Ensuring that the Fund can continue to pay benefits over the long-term is of primary importance to the Board, clients and wider stakeholders.  Like most other defined benefit pension plans, the Fund’s solvency is monitored through two key studies:

• A biennial actuarial valuation
• An asset-liability management (ALM) study, which is usually carried out every four years

These studies and other actuarial matters in the Fund are supported by the Committee of Actuaries, comprising an international group of independent volunteer actuaries, with actuarial services provided by the Consulting Actuary, as set out in the Fund’s Regulations.

The Fund’s actuarial valuation is undertaken using various economic and demographic assumptions to model the future and associated uncertainties.  This values current and future liabilities, for comparison against current and projected assets.

The actuarial valuation considers the Fund from different perspectives, including:

• An open group valuation: Assumes the Fund would be run into perpetuity with a continuous influx of new participants. The key metric from this valuation is the required contribution rate, which is the theoretical contribution rate that maintains a balance between liabilities and assets over the long term.  This is the primary measure for the overall health of the Fund in remaining open to existing and new participants.
• A closed group valuation: Assumes that the Fund is closed immediately. In common with many national pension fund regulations, this is a valuation that is required under the Fund’s own Regulations. The key metric from this valuation is the funded ratio and provides a view of the Fund’s ability to meet its obligations if it were to be closed to all participants.

With liabilities extending over an average of 40 years into the future, it is also important to note that the actuarial valuation takes a long-term view of the Fund’s assets.  Short term market fluctuations in assets are smoothed.  This minimises the risk of the long-term assessment being distorted by short-term capital market movements (both up and down) that should not impact the Fund’s ability to meet its obligations.

Recent actuarial valuation results

Open group valuation: The 2021 actuarial valuation resulted in a required contribution rate of 21.4% of pensionable remuneration, which compared against the current actual contribution rate of 23.7%, equated to an actuarial surplus of 2.3% of pensionable remuneration.  The following diagram shows recent historical results.

Closed group valuation: The 2021 valuation resulted in a closed book valuation of US$70,873.8 million in accrued benefit liabilities, as compared with an actuarial value of assets of US$82,911.7 million. This equates to a funded ratio of 117.0%, with the historical funded ratios summarised below.

Every four years, the Fund undertakes an ALM study using an expert, external consultancy firm. The goal of the study was to assess the impact of key investment and solvency-related decisions (such as the funding policy) on the long-term financial condition and performance of the UNJSPF. A key objective of the study was to recommend strategic asset allocations that would improve the long-term financial outlook of the Fund.

The 2023 ALM study considered various scenarios for the future, including scenarios that incorporated climate risk. The Board took note that, under a baseline scenario with moderate growth and a suitable asset allocation, the Fund should still expect the required contribution rate to remain within a targeted range of 21.7 per cent to 25.7 per cent of pensionable remuneration. This means that the current contribution rate would remain adequate under that scenario. Another scenario considered the impact of a financial crisis arising from a failure to transition to Net Zero. This scenario would be more challenging for the Fund, and it is important that the Fund continues to monitor the impact of climate risk over the long term. The ALM study provides crucial insight for the Fund’s Office of Investment Management in developing its future strategic asset allocation, with an emphasis on continued risk management to ensure long-term sustainability of the Fund.

The previous ALM study from 2019 is available here.

At its 66^th session in 2019, the Board agreed that a Funding Policy should be developed to document the Fund’s funding and risk management process. The purpose of the UNJSPF Funding Policy is to assist in ensuring that the Fund’s obligations to beneficiaries can be met over the long-term. The policy sets out the methods, processes and targets that are used to monitor the funding position and associated risks. The Board approved the Funding Policy, which includes a funding target of maintaining the required contribution rate within a range of 21.7 per cent to 25.7 per cent of pensionable remuneration.