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Dáil Éireann debate -
Tuesday, 14 Dec 1999

Vol. 512 No. 6

Temporary Holding Fund for Superannuation Liabilities Bill, 1999: Second and Subsequent Stages.

Acting Chairman

All Stages of this Bill are to be completed by 7 p.m.

Does "temporary holding" include the budget?

I thought Jack Benny was long gone.

I move:

"That the Bill be now read a Second Time."

The purpose of this Bill is to enable this year's Exchequer allocation of £3 billion for pre-funding of social welfare and public service pensions to be held in a temporary fund pending the enactment of substantive legislation next year, providing for the establishment of pension funding arrangements on a permanent, ongoing basis. This is a short Bill and before dealing with its specific provisions I will outline the background to what is essentially a new departure in the management of our public finances.

Effective economic and budgetary management requires us to anticipate and plan strategically for emerging problems and challenges that lie ahead over the long-term. In recent times, Ireland has been enjoying very favourable demographic conditions which have contributed significantly to our strong economic performance, but this is set to change over the next half a century. In Ireland today, for every one person over 65 there are five persons of working age. Current demographic projections show that by the middle of the next century this ratio will rise to one person over 65 for every two persons of working age. This ageing process is occurring right across Europe, but in many European countries it is more advanced than in Ireland. We are fortunate, relative to other countries in that we have a demographic time bomb which is ticking slowly and we have the time and the resources to defuse it.

The demographic changes that lie ahead will have major implications for the Exchequer. While long-term projections are unavoidably tentative, an indication of the potential scale of the problem was presented in a report published in July this year by my Department – the Report of the Budget Strategy for Ageing Group. The group estimated that, on the basis of current pay-as-you-go policies, by 2025 the Exchequer cost of broadly maintaining the current level of pensions and health service provision will have risen by about 4.5% of GNP or more than £2.6 billion.

By 2050, this cost will have risen by 7% of GNP – that is, by more than £4 billion. Put another way, the increased Exchequer costs associated with ageing will require a 17 % increase in overall taxation levels by the middle of the next century merely to maintain the existing level of service. Any relative improvements that might occur in pension provision and health care would add further to this cost.

We cannot turn a blind eye to this problem, distant though it may seem to many of us today. The demographic projections make it plain that to continue to fund pension provisions on a pay- as-you-go basis is to put at risk the security of future pensions or the State's capacity to allocate public finances for other social services. I have noted the major difficulties that other EU countries are now beginning to experience by not providing adequately in better economic times for demographic changes and I am determined Ireland will not make the same mistake.

The House will be aware of the decision announced by the Government last July to set aside 1% of gross national product annually from the budgetary arithmetic towards the Exchequer cost of social welfare and public service pensions in the future. In addition, a major portion of the proceeds of the Telecom flotation is being allocated for this purpose. In all, the Government is setting aside £3 billion this year for pension funding and I will explain the makeup of this sum in a moment.

In the year 2000, a further £1.15 billion which is due from the Telecom sale will also be allocated for pension funding, along with the 1% of GNP allocation for that year, estimated at £635 million. Thus, by the end of next year, an estimated £4.8 billion will have been set aside for pension funding purposes. This will provide a strong initial injection to the process and will be supplemented by further annual allocations of 1% of GNP in subsequent years.

I emphasise that the level of funding proposed, substantial as it may seem, will only enable us to partially fund the extra costs associated with the ageing population over the next 50 years. Estimates prepared by my Department suggest that full funding of these costs would require an annual allocation of about 3.5% of GNP as opposed to a 1% allocation. Pre-funding this liability in full is not a practical proposition. However, the initiative that the Govermnent has taken will ensure that the ageing problem, when it does impact on the taxpayer, will be a great deal more manageable than it would otherwise be.

This Bill enables the payment of up to £4.3 billion into a temporary holding fund in 1999. This sum is made up as follows: 1% of GNP in the current year, equal to £582 million on the basis of my Department's latest estimate of GNP; the flotation of Telecom Eireann, which raised £3.667 billion, and the Government has decided to use £1.25 billion of this sum to pay off Exchequer liabilities to the pension funds of Eircom and An Post, reducing the proceeds of the sale to £2.417 billion. These Exchequer liabilities are in respect of service of staff of the companies in the former Department of Posts and Telegraphs. This sum, £2.417 billion, is being allocated to the temporary fund. When added to the £582 million referred to, payments to the fund come to £2.999 billion.

Interest realised on the sum of £2.999 billion in the current year comes to an estimated £16 million and this also is being allocated to the fund. Further accrued interest of £19 million will be credited to the fund in the new year. Altogether, this brings the total to be paid to the fund this year to £3.015 billion. This being the case, Members may ask why section 1 (3) will permit payments to the fund of up to £4.3 billion. The reason for the higher sum is that, at this stage of the year, the payment to the Eircom pension fund has not been finalised while the payment to the An Post pension fund has only just issued from my Department. It is anticipated that the payment to the Eircom fund will be made shortly and the higher figure is there merely as a precaution. Should there be a hitch in finalising these transactions this year, then the amounts could be paid into the temporary holding fund.

Section 1 (4) provides that moneys in the fund will be placed in deposit accounts or invested in other short-term financial products within or outside the State and that any income arising therefrom will be held or reinvested by the fund. I draw the attention of Deputies to section 1 (5) which provides that moneys may not be withdrawn from the fund without further legislation expressly authorising it and this provides a guarantee that the money that is now being allocated to the temporary fund cannot be accessed by the Government without the House having an opportunity to debate both the funding policy which the Government has adopted and the arrangements that the Government proposes for implementing that policy.

The accounting arrangements for the fund are contained in section 1(6), (7) and (8). Accounts will be prepared by the NTMA and audited by the Comptroller and Auditor General and the accounts as audited by the Comptroller and Auditor General will be laid before each House of the Oireachtas.

Section 2 provides that control and management of the fund be delegated to the National Treasury Management Agency by Government order, as the NTMA is the State agency possessing the systems and expertise to manage such a large sum of money and it is essential that the task of managing this money should be assigned to it. In its role as manager of the Exchequer account, the NTMA is currently managing the proceeds from the Telecom flotation and the 1% of 1999 GNP allocation for pension funding. These moneys have been placed on short-term deposit by the NTMA with various financial institutions to mature at various dates in 1999 and 2000. These institutions conform with the counterparty risk criteria specified in guidelines issued to the agency and with the agency's own internal counterparty risk limits. Section 3 contains the short title of the Bill.

This is a holding measure and the House will have an opportunity to fully debate the pension funding issue when I bring forward substantive legislation in the new year providing for the establishment and management of two separate funds: one for social welfare pensions and one for public service pensions. This legislation, which is currently being prepared in my Department, will provide for annual Exchequer subscriptions to the funds and for subsequent drawdowns from the funds to meet Exchequer pension costs. It will also set out arrangements for the administrative control and management of the funds, a high level investment mandate within which this is to be exercised and a framework for reporting to the Dáil on the financial state and performances of the funds. It is envisaged the legislation will facilitate the transfer of moneys in the temporary holding fund to the permanent funds and provide for the winding up of the temporary fund.

I emphasise that making provision for funding pension liabilities of the State is consistent with the recommendations of the national pensions policy initiative, which highlighted the need for action in this area. It has been made possible by the economic successes we have worked hard to achieve. More importantly, it can be implemented within a sustainable budgetary strategy that will also allow for substantial infrastructural and other capital investment under the national development plan, for continuing reduction in the tax burden, for ongoing improvements in public services and for ongoing reduction in the national debt. This initiative is about taking a longer term perspective of the State's economic and financial planning with a view to maintaining living standards and the quality of public services in the future. I have no doubt that in time our children and our children's children will reap the benefits of this prudent and sensible initiative.

The debate on whether we should fund our public service pensions has been ongoing for some time. I was one of the people three years ago who suggested it was time to move from the "pay as you go" basis we operate at present to a funded basis. I would like to establish precisely what the Minister proposes. Given the desire to set aside 1% of GNP at the end of 1999 together with certain funds from Eircom, the Minister needs to legislate to set up a fund on a temporary basis so that he can hold this money on deposit or in short-term financial instruments pending the establishment of two pension funds he intends to establish by way of legislation later next year. That is the proposal before us. If that is the case, the reason the Minister is doing this is self-evident – the legislation on the pension funds is not ready, he has money he cannot retain legally without the authority he is requesting under this legislation and, as the end of the calendar year is approaching, he needs the Bill to go through before Christmas.

Is the Minister justified in setting up funded pensions? He announced the proposal last August but it was not debated either then or since. The announcement was greeted by favourable editorials, but we have not had an opportunity to discuss the matter since then. While this is a major policy issue, there has been virtually no debate on it.

This generation of taxpayers is being asked not only to fund present pensioners on a "pay as you go" basis but future pensions by contributing to a pension fund. As a result of the Minister's decision, in effect, this generation of taxpayers is being asked to pay twice. One can justify that in present circumstances when we are running surpluses. What better use for a surplus than to fund pensions, but are we justified in making the switch from a "pay as you go" system to a funded system at this time?

The Minister has justified this by stating that in future we will reach a position, which many of our European colleagues will reach ahead of us, where the burden of paying for pensions will be onerous on taxpayers. In effect, he has said that the burden will be so onerous that if we continue on a "pay as you go" basis we may not be able to afford the generous pensions now in place and the pensions of people who are entering the workforce now could be put at risk if we do not start funding pensions.

The Minister referred to the middle of the next century. I do not know if he read an article on this matter in the Financial Times some weeks ago, which set out comparative tables for Europe. At present about 2.4% of our GNP goes towards funding pensions and that will have increased to only 2.6% by 2040. If those statistics are correct, the Minister is exaggerating the matter because the position here will not deteriorate dramatically until 2048, 2049, 2050 and into the 2050s. For the next 40 years there will be little variation in the burden of pensions on our society, but that is not true elsewhere in Europe. That statement of statistics shows that some European countries will have a burden of up to almost 20% of GNP, a burden of 17% to 19% of GNP is quite common. I would like the Minister to return to this matter because he is exaggerating the position and, in effect, bringing forward the date of the crisis which will not occur until the second half of the next century. Many entering the workforce for the first time on 1 January of the millennium year will be well and truly retired and on pension before the crisis hits. The Minister is being extraordinarily prudent by making provision for this very far in advance. It could be said that pensions have a long lead-in time and what better time to fund them than when the budget is in surplus. I would like further justification of the measures the Minister proposes.

When we move from the temporary fund to the two pension funds proposed by the Minister, other issues arise. Will the two funds be separate?

When the money being set aside in this temporary fund is reallocated to the pension funds proper, what will be the basis of the allocation between the two funds?

Two to one.

Two public service to one social welfare?

The other way around.

Yes. Many public servants have contributory pensions and their contributions go into the general body of taxation as there is no fund. Does the Minister intend that the contributions of those public servants with contributory pensions will be paid into the fund in future? Does he also intend that the social insurance fund will be constantly active? Does he intend that PRSI contributions will go into the social insurance fund and that benefits from the social insurance fund will be paid out on an ongoing basis, or does he intend it to be a social insurance old age contributory pension fund or a social insurance ongoing benefit fund out of which the various benefits with which we are familiar will be paid? How will he treat the contributions in those circumstances? What mechanism will be put in place?

How will the fund be invested? In terms of the temporary fund, the Minister is doing what is prudent. He proposes to put the money on deposit or in short-term financial instruments. That will not involve any risk and the money will be transferred from the holding fund to pension funds later next year. I have no problem with that, but what will be the position on the pension funds? What will be the investment mandate? Will the investments be made domestically or abroad?

I heard the Minister's proposal being praised by economists on the basis that it will give a new instrument of policy to the Minister for Finance and that, in effect, it will be used as a mechanism to take heat out of the economy when it is overheating. That would be a valid macroeconomic policy instrument, but it is only valid if the investment in the fund is offshore. There is no point in not heating the economy by taking out 1%, 1.5%, 2% or varying the scale of what is taken out, if it is all reinvested domestically. I would like the Minister to give a clear statement on whether he envisages the pension funds will be invested in Ireland. Does he envisage they will be invested to make up for our infrastructural deficit and, in effect, will assist the Government in its capital budget? Does he envisage they will be invested in Irish equities or abroad in equity markets in Europe and in the United States, because a policy issue hangs on the way the Minister intends to treat the fund subsequently? If he wants to use the fund, in a Keynesian way, as an instrument of macroeconomic policy to remove heat from the economy or to allow movement within it by varying the percentage at various stages, there will be a number of subsequent investment consequences. On the other hand, if the Minister sees the fund solely as a means for setting money aside for pension purposes and if he does not believe there will be any consequences in macroeconomic terms, another series of issues will arise.

That leads me to a question which has already been raised by a number of commentators. Is it appropriate that so much money will be completely denied to members of this generation at a time when there is such an infrastructural deficit, when the public transport system is probably the worst in Europe, when the roads structure is so bad and when many waterways have been polluted by untreated sewage? What is the Government's policy in this area? Does it intend to fund its capital programme by way of back-to-back loans against the pension fund? Will it be able to secure loans for investment purposes from the pension fund?

I was disappointed by the Minister's contribution which did little to illustrate his thinking on this matter. The issues of a policy nature which arise in this area are serious. The House is co-operating with the Minister in pushing through the Bill and he should have given Members further information in respect of his ultimate intent following the establishment of the pension funds.

Will the Minister indicate when permanent legislation will be introduced? If he provides answers to my questions, we will be able to give the Bill an easy passage. However, a number of issues – these are not specifically relevant to the Bill but to its successor – arise in terms of establishing the pension funds and these must be aired now in order that we can debate them.

The Minister is proposing a major step in respect of the treatment of pensions and there are large amounts of money involved. In the budget he announced that in the order of £630 million or £640 million would be set aside next year. That is a great deal of money and it disappeared out of the budgetary arithmetic. There is so much money around at present that this provision was passed without debate or comment. I recall when Cabinets met late into the night for the sake of deciding how to spend £5 million, but those times are gone.

I agree with the Minister in principle because it is time to move towards a funded position. However, we need further information about the detail of this measure before I would be as enthusiastic in my reply as the Minister was in his contribution.

As the Minister pointed out, this is an interim measure which will remain in force until the Government publishes permanent legislation next year. As such, I do not intend to oppose the Bill. Having said that, however, I wish to make it clear that I am concerned that we are being asked, in a sense, to endorse the legislative equivalent of a pig in a poke. On behalf of my party, I wish to state that we will sign no blank cheques today. The fact that we do not object to the Bill does not imply that we are happy to accept whatever the Government may serve up when it introduces primary legislation next year.

I am genuinely flabbergasted by the complete lack of public debate on this issue. The decision announced by the Government towards the end of July represents one of the most significant decisions taken by a Minister for Finance in recent years. The notion that we should set aside money – much less that we should set aside billions if not tens of billions of pounds – which should not be touched for a quarter of a century or more is radical enough, but the sheer scale of this ongoing commitment, which will bind not only the current Administration for the remainder of its term of office but which, hopefully, will also bind the Minister for Finance's successors into the first quarter of the next century, makes the Minister's decision one of virtually revolutionary proportions. We are proposing to set aside more money this year than we spent on national roads during the 1990s. The approximately £3 billion being set aside today is £500 million more than the Exchequer element of the PCP for the past year.

A number of days ago a colleague reminded me that for many years we have been at pains to explain why it was impossible for us to reach the target of 0.7% of GNP as a commitment on overseas development aid. We painfully increased our contribution by 0.1% or 0.2% year after year until it reached its current rate of 0.35%. The Minister will be aware that his Department had grave difficulty with the notion of reaching targets gauged in terms of the percentage commitment related to GNP. The Department is much more comfortable with the notion of cash targets as opposed to those which are related, implicitly or explicitly, to growth.

Despite such difficulties in respect of an issue of undoubted merit, it has suddenly become possible to find 1%, fully 0.3% more than our overseas development aid target, not just this year or next year but for the next 25 years. The House is being asked to make such a commitment with scarcely an hour to debate the enabling legislation. Let me cut to the bottom line. I agree that we should be seeking in advance to make provision for the demographic shift which is likely to happen in between 20 to 25 years. I also agree that provision for pensions will necessarily form an important part of that provision. However, above and beyond that, I suspect there will be a great deal to separate the Minister and I when we discuss this issue in greater detail next year.

The Minister referred to a long-term issues paper which was published by his Department at the end of 1998. I read it recently and I was struck, not surprisingly, by the disclaimers which leap from the front page. These state that readers are reminded that short-term forecasts are rarely fully accurate, that they are frequently significantly inaccurate and that long-term analysis is even more prone to inaccuracy. I do not blame the authors of the document for stating this because I would have written much the same myself. The paper to which I refer was based on an actuarial assessment carried out by the Department of Social, Community and Family Affairs approximately two to three years ago and I am aware that the CSO has also carried out work in this area in the interim. The problem is that these things change and they do so radically and quickly.

The birth rate in Ireland was among the highest in Europe for many years but it collapsed in the 1980s before appearing to recover somewhat during the 1990s. Equally important is the issue of emigration. During the 1980s we lost many thousands of citizens – approximately 1,000 per week at one stage – to emigration but many of them are returning to Ireland and having or rearing their children here. As Members are aware, the immigration of non-nationals has begun to rise at a significant rate. Who among us knows how matters will develop in the next number of years, not to mention the next 25 to 30 years?

Like Deputy Noonan, I read the Financial Times a number of weeks ago and I found the figures quoted quite striking because they sit uncomfortably with the predictions on which the Minister is basing his decision. The figure, as a percentage of GDP, for Ireland vis-à-vis the cost of pensions for 1995 was gauged in the article at 3.6%, falling to 2.9% in 2000 and rising again in the year 2040, with little variation in between. It is true to say that the figures for other European countries in respect of this area are amazing. For example, the figure for Spain is 10%, for France it is 10.6% and the figures other countries rise as high as 20%. It is clear that many of our European colleagues have a genuine and immediate problem, not to mention having one 20 years from now. It is fair to say that the debate on this matter in Ireland, in so far as one has taken place, has been informed by the difficulties which other European countries, Italy and Germany not least among them, have experienced.

The source of that information quoted in the article to which I refer was the OECD. I do not know from where the OECD obtained the figures but I assume they were supplied from domestic sources. If the figures are accurate and if the burden of pension costs is due to remain roughly the same as a percentage of our national income, this entire debate is, in a sense, based on a false premise. We must ensure that the position is monitored carefully.

We have witnessed the immediate experiences of other countries and seen predictions in relation to these countries for future years and we must be aware of further developments in that regard. However, we must also be increasingly aware of the need to be flexible and to understand that things change. Many people in my party have difficulty with the Bill. Those who spent long hours in negotiation with the Department of Finance trying to wring an extra £5 million or £10 million here or there for a pet project during five years of Government until 1997, have grave difficulty accepting that we can set aside 1,000 times that in an Act of the Oireachtas passed in less than an hour in the House without a great deal of debate. I understand that. However, we do not want to posit false choices, at least not at this time. The reality is that we can afford to set aside money or money in this measure now, without having to cut back on services elsewhere because, as the Minister rightly noted, we still seek to run a significant surplus this year, notwithstanding the fact that we are taking so much money out of the economy.

It is important that people should understand, for the moment at least, that we do not have to forgo improvements in services to make provision for payment of pensions in 2025. In simple terms we are not asking today's taxpayers to suffer for the benefit of tomorrow's pensioners. If we did that, we would find that the equable consensus that has existed in regard to this measure would evaporate rapidly. For these reasons, any funds set up will require significantly greater flexibility in their management than the Minister has so far suggested. To put it even more bluntly, if in five years time we have to choose between putting money into the heath services and putting it aside for pensions, many in my party and on this side of the House would choose to do the former.

Significant moneys are available following the privatisation of Telecom Eireann. The economy is going well and is likely to continue in that vein for a few years. In those circumstances it is right to make provision, but if circumstances change and the pace of economic growth slows dramatically, our priorities will have to be re-examined. I do not suggest that the fund should be raided but we might have to look again at the rate of set aside if the economic choices become more difficult than they currently are. The business of politics is about determining priorities for the moment and acting accordingly. I agree with the priority given to this issue in current circumstances but I am not willing to allow this Minister or this Government to predetermine the priorities of my party into the next century.

I will reflect on some issues which will necessarily arise next year during the debate on establishing the funds. This is a demographic problem which results from the fact that a shift in the level of dependency is reasonably expected in approximately 25 years. It is right that pensions are an important part of our consideration, but they are not the only part and may not even be the most important. That there will be more old people will impose considerable extra stress on health services, for example, which currently they could hardly bear. Undoubtedly, more provision will be needed for nursing homes and the care of older people generally. A mechanism must be found whereby such provision is also made. In reality, pensions are money in people's back pockets and, while it is right that the we make provision now to give people money in 25 years, a broader brush approach also needs to be taken. We must ensure that funds available now are used to cater for the broader demographic problem and the greater level of care that will be necessary for a greater number of older people in 25 years.

We cannot ignore the needs of the economy now and in the intervening time. Deputy Noonan touched on the present infrastructural deficit, and it would be appropriate to use the surpluses being generated to fund back to back loans in the private and public sectors in future years when Government surpluses are not sufficient to provide funding. We had a limited debate on public- private partnerships in recent months. It has been suggested that the Minister's Department is less than enthusiastic and he denies that.

Because it is not true.

We will not argue about it.

Other Departments may not be excited about them, but that does not apply to the Department of Finance.

Maybe so. In so far as there is a decent argument to be made against the use of PPPs in the current circumstances, it has to come down to the funding mechanism where the argument is often made that the State can access money more cheaply than the private sector and the fact that that is the case and the State at the moment has no problem getting money means that the benefits of PPPs are not extensive. Certainly when one weighs up the financial disadvantage against the rest and against the benefits on the operational side, the argument is made that they do not quite balance up.

Surpluses, and funds of this kind, can be constructively used to alleviate that problem. It may well be possible for designated PPP purposes for some of this fund to be used to provide loans at preferential rates to the private sector specifically for PPPs that would deal with infrastructural issues. There is a role in examining these funds for the development of the economy, which will still ensure that the capital investment and more will be available at maturity in 25 years time or longer for the purposes for which we are setting up the funds in the first place, namely the pensions.

Many people, looking at where we are now, in terms of the level of benefits paid out will say that, given that old age pensioners will be paid £96 per week next year, why not make additional provision now rather than setting aside enormous amounts of money for payment in a quarter of a century? Old age pensions, as the Minister knows, are the better end of the argument from the social welfare point of view. A payment of £96 a week is a good deal more than some of the social welfare benefits that are currently being paid out.

Only since the Government came into office.

I will not be drawn on that.

Because it is also true.

Have we now reached a level of payment for old age pensioners which is acceptable, or should we use funds available to us now to improve the level of benefit to pensioners who are currently receiving benefit from the State, rather than saying we will set aside money now for 25 years' time? The answer is there. There is still some distance to go before the people in this House who make the decisions can be comfortable with the level of benefit we are paying out to the pensioners that are there today. I would not like the Minister to go away for Christmas without thinking that we had not noticed this.

It took me a little while to come to terms with the Minister's new training fund, following the budget. It seems that he is depleting the social insurance fund by juggling with the levies there, reducing the Estimate for the Department of Enterprise, Trade and Employment by £126 million in order to ensure that his 4% spending target remains, theoretically at least, on target and is setting aside part of the social insurance fund for a new training fund which will continue to do what the Department of Enterprise, Trade and Employment does already through FÁS. This is of some relevance in that the Minister clearly believes that there is enough money already in the social insurance fund. He is not using the money already available to him to increase benefits and that is a mistake. I am also unclear as to how the social insurance fund, which is in surplus for the first time, will relate to the new fund. Will the social insurance fund continue as an interim fund for the next 25 years and will it then be supplemented by moneys from the new pension funds for the following 25 years?

Deputy Noonan raised a number of questions on the management of the fund. I am a little bothered that the Minister has not explored them today. We need to have some indication as to whether it is intended that this money should be actively managed or passively managed. Should it simply be on deposit or used for investment in equities? Should it be used to intervene in the economy? Should it be invested abroad or at home? We need details on how the mandate will be exercised and whether the House or the Minister will have any role in deciding how the money is to be invested. There must be a clear line of accountability to the House if we are to take a significant amount of taxpayer's money out of the system and give it to the NTMA or such a body to manage, so that we are clear that the money is being invested in the interests of the economy.

If the Minister intends that this money should be invested along commercial lines, as if it were a commercially run private pension fund, I would not support it. There is a need to take a more flexible view and to consider the greater needs in terms of health care and nursing home care of older people in 25 years' time. There is also a need to consider the requirements of the economy generally. However, I will not oppose the passage of the Bill.

I welcome the opportunity to contribute to the debate. I understand the Bill is temporary pending the finalisation of the detailed legislation which will be introduced shortly. The essence of the Bill is that the Government has decided to provide resources to pre-fund part of the future costs of social welfare and public service pensions and has set aside 1% of gross national product annually for that purpose, commencing this year. In addition, funds from the Telecom Éireann flotation totalling £2.417 million will also be paid into this temporary fund, bringing the total to approximately £3 billion this year.

I noted a subtle message from the Labour Party which I was pleased to hear. However, it shows a clear difference in philosophy between the Labour Party and the Fianna Fáil Party. I was particularly struck by Deputy McDowell's comment that he would oppose the permanent legislation, which is due shortly, if it attempted in any way to take money from the Exchequer, which is needed to fund services and benefit people this year, and set it aside to fund pensions in the long-term. I contrast this position with his party's actions in Government during the 1980s when it had no trouble doubling the national debt from £12 billion to £25 billion in a few years. It had no problem taking money from the pockets of future generations by building up a national debt which would have to be paid by them. This excessive expenditure was not economically justified at that time.

The Deputy's memory does not go back far enough.

Will the Deputy give way?

Those that accuse the Government of the 1980s of doubling the national debt frequently forget that their predecessors tripled the national debt.

That is correct. The State spent approximately 70 years building up a £12 billion debt. In five short years, the then Government doubled it to £25 billion. It has been in that upper region since and we have been working hard to reduce it. The turning point, which led to this Bill, was the vision of funding future pensions rather than raiding the State's coffers and building up a debt which would have to be paid by future generations.

Social partnership was established in 1987 and led to the improvements in the economy through the Government working with the social partners. It was unique in Ireland and led to the creation of strong annual budget surpluses with a low rate of inflation and growth at a consistently high level. It has allowed us to look to the future as we approach the end of the millennium and provide funds for future generations.

I have no concerns that money, which might be needed on an annual basis to service day to day activities, will be taken this year, next year or in the future from the Exchequer and set aside in this fund for pension entitlements. In the context of the £40 billion national development plan which was announced recently, there is no shortage of financial resources to make up the infrastructural deficit to which the Deputy referred. The problem is the country's ability in terms of the manpower and technical and physical resources available to it to spend all the money and to ensure the plan is fully implemented between now and 2006.

For example, this year £4.2 billion is being provided to the Department of Health and Children for current and capital expenditure. This works out at approximately £12 million a day for health services. When the Government is providing that level of funding, it is outrageous that there are problems in the health services. More than enough money is being provided and the various agencies, health boards and hospitals and their administrators and staff should consider if they are getting maximum value for taxpayers' money in dealing with waiting lists and all the other problems in the health services at present. These problems are not due to lack of financial resources but a lack of good procedures to ensure value for money.

I praise the Minister for Finance, Deputy McCreevy, who brought forward this proposal almost single-handedly. He is looking to the future; there are no votes in it in the short-term. It is appropriate for me to put down a marker at this time. If any party brings forward a policy in its manifesto in an effort to buy votes at the next general election that this fund should be raided on the basis that, because of the strength of the economy, the money in it could be put to better use, I will be quick to highlight its hypocrisy and the short sighted nature of such an approach.

Many matters will arise during the debate and I ask the Minister to consider a number of them. Some of them could be addressed in the context of this Bill and others could be dealt with in the permanent legislation when it is introduced shortly. It is important to spell out certain matters for the public. Different phrases are interchanged but the Bill refers to 1% of gross national product. However, the Department of Finance often refers to gross domestic product. There is a significant difference between the two depending on which figure one uses. It is important that the public is clear about what is involved because Ireland has traditionally used GNP but there are slightly different definitions at European level. The public must be clear about the definition being used.

I praise the role of the National Treasury Management Agency over the years. It is an excellent institution and I hope it will be to the forefront in managing the two new funds for public service and social welfare pensions. The agency has built up considerable expertise and it would be folly to set up a parallel body to substantially do the same work. I have every confidence in the agency's ability to do the job and that it will have proper democratic accounting procedures through the Minister for Finance and annual reports to the House.

I am pleased the issue of the pensions of retired civil servants is being addressed because it has led to problems in recent years. Despite the strong economy, attempts have been made not to pass on the full benefits of agreed productivity deals or altered working arrangements in public sector areas to retired public servants. This practice is intrinsically unfair, particularly when the economy is doing well. The setting aside of the pension fund for the long-term will obviate the need to take that route and this is a welcome bonus.

When pensions are mentioned, people think of the voluntary contributions they make through their employment. This aspect may arise in the Bill because it is most relevant. Many people who are paying into a pension fund to ensure they have extra income when they retire are concerned that this money will put them over the limit and mean they will not qualify for a State pension, a medical card or other similar benefits. People who set aside some income to look after themselves in their old age should receive some reward. They should not be penalised in terms of not being eligible for various State services.

The level of inflation is historically low and although it may appear strange, I can envisage a situation where there could be deflation. There has been much inflation throughout this century but given the success of the economy, the level of exchange rates and the increasing ability of the world, due to new technology, to produce items at substantially lower costs than heretofore, it is possible that there may be deflation in the future. I do not mean there will be a depressed economy. It could be a positive state because of efficiency in production methods and prices may become lower. The possibility of deflation should be factored into the legislation.

An actuarial report should be presented to the Dáil on the management of the fund at least every three years. It is vital that the projections underpinning this legislation are examined and reviewed on a regular basis to see whether the assumptions have held up in reality. If we look at the projections of many economists from institutes or Departments five, ten or 15 years ago and see what was projected for the end of the century, none bears any reality to the actual outturn. If reviewed on a regular basis this would allow us the opportunity to place sufficient funds in the temporary holding fund.

This is only partial funding of pensions for the future. There is no question of this generation funding entirely the pensions for future generations. Not only are we meeting the costs of current pensions we will also make a partial provision for future generations who will have to meet the balance of the costs from their own resources.

A question I would like to have answered in the legislation, either now or when we get the permanent legislation, is when this will kick into place? In other words, in what year will the temporary holding fund start to pay out social welfare and public service pensions? Will it be next year or in 20 years? When it comes into being it will have a major impact on the current budget deficit and the amount the Government will have to provide in the Estimates each year for the provision of public service pensions. The sooner the fund kicks into place, the sooner the country will witness an additional benefit in current expenditure in terms of the Estimates. I respectfully suggest, given that the economy is strong, we put off the draw-down date as much as possible. If we do not have to do so in the short-term we should wait as long as possible.

The management of the fund is the most important practical aspect. There are two ways of looking at it. One may say that because it is a Government and public sector fund it should not be run on a strictly commercial basis. There will always be a temptation to insist that it be invested in Ireland or in the EU, perhaps to the detriment of the fund to earn a higher return if invested elsewhere. There is a balance to be struck and I do not think there is any definitive answer. The agency which will manage the fund will have to have a commercial mandate and work in accordance with Government policy of the day. I do not think it can be strictly commercial because too much of the funds might leave the country. However, there must be sufficient independence to ensure the Government of the day cannot direct it to invest its funds for a particular purpose to suit Government policy. The detailed legislation will address the balance that has to be struck.

I avail of this opportunity to compliment the Minister on bringing forward this legislation. No other Minister for Finance would have thought of doing something like this. There are no votes in it for the next election but future generations will thank us for providing the funds.

As the title of the Bill indicates this is a temporary holding fund. Many of the questions raised by Deputies relate to the substantial legislation which will be introduced next year. It is my intention to have the legislation published and, if possible, enacted by Easter. The questions raised relate to the policy options and what we will be done in all these areas. I will try to give the House some idea of my thinking on some of those areas. When I announced the fund in July I gave a press conference at which I dealt with some of them. I dealt with them also in subsequent interviews and at Question Time on one occasion – although not to any great extent but it was touched upon by a question tabled by Deputy Noonan.

In the interjection with Deputy Noonan I pointed out that the full legislation will provide for two funds – the State pensioners' fund and the civil servants' fund. The thinking behind the July document was that the ratio would be 2:1. In regard to that document it should be noted that even on our estimations and even with a good start with the Telecom Éireann flotation, plus the 1% of GNP, it will go nowhere near meeting the full liabilities of this fund in time. We estimate that we would need to contribute about 3.5% of GNP to fund it fully. It must be borne in mind, as pointed out by Deputy Fleming, that even with giving the fund a good start it cannot be addressed fully in the future.

Deputy Noonan raised questions about the article in the Financial Times. That article refers to pensions being linked to inflation whereas our projections are based on pensions being linked to wage rises. The pensions now cost about 4% of GNP but with extra wages the costs will rise to over 9% of GNP by 2050. The indexed prices and the costs will fall to 4% as indicated in the Financial Times article. We are talking about two different things.

Who are the brilliant people who produced these forecasts?

I often ask that question. Deputies Noonan and McDowell asked what would happen with regard to the social insurance fund. The Tánaiste and Minister for Enterprise, Trade and Employment will introduce legislation to set up a training fund and Deputies will have an opportunity to contribute on that matter. A matter for consideration is what is to be done with the element of the social insurance fund which is being built up from potential contributions in the PRSI contribution. I am debating that matter and we will put forward the options before the legislation is finalised.

Many questions were asked about the investment mandate, whether it will be equities, at home or abroad and Deputy Noonan asked about macroeconomic policy. I want to ensure that no subsequent Minister for Finance can dip his hand into this fund to help him get over a particular problem while at the same time ensuring full accountability to the House, because people's money is being put aside. We are trying to ensure that the moneys invested are in a fund and managed prudently and properly and not subject to the whims of Ministers for Finance or changes of Government.

The investment mandate I would give to the fund would be to get the best return possible. Deputies Fleming and McDowell said a balance must be struck. The few funds that exist are not constrained by political considerations nor should they be. I do not know whether Deputy McDowell or Deputy Noonan have private pension arrangements but, if so, they would not be impressed if the manager or trustees of their funds took it upon themselves every few months to change policy, just because the Government of the day ordered it to do something. They would expect a maximum return from the fund over its lifetime. That is my thinking at this time.

Deputy Noonan and others asked why this money could not be used on infrastructure. The national development plan for infrastructure is funded by the Exchequer, the EU and public private partnerships and is what the economy can bear. There is no need to resort to this fund. I commend the Bill to the House.

As it is now 7 o'clock, I am required to put the following question in accordance with an order of the Dáil of this day: Temporary Holding Fund for Superannuation Liabilities Bill, 1999, Second, Third, Fourth and Fifth Stages, that the Bill is hereby read a Second Time, that Sections 1 to 3, inclusive, and the Title are hereby agreed to in Committee and the Bill is accordingly reported to the House without amendment, that Fourth Stage is hereby completed and the Bill is hereby passed. Is that agreed? Agreed.

The Bill will now be sent to the Seanad.

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