Dáil Éireann debate -
Tuesday, 8 Apr 2003

Vol. 564 No. 5

Written Answers - Pension Provisions.

Brian O'Shea

Question:

26 Mr. O'Shea asked the Minister for Finance if he will make a statement on the performance of the national pensions reserve fund; the extent of the losses incurred by the fund at the latest date for which figures are available; and if the Government intends to amend the legislation to allow the resources of the fund to be used to finance all or part of the 10,000 affordable houses agreed in the recent national agreement talks with the social partners. [9727/03]

Dan Neville

Question:

51 Mr. Neville asked the Minister for Finance his plans to alter the present basis of contribution to or investment from the national pensions reserve fund. [9667/03]

Denis Naughten

Question:

84 Mr. Naughten asked the Minister for Finance the position regarding the national pensions reserve fund; and if he will make a statement on the matter. [9567/03]

Minister for Finance (Mr. McCreevy)

I propose to take Questions Nos. 26, 51 and 84 together.

One of the key principles underpinning the National Pensions Reserve Fund Act is the fact that the fund is managed by commissioners who are independent of Government. The commissioners control and manage the fund with discretionary authority to determine and implement an investment strategy. The Act required the commission to follow a strictly commercial investment mandate with the objective of securing the optimal return over the long-term subject to prudent risk management. In following this mandate, the commission has decided on a long-term asset allocation of 80% equities and 20% bonds.

These features of the National Pensions Reserve Fund Act are similar to the trustee arrangements which exist in private pension funds. Along with the statutory prohibition on drawdowns from the fund prior to 2025, they insulate the fund from day to day pressures on government and enable the commission to take a long-term view. This is essential if the purpose for which the fund was established, to meet as much as possible of the cost to the exchequer of pension payments from the year 2025 until at least the year 2055, is to be achieved. I do not intend to propose any change to the provisions of the National Pensions Reserve Fund Act 2000 to direct the commissioners to invest fund moneys in any particular way. There is, of course, nothing to prevent the commissioners from investing in housing or other infrastructural projects in Ireland should they be satisfied that such investments are likely to yield a commercial return.

By end-December 2002 a total of €8,163 million had been paid into the NPRF since its inception in April 2001 by way of capital contributions from the exchequer. A further capital contribution of €276 million was made in March 2003 bringing the total exchequer contribution to €8,439 million. The provisional market value of the fund at end 2002, the latest date for which figures have been published by the commission, was €7,426 million, i.e. there has been a decline of €737 million between the capital contributions to end 2002 and the year-end value of the fund. This represents a return of -13.3% since the fund's inception, as opposed to a return for the fund's strategic benchmark of -24.4% and a return for the average Irish managed pension fund of -19.3%.

The National Pensions Reserve Fund Act places a statutory requirement on the minister for Finance to make a payment of 1% of GNP into the fund each year. I have no plans to introduce amending legislation to change this requirement. To leave discretion in the making of the 1% contribution would, I am convinced, undermine the whole basis of the fund. If discretion were left in the making of the payment of the 1% contribution, it is likely that future Governments would come under pressure to prioritise shorter term economic goals at the expense of making the payment. It is essential that the mandatory contribution be maintained. Once it is breached for one purpose, it is more likely that it will be breached again.