UN staff had remained very close to their level when the GA approved the PR revised scale. In the light of the foregoing, ICSC considered whether a modification should be made in the current PR adjustment procedure, pending completion of the review of PR scheduled for It examined four alternative courses of action: (a) that no change be made at this time in the existing adjustment procedure; (b) that any adjustment in PR due before completion of the 1990 review be made without application of the 1.22 factor, consideration of any further modification being deferred until 1990; (c) that, together with the modification in (b) above, the next upward adjustment in PR be reduced by 2.8 percentage points in order to remove the past impact of the 1.22 factor; and (d) that the current adjustment procedure be suspended, pending completion of the 1990 review [A/44/30, vol. I, paras ]. On balance, ICSC, by a majority, agreed to recommend option (c). It therefore recommended to the GA that any adjustment in PR due before completion of the scheduled 1990 PR review be made without application of the 1.22 multiplicative factor. It also decided that the first such adjustment should be reduced by 2.8 percentage points in order to remove the past impact of the 1.22 factor. ICSC further decided to consider the issue of PR levels on an annual basis and to report thereon to the GA [A/44/30, vol. I, para. 42]. ICSC noted the arrangements approved by the Pension Board for the comprehensive review of PR to be carried out by ICSC in close cooperation and consultation with the Board. It further noted that the Board had decided to establish a Preparatory Working Group, consisting of six members acting in their individual capacities, two from each of the constituent groups in the Board. ICSC was informed that the Chairman of the Pension Board had formally requested ICSC through its own Chairman to designate ICSC members to join the group so that it would become a joint Preparatory Working Group. ICSC decided to designate three of its members to participate in their individual capacities in the deliberations of the Preparatory Working Group. It also decided to invite a delegation designated by the Pension Board to attend the ICSC session in July 1990 to participate in the work of ICSC on this matter [A/44/30. vol. I, paras. 50 and 51].

14 Compendium Page ICSC was informed that UNJSPB at its 38th session had decided to inform ICSC and the GA that it had initiated a preliminary review of a number of methodological issues, with the expectation that ICSC would be placing on its work programme for 1990 a comprehensive review of the PR and consequent pensions of staff in the GS and other locally recruited categories. ICSC decided that in view of the importance of the subject it would place the matter on its programme of work for 1990 [A/44/30, vol. I, para. 53]. By resolution 44/199, the GA approved the modification of the procedure for adjusting PR st session (March): ICSC decided: (a) to undertake, as a priority issue, a comprehensive review of PR and consequent pensions for staff in the GS and related categories in close cooperation and consultation with the UNJSPB in 1991; (b) to establish a joint preparatory working group of three members of ICSC and six members of the UNJSPB, with FISCA and CCISUA each designating one member; (c) to give the working group a mandate to review the preliminary analysis prepared by the secretariats of ICSC and UNJSPB and to develop the documentation for submission to the first meetings in 1991 of ICSC and the Board respectively; (d) to invite a delegation designated by the UNJSPB to attend ICSC's August 1991 session, so as to facilitate efforts to arrive at mutually agreed recommendations for submission to the GA at its 46th session [A/45/30, paras. 50 and 55]. 32st session (July/August): ICSC noted that at its June 1990 session, the UNJSPB had deferred a decision on the desirability of a PR margin range. The UNJSPB Chairman stated the view of some Board members that at best, a PR margin range was unnecessary. Other Board members, however, were prepared to concur with the establishment of a PR margin range [A/45/30, para. 23]. ICSC reaffirmed its view on the need for stability of PR and pensions, and that the income replacement approach should be retained as the cornerstone of the methodology for determining PR. The relationship of PR for UN officials and PR for US civil servants had to be kept in mind, but without a clearly defined and approved margin range this was not enough. There needed to be maximum and minimum levels, and the range should be established in a manner consistent with that used for the net remuneration margin [A/45/30, paras. 31 and 34]. ICSC recommended to the GA that: (a) income replacement in New York should continue to be used as the basis for the methodology for the determination of PR for staff in the P and higher categories. The relationship between PR amounts for UN officials and for their counterparts in the US federal civil service would also have to be borne in

15 Compendium Page mind; (b) the methodology used to establish the 1 April 1987 scale of PR should continue to be used in future; (c) a revised scale of staff assessment should be used in future for the determination of PR for staff in the P and higher categories; (d) the interim adjustment procedure, as amended by the GA at its 44th session, should be continued; (e) the margin range of applicable to net remuneration should also apply for PR; (f) a new procedure should be used for the calculation and reporting of the PR margin; (g) on each occasion the PR margin was calculated, the income replacement ratios applicable over the three-year period ending as on 31 December of the margin year would also be calculated for both the comparator and the UN system and reported to the GA; (h) following a review of the PR margin and the income replacement ratios, ICSC in cooperation with UNJSPB would make appropriate recommendations to the GA, particularly when the PR margin had reached, or was forecast to reach the upper or lower limit of the margin range, as long as the authority for such action rested with the GA; (i) bearing in mind the considerations in (h) above, the scale of PR for staff in the P and higher categories staff in effect as of 31 December 1990 should be used to make adjustments in accordance with the existing provisions of article 54 (b) of the Pension Fund Regulations falling due after 1 January 1991 [A/45/30, para. 38]. Pending action by the GA on the above recommendations, ICSC calculated the PR margin in accordance with its proposed procedure. It decided to take note of the PR ratios of and with or without the cost-of-living differential respectively, based on the average remuneration amounts applicable for the period 1 January to 31 December ICSC also noted that the income replacement ratios based on the average PR amounts applicable over the period 1 January 1988 to 31 December 1990 and corresponding to 25 years of service, were 56 and 58 for the UN and the comparator civil service, respectively [A/45/30, paras. 42 and 43]. By resolution 45/542, the GA approved the recommendations made by ICSC and the UNJSPB for the determination of the scale of PR of staff in the P and higher categories, for monitoring the level of the scale and for its adjustment between comprehensive reviews. The GA also requested ICSC, in full cooperation with the Board, to undertake in 1995 a further comprehensive review of the methodology for the determination of the scale of PR of staff in the P and higher categories, for monitoring the level of the scale and for its adjustment between comprehensive reviews and to submit recommendations thereon to the GA at its 50th session (1996). By the same resolution, the GA noted the intention of ICSC and UNJSPB to undertake a comprehensive review of PR of staff in the GS and other locally recruited categories, and requested ICSC, in full cooperation with the Board, to submit recommendations to the GA at its 46th session.

16 Compendium Page rd session (March): ICSC began its comprehensive review of PR and consequent pensions for the GS and related categories in line with its commitment to the GA as noted in resolution 45/242. It considered a series of documents (ICSC/33/R.8 and addenda) dealing with this issue as reviewed by the joint ICSC/UNJSPB preparatory working group. The effects of the application of two separate grossing-up procedures for the P and higher categories and for the GS and related categories and the use of separate scales of staff assessment on the levels of PR resulting from the same amounts of net remuneration were analysed in the documentation. A number of alternative approaches to the procedure currently being used for determining GS/PR, as well as the advantages and disadvantages of those alternatives, were also provided. The ICSC secretariat had dealt with the issue of the staff assessment rates for the GS category using the revised staff assessment scale based on the methodology used by ICSC in ICSC decided that its secretariat should convene a working group with the participation of the representatives of the organizations and staff to address the questions raised as regards the application of the 1986 methodology on the GS staff assessment rates. The views of the working group would be presented to ICSC at its 34th session [ICSC/33/R.16, para and 86]. 34th session (August): ICSC continued to monitor the PR for staff in the P and higher categories of the UN system and that of the US federal civil service employees in comparable grades. It decided to report to the GA; (a) estimated PR ratios of and 130.3, with and without cost-of-living differential, respectively, based on the average remuneration amounts applicable for the period 1 January to 31 December 1991; (b) that the average income replacement ratios based on the average PR amounts applicable over the period 1 January 1989 to 31 December 1991 and corresponding to 25 years of service were 55 and 57 for the UN and the comparator civil service, respectively [A/46/30, vol. I, paras. 46 and 50]. Following a detailed examination of the information before it, and in particular preliminary data pertaining to the pension schemes of outside employers at selected duty stations, ICSC concluded that the study concerning GS/PR and pensions was bound to be a complex and time-consuming exercise. It therefore decided to recommend to the GA that a step-by-step approach to the matter be taken: (a) for the present ICSC would bring to the attention of the GA the scope of the problem and the complexities involved. Pending the completion of further studies, the current methodology for the determination of PR would continue to be used. In this connection, ICSC was recommending a revised staff assessment scale to be used for determining the PR of the GS and related categories with effect from 1 January 1992 (see also section ); (b) the ICSC and UNJSPB secretariats would undertake a study of local practices as regards pensions. Pension

17 Compendium Page practices of outside employers used in the context of GS salary surveys at three Headquarters and three major field offices would be studied with the help of actuaries. The findings of the two secretariats would be submitted to ICSC and the Board in 1992; (c) concurrently, the secretariats of ICSC and UNJSPB would collect all relevant data concerning the introduction of the income replacement approach in conjunction with local taxes, for consideration by ICSC and the Board in 1992; (d) a progress report on the local practice study would be submitted to ICSC at its spring 1992 session. On the basis of that progress report ICSC would decide on the advisability of pursuing the local practice approach; (e) on the basis of the final reports from the two secretariats concerning the above studies and in close cooperation and consultation with the Pension Board, ICSC would formulate its final recommendations concerning the methodology to determine PR and consequent pensions of GS and related categories of staff for submission to the GA at its 47th session [A/46/30, vol. I, paras. 72 and 84]. As to the implementation of the revised scale of staff assessment, ICSC agreed that the modalities used at the time of the introduction of the current scale, effective 1 January 1987, should be used. ICSC noted that in order to undertake comparisons of pension benefits provided by the outside employers used in the surveys of best prevailing conditions of employment for the GS staff with those provided by the UN system, services of actuarial consultants would have to be retained. On the basis of preliminary information obtained by the ICSC secretariat, ICSC considered that consultancy fees to carry out such studies involving 6 duty stations could amount to some $80,000 [A/46/30, vol. I, para. 89]. ICSC decided to request the GA to: (a) endorse the phased approach to the completion of the comprehensive review of PR and consequent pensions of the GS and related categories of staff, as outlined above; (b) approve, for the GS and related categories of staff, a revised scale of staff assessment rates for implementation from 1 January 1992 in accordance with the modalities outlined above (see also section ); (c) approve the budgetary allocation of $80,000 for consultancy fees required to carry out the studies outlined above. By resolution 46/191, the GA endorsed, with effect from 1 January 1992, the staff assessment scale and the modalities for its implementation for staff in the GS and related categories. In resolution 46/192 (UN pension system), the GA: (a) concurred with the ICSC and UNJSPB conclusions that further studies were required of possible alternative methodologies in order to determine the most equitable solution for all parties concerned, including in particular studies of the feasibility of determining PR and/or pensions by reference to the local practices of employers used in GS salary surveys, of the income