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CM(2008)148corrE  / 04 November 2008 

Ministers’ Deputies
CM Documents

CM(2008)148 16 October 20081
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1042 Meeting, 25-27 November 2008

11 Administration and Logistics


11.6 Pension Reserve Fund –
4th report of the Management Board to the Committee of Ministers

For consideration by the GR-PBA at its meeting on 6 November 2008
——————————————

1. In accordance with the Statute of the Pension Reserve Fund (PRF) [Resolution Res (2006)1, Article 6.2], the Management Board of the PRF reports to the Committee of Ministers at least twice annually. This note, which represents the second report for 2008, summarises the work carried out by the Management Board since the last report presented in June 2008 [CM(2008)57], and presents the situation of the PRF as of 31 August 2008.

Activities of the Management Board since the last report to the Committee of Ministers

2. Since March 2008, the Management Board has held two meetings, in June and July. During these meetings:

    · Due to current crisis in the real estate markets, the Management Board decided to postpone the entry point of real estate investments. In the meantime the assets allocated to real estate will be kept in bank deposits and the Board will follow the investment strategy of the selected fund manager.
    · The Management Board approved the Financial Statements of the Fund for 20072. As required by the Statute of the Fund, [Res(2006)1, Article 6.1.f], a detail of the Financial Statements 2007 is presented in Annex I for approval.
    · The actuarial study of the PRF for 2008, prepared by the Actuarial Unit of the Joint Pensions Administrative Section (JPAS), was communicated to the Board. The Board noted that the active staff affiliated to the pension schemes had increased by 15.5% since the last actuarial study (in 2005). In relation to this, the PRF Management Board would like to point out that an increase in the number of staff affiliated to the pension schemes also brings about an increase in the Organisation’s pension liabilities. Therefore such increases should be integrated in the projections of staff costs and of contributions to the PRF.
    · The Management Board was informed by its Secretariat on measures taken to follow the financial markets under the current turbulent period and the risk exposure of the funds in which the PRF is invested.
    · The Board approved a draft operating budget for 2009, as presented by its Secretariat. In accordance with the Statute of the Fund [Res(2006)1, Article 6.1.f], the operating budget shall be approved by the Committee of Ministers, and therefore it is presented in Annex II.
    · To ensure a good functioning of the activities of the Board, its members decided to present to the Committee of Ministers a proposal of amendment of the Article 5 of the Statute of the PRF, which refers to the Composition of the Management Board. The Board would like to include a new point (5) related to Management Board members’ replacement:

      “Management Board members who fail to participate in three executive meetings or written procedures, without proper justifications, shall be replaced by the Committee of Ministers”

Investments of the PRF

3. By 31 August 2008, the total assets of the PRF were EUR 79.4 million and its composition was:

Asset class

Investment

Asset Manager

Amount
(in million EUR)

TOTAL EQUITY    

34.2

  Mandate Pictet

17.1

  Mandate Ideam

17.1

TOTAL FIXED INCOME    

27.1

  Mutual fund: SSgA EMU Government Bond Index Fund State Street Global Advisors (SSgA)

16.3

  Mutual fund: Pioneer Obbligazionario Euro Corporate Etico Pioneer

10.8

REAL ESTATE (not yet invested) Bank deposit Société Générale

3.5

TOTAL PRF LONG TERM ASSETS    

64.8

PRF SHORT TERM3 Current account & Bank deposits  

14.6

TOTAL PRF ASSETS    

79.4

Source: Secretariat with Société Générale Securities Services’ data.
4. By 31 of August, all Member countries had paid their contributions for 2008 except for “the former Yugoslav Republic of Macedonia” who still needs to pay 2/3 of its yearly contribution. Azerbaijan’s contribution for 2007 is still pending.
5. Without taking into account the cash, that is, considering only the long-term investment portion of the PRF, the composition by 31 August was:

Performance of the PRF
6. PRF long-term assets
The performance of the PRF long-term investment portion (excluding cash) since February 2008 was the following:

2008

Feb

March

April

May

June

July

August

Feb – Aug
2008

PRF

-0.14 %

-1.89 %

2.85 %

0.33 %

-7.01 %

-0.01 %

1.01 %

-5.05%

Benchmark4

-0.40 %

-1.99 %

2.98 %

-0.29 %

-7.54 %

-0.17 %

1.13 %

-6.43 %

Difference

0.26

0.10

-0.13

0.62

0.53

0.16

-0.12

1.38

    Source: Euro VL

7. PRF Treasury

At the end of August the Treasury was composed of a current account with 1 429 K EUR remunerated at EONIA, and several bank deposits for a total of 13 200 K EUR. The performance of the PRF Treasury is presented in the following table:

Performance of the PRF short term part
January – August 2008

In %

January

February

March

April

May

June

July

August

Performance PRF short term

4.05

4.21

4.25

4.46

4.46

4.56

4.78

4.84

EONIA

4.02

4.03

4.08

3.98

4.01

3.99

4.19

4.30

Difference

0.03

0.18

0.17

0.48

0.45

0.57

0.59

0.54

Source: Secretariat
Note: The reference benchmark for the short-term investment is the EONIA (average rate over the month)

Performance by asset class

8. The performance of the equity part since inception (6 February 2008) was -9.08%.

2008

Feb5

March

April

May

June

July

August

Feb – Aug 2008

PRF TOTAL EQUITY

-0.55 %

-2.78 %

5.36 %

1.31 %

-11.80 %

-1.21 %

1.11 %

-9.08 %

Benchmark:
MSCI EMU

-1.15 %

-2.66 %

6.05 %

0.91 %

-11.70 %

-1.52 %

1.21 %

-9.38 %

Source: Euro VL.

9. The performance of the fixed income portion of the PRF was -0.45% in the period February - August 2008.

2008

Feb6

March

April

May

June

July

August

Feb – Aug 2008

PRF TOTAL FIXED INCOME

0.35 %

-0.95 %

-0.18 %

-1.07 %

-1.03 %

1.52 %

0.94 %

-0.45 %

PRF FIXED INCOME BENCHMARK 7

0.46 %

-0.90 %

-0.65 %

-1.36 %

-1.20 %

1.63 %

0.99%

-1.07 %

Source: Euro VL and the Secretariat (for February performance of total fixed income)

10. The real estate allocation has been placed in a current account and a bank deposit ahead of the investment pending the decision of the entry point.

2008 Feb March April May June July August

Feb – Aug 2008

PRF REAL ESTATE (not yet invested) 0.32% 0.26% 0.26% 0.36% 0.37% 0.50% 0.53%

2.63%

Source: EuroVL

Resolution

11. In light of the preceding, the Management Board of the PRF invites the Committee of Ministers, in accordance with the provisions of Resolution Res(2006)1 on the Statute of the Pension Reserve Fund:

a) To take note of the information presented in this document.

b) To approve the Financial Statements 2007 of the PRF.

c) To approve the draft Operating Budget for 2009 of the PRF.

d) To include in the Statute of the Fund, under Article 5. Composition of the Management Board, a new point stating: “Management Board members who fail to participate in three executive meetings or written procedures, without proper justifications, shall be replaced by the Committee of Ministers”

* * *

APPENDIX I

FINANCIAL STATEMENTS AT 31 DECEMBER 2007

Introduction

1. The aim of this document is to present a statement of the financial position of the Pension Reserve Fund (PRF) as at 31 December 2007 in order to enable a comparison with 2008 activity.

2. All figures were transmitted by the Finance Department of the Council of Europe and are consolidated in the Council of Europe financial statements that are audited. The funds were transferred in January 2008 and the investment strategy has been implemented during the year. There is, therefore, no long-term asset at end of year 2007.

3. Administrative costs

    The statement below compares the 2007 actual expenses to the corresponding approved 2007 budget [PRF-MB(2007)8].

Type of expenditure

Actual 2007
in euros

Budget 2007
in euros

Staff costs 122 572 136 042
Missions 1 847 6 000
Consultants, contracts,
management/administration costs
10 464 92 050
Operating costs (rent, supplies, communications, share of the OECD overhead, translation, IT) 41 542 33 708

Total

176 425 267 800

The post Consultants, contracts and management /administration costs includes:
(All figures in euros)
- Custodian bank fees 0 30 000
- ALM study 0 30 000
- Board Members’ travel costs 0 12 000
- Auxiliary 10 464 11 250
- External accounting audit 0 8 400
- Others (representation) 0 400
Total 10 464 92 050

4. Notes to the Financial Statements

    1. Cash in bank accounts

      The amount of cash held in interest-bearing bank accounts at the end of period.

    2. Short-term financial assets

      This includes short-term investments in deposits or certificates of deposit accounted at nominal price.

    3. Other debtors
    It consists of:

      · the surplus of EUR 91 374.61 to be reimbursed on 2007 Administrative costs budget. This amount will be deducted from the 2008 invoice.
      · payment of EUR 10 752.35 from European Audiovisual Observatory to be reimbursed.

    5. Contributions receivables

      It consists of the total amount of Member States pension contributions committed but unpaid at the end of the year. Contribution payments are scheduled 1/3 by end of February and 2/3 by end of June of each year; late payments are subject to interests.
      At 31 December 2007, the amount remaining is constituted by unpaid contributions of Montenegro (EUR 21 335.09 ) and Azerbaijan (EUR 62 033.81).

    6. Accrued Income

      It consists of the total amount of interest due on cash deposits (EUR 666 386.18) and on late payments by member states (EUR 9 221.08) at the end of the year.

    8. Partial agreements allocations to the PRF

      The partial agreements allocations contribute to the PRF in proportion with the time spent by staff on activities supported by partial agreements budget. Adjustments are accrued at the end of year.

    9. Staff – accruals departure allocations

      The balance of this account is due to timing impact on December leaving allowances paid in January.

    10. Other creditors

      Swedish contribution to be reimbursed.

    11. Accrued expenses

      Expenses linked to 2007 Management Board accrued (mission and translation costs).

    14. Contributions of member states

      The amount corresponds to the committed 2007 contributions.

    15. Staff contributions

      As from 1 January 2005, staff rate of contribution is set in the Pensions Scheme and amounts to 8.9% for the 1974 Scheme and 9.2% for the NPS.

    16. Partial agreements allocations to the Pension Reserve Fund

      The partial agreements allocations contribute to the PRF in proportion with the time spent by staff on activities supported by partial agreements budget.

    17. Validation of past services

      Staff may be recruited by the COE under different contract. Staff can contribute to the pension scheme in order to validate prior working period with the COE for the pension scheme.

    18. Pensions benefits

      In 2006, The COE had 598 pensioners and 622 in 2007.

    19. Leaving allowances

      Pension benefits are either a monthly pension during retirement or a leaving allowance calculated as a lump sum payment in lieu of a pension, for those officials who leave the Organisation with less than ten years of service.

    20. Administrative costs

      This amount corresponds to the total 2007 administrative costs. The 2007 budget was based on the PRF documents [PRF-MB(2006)14 and PRF-MB(2007)8] and amounted to EUR 267 800 less a credit of EUR 91 374.61 that will be deducted from the 2008 budget.

    22. Interests on deposits and current accounts and late payments interests

      Interests on Bank accounts: EUR 1 370 651.60
      Interests on Deposits: EUR 1 162 143.10
      Interests on late payments: EUR 2 646.22

* * *

APPENDIX II

DRAFT OPERATING BUDGET FOR THE PENSION RESERVE FUND FOR 2009

1. The Management Board presents below a budget for 2009 that takes into account the costs relating to fund administration including: staff costs, operating costs, missions, custodian bank fees, consultant and service contracts as well as special linguistic requirements. Management fees charged by the asset managers are taken directly from the PRF and deducted from the Fund’s performance.

2. The operating budget of the Joint Pensions Administrative Section (JPAS) allocated to the administration of the Pension Reserve Fund of the Council of Europe, represents a total amount of EUR 423 695 for 2009.

3. The table below presents the proposed budget for 2009 in comparison with the approved budget for 2008.

    · The staff costs are increased in accordance with OECD assumptions. These numbers are calculated on the basis of current financial provisions. A proposed centralisation of non-salary staff costs at the OECD would have little immediate overall impact, due to the phasing envisaged for the JPAS.
    · The item “Operating costs” is higher, due to incremental increase of the OECD overhead share over the period 2006-2010.
    · The increase in the item “Consultant and service contracts” is due to the impact of eventual consulting fees by EUR 15 000, and estimations of annual increases in custodian and performance evaluation items by EUR 7 080.

 

2008

2008

2008

2009

Type of Expenditure

 Budget

 Budget

 Forecasted expenditure

 Proposed budget

 

 as per document PRF-MB(2007)20 and PRF-MB(2007)24

 after OECD Council's approval of staff cost increase

 

 
 Staff Costs

 225 075

 222 946

 206 463

 232 878

 Operating Costs

 45 307

 45 307

 39 854

 58 666

 Secretariat missions

 4 000

 4 000

 4 000

 3 500

 Consultant and service contracts

 88 420

 88 420

 82 160

 110 650

 Specific linguistic requirements

 18 000

 18 000

 18 000

 18 000

 Total

 380 802

 378 674

 350 477

 423 695

Below, the detail of Consultant and service contracts:

 

2008

2008

2008

2009

Detail of Consultant and service contracts 

 as per document PRF-MB(2007)20 and PRF-MB(2007)24

 after OECD Council's approval of staff cost increase

 forecasted expenditure

 proposed budget

Intervention by an Accounting Audit Firm

 3 000

 3 000

 1 490

 3 150

Custodian Bank fees 

 42 500

 42 500

 42 500

 44 500

Performance reporting and valorisation (Euro VL and Glass Custody)

 23 920

 23 920

 23 920

 29 000

Consultant contracts 

-

-

 

 15 000

Reimbursement of travel of MB members

 19 000

 19 000

 14 250

 19 000

Total

 88 420

 88 420

 82 160

 110 650

4. On the basis of the expected growth in the Fund (long-term assets) in 2009, this operating budget should amount to around 53 basis points (0.53% of the funds managed). Management fees will be, on average, 41 basis points.

1 This document has been classified restricted until its examination by the Committee of Ministers.

2 The Financial Statements 2007 of the Pension Reserve Fund are consolidated in the Financial Statements 2007 of the Council of Europe that were approved by the Auditors on 25 July 2008.

3 Positions in cash are held to cover benefits payments and administration costs. They consist of cash held on interest bearing bank accounts and deposits. They do not include accrued interests and transfers in transit due to closure time.

4 As defined in the PRF Investment Guidelines [PRF-MB(2007)18 REV]: 55% MSCI EMU (Euro area equity index) - 24% CitiGroup Euro Government Bond Index (CGEGBI) - 16% Iboxx Euro Corporates (bonds) 3-5 - 5% Real Estate index (Epra Nareit Europe).

5 Benchmark performance is for the whole month while the PRF equity performance starts on 6 February 2008.

6 Benchmark performance is for the whole month while the PRF fixed income performance starts the 6 February 2008.

7 As defined in the PRF Investment Guidelines [PRF-MB(2007)18 REV]: 60% Citigroup European Government Bond Index (CGEGBI) and 40% Iboxx Euro Corporates 3-5.



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