Vol. 457 No. 3
9 Mr. Nolan asked the Minister for Finance the action, if any, he proposes to take regarding the level of pension fund investment in the economy if the pension industry itself does not address the problems he perceives within the industry. [15177/95]
The Deputy will be aware of my recent call on the pension industry to increase its overall level of investment in the Irish economy. Pension funds represent one of the largest segments of household savings in the country and, at the end of 1994, total assets held by pension funds amounted to nearly £14 billion. However, over £5 billion or 36 per cent of these funds was invested abroad. From the point of view of the Irish economy, I regard this as unsatisfactory for such a major supplier of capital whose position as such stems in part from favourable tax treatment. This state of affairs may not be in the best financial or economic interests of employee members of those pension funds.
I have no wish to intervene in the prudential management and investment policies of pension trustees who, after all, are required first and foremost to serve the interests of pension holders. Nevertheless, with the economy performing so well on all fronts and with many new commercially attractive investment opportunities likely to arise here in the short and medium term, I believe there is scope to increase the level of pension fund investment in the Irish economy. I want to bring about a situation where there are much greater opportunites to invest securely the long-term savings of Irish employees in the high growth Irish economy, as a consequence of which, the best possible financial returns can be achieved. We have had some success with the venture capital initiative under which nearly £50 million has been committed by the pension funds for venture capital projects over a five-year period. It is now necessary to build on this development. In coming weeks I will be holding discussions with representatives of the pension sector with a view to exploring how further progress can be made in this area.
It is worth noting that employee members of pension funds have economic interests that are wider than a narrowly-defined financial interest of investment returns. Tens of thousands of employees have been made redundant and as a consequence have lost their entitlement to all future investment returns from their pension funds and in many cases past investment returns as well. Additional job creation is of vital personal interest to all private sector employees, not just for themselves, but also for their children.
I am glad to say that the pension sector for its part has expressed a willingness to participate in this endeavour which is in all our interests.
The question tabled by Deputy Nolan refers to the Minister's recent comments and, if I remember correctly, the same comments were made by the Minister's predecessors. Is it not the basic problem that the trustees of pension funds are obliged to protect the industry's funds and it behoves them to make the safest possible investment, whereas it is the job of the Minister for Finance or any other Minister to encourage them to invest in a manner which is most beneficial to the economy, but the Minister cannot comple the pension industry to do as he and we all might wish?
I am not compelling fund managers to pursue a course of action which they would normally not pursue. I stated that clearly during a speech at the seminar to which the Deputy refers. I said I recognised that first and foremost fund managers have a duty to the pension fund and investors who expect to receive the optimum pension return on retirement. However, we must explore with the pension industry what forms of new investment opportunity that meet its criteria can be established to meet their legitimate and paramount needs and the wider needs of the economy, including the broader economic interests of pension holders, who should be able to retire in a vibrant full employment economy.
Without wanting to be unduly sceptical, I sound a note of caution. The staff of any individual firm are not concerned with the vibrancy or otherwise of our economy when they retire, when they consider the duties of their pension trustees. They want the pension trustees to be cautious but to obtain the best return for the fund. We should be slow to make noises——
The Deputy should proceed by way of question.
Will the Minister agree that we should be slow to make noises which suggest that pension fund trustees can do anything other than choose what in their judgment is the safest and best investment for a fund? Would it not be more to the point if the Department of Finance applied its energies to identifying suitable investment opportunities and to stripping them of the current tax disincentives for such funds? Will the Minister reassure me that there was no sense in his remarks concerning a threat that if he did not see an improved co-operative attitude from pension fund managers, their present tax status might be called into question?
I concur with much of what the Deputy said. People who invest in pension funds do so on the basis that they want to secure their future in the most effective way possible. There was a time when we thought high nominal wage increases were equivalent to maximising a person's position even though those wage increases were associated with high levels of inflation. We have all learned that bitter lesson. Those who were not able to argue for high nominal wage increases were still subject to the high inflation rate brought about at the same time. I have invited the pension fund managers who have a primary duty which I respect, to tell us how we can address their needs which are paramount and those of their investors and customers for whom, ultimately, also I have some responsibility. The level of investment of Irish pension funds outside the Irish economy is in excess of the UK level which is far in excess of any other investment profile in the rest of the European Union. Regardless of the reasons for it, it is not in the overall interests of our economy. If we can realign the interests of our economy with the legitimate ones of pension fund managers, we will have made progress. It was on that basis I made that speech at a pension fund seminar.
Will the Minister consider increasing the threshold of tax relief and pension contributions at the next budget and make it conditional on the pension industry making an increased level of investment in our economy? That might go some way towards achieving the Minister's objective.
I will have discussions with the industry, and I do not want to prejudice their outcome.
