News

A Brief History of the 0.5 per cent reduction factor

09/10/2024

In 1985, the Pension Fund was seriously underfunded so adjustments were made to increase the funding level. Most of the changes that were made would only affect future employees, including requiring them to work longer by increasing the normal retirement age from 60 to 62 years. Also, the rate of accumulation of benefits was decreased from 2 per cent to 1.5 per cent per year of service.  Both of these changes only impacted the next generation of workers, so as a matter of intergenerational equity, it was decided to impose some of the cost of restoring full funding to current employees.  Instead of reducing pension benefits outright, it was decided that there would no longer be 100% cost-of-living adjustments.  Instead, initial pension benefits would be adjusted by the rate of inflation minus the reduction factor of 1.5 per cent.

Eventually, the funding level improved and by 2004, the Pension Board decided to recommend a phased approach to reducing the 1.5 per cent deduction from the initial cost-of-living increase. As a first step, it recommended to the General Assembly that the reduction be reduced from 1.5 per cent to 1.0 per cent, with a 0.5 per cent one-time uplift applied to existing pension benefits. In resolution 59/269, the General Assembly subsequently approved this phased approach with effect as of 1 April 2005.

In 2006, after a fifth consecutive actuarial surplus for the Fund, the Pension Board recommended that as of 1 April 2007, the reduction in the first consumer price adjustment to benefits be reduced from 1.0 per cent to 0.5 per cent, again with a 0.5 per cent uplift to existing benefits in payment. The General Assembly approved the recommendation in resolution 61/240.

Since 2006, the Pension Board has periodically considered eliminating the remaining 0.5 per cent reduction factor. In 2010, the Pension Board decided that elimination of the final 0.5 per cent reduction factor should be for priority consideration. Unfortunately, the actuarial surplus had fallen from 2.30 per cent of pensionable remuneration as of year-end 2021 to 0.68 per cent of pensionable remuneration as of year-end 2023. The Plan Review Group took into consideration the actuarial valuation results as of 31 December 2023 in its final report to the Pension Board in July of 2024 (JSPB/78/R.13) and concurred with the Committee of Actuaries that the present funded status of the UNJSPF did not support any proposal that would impose a cost to the Fund at this time.

In concluding their report to the UNJSPF Board session this July, the Plan Review Group recommended that the Board remain seized of the 0.5 per cent reduction factor and requested the Committee of Actuaries to continue to study this (and related items) in conjunction with the next actuarial valuation of the Fund as of December 2025, or subsequent valuations, for the Board’s ongoing consideration. The Board approved the Plan Review Group’s recommendation that the Board remain seized of the 0.5 per cent reduction factor.

Facebook
Twitter
Pinterest
LinkedIn

More News

NOTE D’INFORMATION NUMÉRO SPÉCIAL AN XX

NOTE D’INFORMATION N° 32 DU 30 JUIN 2024

BOLETIM AAFIB 150 JULHO / AGOSTO / SETEMBRO 2024