Overview of the Fund’s activities

1. Overview of the Fund’s activities May 2014

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

3. Key messages 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. Key messages 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. Key messages 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. Key Messages 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. Actuarial Deficit • 31 December 2009 – 0.38 per cent of p.r. • 31 December 2011 – 1.87 per cent of p.r.

10. Actuarial Valuation

11. Assumptions • 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. Actuarial Deficit • 31 December 2009 – 0.38 per cent of p.r. • 31 December 2011 – 1.87 per cent of p.r. • Deficit still under the actuarial safety-margin

13. Actuarial Valuation

14. Current Actions Regarding Sustainability • Change in Normal Age of Retirement to 65 and 58 for early retirement for new staff (1/1/2014) • 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.) • ALM Committee • Risk appetite, risk tolerance, review of investment policy • Full-time RSG terms of reference

15. Contributions and Benefit Payments Gap

16. Financial Statements 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. Actuarial Valuation – Cash Flow • 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. Market Value of Investments The market value of investments as of 31/12/13 was 51.3 bn USD

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

20. Change In Required Contribution Rate 20

21. Actuarial Deficit • 31 December 2009 – 0.38 per cent of p.r. • 31 December 2011 – 1.87 per cent of p.r. • Deficit still under the actuarial safety-margin • A change of trend is expected for the 2013 valuation

22. Actuarial Valuation

23. Funded Ratio

24. Key indicators

25. Participants, retirees and beneficiaries • 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 25

26. Active Participants and Benefits in Payment 2004-2013 • Over the last 10 years the population serviced by the Fund has grown by approximately 33% 69,980 120,294 *2013 data are estimates

27. Active Participants and Benefits in Payment 2004-2013 69,980 120,294 *2013 data are estimates

28. Projected Number of Retirees and Beneficiaries • In less than a decade, the number of retirees and beneficiaries will reach 90,000

29. Number of complex cases serviced Benefits processed after the initial separation from active service

30. Documents scanned, indexed and serviced (Total Fund)

31. Certificates of Entitlement

32. Website Statistics Total User Sessions Over ½ million sessions • In 2013 the number of recorded website sessions was 576,000 up 15% from 2012

33. Market Value of Assets • 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 33

34. Fund’s numbers 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. Changing Environment • 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 (driving changes in Member Organizations’ systems and increased demand for self-service options, etc.)

37. Changing Environment • Catastrophic events that affect retirees or beneficiaries or the Fund’s operations; • Possible aberrations in relationship of inflation and foreign exchange; • More volatile financial markets (which have a significant impact on a maturing Fund since there is a growing interdependence of assets and liabilities); • Pressure to do more with less – difficult economic conditions (need for increased efficiency); • Changes in demographic factors (i.e. early retirement rates, longevity, participation, etc.)

38. Illustrative example – Other public DB schemes

39. Illustrative example: US-GAO 2012 Report on Pension Plans 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. Changing Environment • 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. Main activities and initiatives • IPAS • Strengthened Governance and Operations • ALM Committee • Statement of Internal Control • Other initiatives • Financial Statements • Audit

43. Main activities and initiatives Integrated Pension Administration System (IPAS)

44. IPAS • 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. IPAS • All hardware has been modernized and standardized. • All of the Fund’s processes have been re-designedand 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. Assessment

46. Main activities and initiatives Strengthened Governance and Operations

47. Strengthened Governance • 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. Strengthened Operations 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. Strengthened Operations 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 • 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