National Pensions Reserve Fund Bill, 2000: Committee Stage.

Sections 1 and 2 agreed to.
NEW SECTION.

I move amendment No. 1:

In page 7, before section 3, to insert the following new section:

"3.–The establishment day for the purposes of this Act shall be 1 March, 2001.".

This is important legislation and I know the Minister is anxious to fix an establishment date as soon as possible because at present more than £5 billion is in the fund which earns very little interest. The commission will have to be appointed between the passing of the Bill and its establishment and it, in turn, will have to appoint the National Treasury Management Agency as manager of the fund. All types of problems could arise if a definite commencement date is not set down. It is important a date is fixed in a measure such as this and that is the purpose of the amendment.

I second the amendment. Considering the amount of money involved in this fund and given that funding under temporary legislation has been allocated, it is appropriate that there is a determined date on which the fund will commence. I know it is the Minister's intention to progress matters as quickly as possible, but there should be a specific date for the commencement of this measure. It is a preferable way of doing business that the legislation would include all details on the type and management of the fund, the constitution of the commission and when the fund will commence. We know the date on which it will come to an end, which is 2055, but we do not know when exactly it will commence.

Section 3 provides that the establishment day will be decided by the Minister for Finance and appointed by ministerial order. The Government has already allocated over £4.8 billion to this new fund. These moneys are currently being managed by the National Treasury Management Agency in short-term deposits.

It would be desirable to commence as soon as possible, as is the wish of the Minister for Finance, the process of transferring these moneys to longer-term investments consistent with the objectives of this fund. Obviously this cannot be done until the Bill is enacted and the national pensions reserve fund is legally and properly established. Therefore, it is intended to set the establishment date as soon as possible after the Bill's enactment. However, it must be recognised that some breathing space will be necessary to enable the manager, that is the NTMA, to finalise preparations for the setting up of the fund. This will have to be taken into account when setting the establishment date.

It is preferred not to specify the proposed 1 March date in the legislation as that removes the possibility of setting up the fund on an earlier date. The sooner we set up the fund the better. Members should know that there was some discussion of this issue on Committee Stage in the Dáil. The possibility of providing that the establishment date should not be later than 1 March was also examined. This would still allow the Minister for Finance to proceed with the establishment at an earlier date if that proved feasible. On further reflection and after discussion between officials from the Department of Finance and the Office of the Parliamentary Counsel to the Government it was decided and agreed not to proceed in this way. Establishing a cut-off date for establishment of the fund would mean that if for whatever reason, whether through a delay in the enactment of this Bill or due to some other delays subsequent to enactment, it was not possible to meet the establishment date a further amendment would be necessary in order to establish the fund and we would have to come back again into legislation. For these reasons it is advisable that we should allow the flexibility to the managers, that is the NTMA, to make a recommendation to the Minister and when all the details and structures are in position that he should sign the necessary order and allow the fund to commence.

Consequently, on the advice available and the fact that we must operate to best practice, I regret that it would be inadvisable to accept this amendment and I am not able to do so.

Is the amendment being pressed?

Amendment put and declared lost.
Sections 3, 4 and 5, inclusive, agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."

This section clearly sets out the functions of the commission. In section 6(1)(e) reads: “To appoint investment managers to invest and manage portions of the Fund,”. The functions are listed as far as section 6(4). Section 6(5) reads: “The Commission shall perform all its functions through the Manager .”. The commission has the functions mentioned between section 6(1) and (4) but it states in section 6(5) that all of the functions are performed through the manager. What functions have the commissioners?

I support the question posed by Senator Doyle but I would go a bit further. As far as I can see we have a structure being set up which has the Minister for Finance at the top. He appoints the manager, who according to this Bill is the NTMA. The manager sits on top of this structure but does not appoint. In other words, he is in charge of the commission. I am open to correction on this because it is not clear to me from the Bill. The commission then appoints the fund manager. We have a four-tiered structure. I do not understand why we need a manager. Senator Doyle asked this question in another way.

I can understand from this Bill what the commission does. What will the NTMA be doing? The commissioners will be the board of directors. They will direct a bureaucracy which is underneath them, having appointed other people to decide the investment policy. What will the manager or the NTMA do? There is a case for the NTMA to be released and removed from this process once the commissioners have been appointed.

On top of this there will be, according to the Minister who was here last week, a large bureaucracy underneath the NTMA. What is the NTMA's role? It seems to me that the NTMA is being used or being put in a temporary capacity at present. This may not be a good thing. I do not know whether it will have a role after this structure is set up.

This Bill provides that all functions, powers and responsibilities with regard to the fund, as set out in section 6(1) to (3) inclusive, are vested in the commission. All powers in relation to the fund reside in the commission.

Section 21(1) states: "The Commission shall appoint a manager of the Fund . to act as its agent in the performance of its functions under the Act." The manager has no powers in his own right. He is merely the agent of the commission. In other words, the commission decides a policy and gives the instructions that the manager operates.

The relationship between the commission and the manager is one where all of the powers and responsibilities belong to the commission. The manager will, as agent of the commission, act as their executive, in other words, like the Civil Service acts as the executive of Government. This is the bedrock of the relationship between the commission and the manager.

The relationship between the commission and the manager is further dealt with in two sections which were the subject of debate on Committee Stage in Dáil Éireann, section 6(5) and (6). Section 6(5) requires that the commission must make use of its agent, the manager, in the performance of all of its functions with two stated exceptions. The section has been included in the Bill in the interest of proper corporate governance of the fund. The purpose of the section is to ensure that the commission does not, under any circumstances, attempt to set up a parallel executive to the manager, for instance, by hiring consultants on a semi-permanent basis and having consultants carry out executive functions for the commission. Were this to happen there would be confusion about the roles and responsibilities and management of the fund would suffer. The likelihood of this section ever having to be invoked may be remote but it is well to have it in this Bill to ensure absolute certainty. There is no doubt that the commission will act as trustees and policy managers and the manager will act as the operational manager of the fund.

Section 6(6) allows the commission to delegate any of its function to the manager. The extent of delegation by the commission will be decided by it in the lightinter alia of the requirement on it under section 6(4) which states: “To exercise due care, skill, prudence and diligence, acting in the utmost good faith, in the discharge of its functions under this Act.”

Should the commission choose to use section 6(6) the manager may have decision-making as well as the executive functions in relation to the areas delegated to him. Where the commission does not use this subsection to delegate its function to the manager, he will have to refer issues back to the commission for its decision. Delegation by the commission under section 6(6) is likely to require it to spell out and duly record the extent of the functions being delegated and the circumstances in which the manager should refer back them for decision.

Where functions are so delegated the commission will remain responsible for the manner in which the manager executes his delegated powers. The chief executive of the manager will be accountable to the Committee of Public Accounts for any actions or decisions taken by him under delegated authority from the commission. There is a direct line to the Oireachtas through the Committee of Public Accounts and there will be an opportunity to interview, question and get a response and reports from the chief executive of the manager.

These sections provide a framework for the governance of the fund and it will be a matter for the commission to decide how these sections will operate in practice. This legislation is very struc tured and systematic and gives an absolute transparency to the evolution of the fund.

Why is the NTMA being chosen and why is it not being put out to tender?

I would like some clarification of the structure that has been outlined by the Minister. When we discussed this on Second Stage, my understanding was that the Minister for Finance said the first manager would be the NTMA. The definition of manager on page 6 of the Bill is "the person appointed as manager of the Fund undersection 21”. So the definition of manager is a person, not a body. How do we equate the NTMA as a body with a person who is to be a manager?

I am quite confused about the hierarchy of responsibility and how it will operate. Clearly, it would seem that if the first manager is to be the NTMA or its chief executive – it is not quite clear whether the definition is correct as it stands – its function will be to take some direction from the commission. Its function will also be to hire fund investment firms. I wonder how that will operate. What exactly will be the NTMA's role if it is going to contract out this function? Will it contract out consultancies or managements? Will it have an operational role and how will its direction come from the commission? In other words, if we are talking about a body that will have a figurehead commission, the NTMA may run the show in a sense, but it will not actually have a hands-on managerial role.

Will the Minister give some idea of what range of fund investment bodies he is talking about in the section, whereby fund investment managers will manage portions of the fund? Is it envisaged that part of the fund will not be dealt with by fund investment managers, but that part will be dealt with either by the commission or the NTMA?

Who will appoint the fund managers? Will it be the commissioners or the NTMA? The appointment of fund mangers will be crucial to this substantial investment fund. There could be a conflict of interest if the commissioners' view differs from that of the NTMA's chief executive. Who will resolve that?

Senators have posed many interesting questions. The Bill provides for the appointment of the National Treasury Management Agency to act as agent of the commission in managing this fund for an initial period of ten years. After this there will be an option, at five yearly intervals, for the commissioners to extend this arrangement further, or to appoint an alternative manager. In deciding to give this role to the National Treasury Management Agency, the Minister for Finance was strongly influenced by the fact that almost £5 billion will be entrusted to the commissioners once the fund is established. They will, therefore, need to have access to a fully functioning executive with the systems and expertise to manage such a large sum from day one. The NTMA has been managing the liability side of the State's balance sheet for over a decade. While asset management will require the agency to acquire some additional skills, it is far more sensible to have the NTMA manage the fund than to expect the commissioners to start from scratch and establish a second specialised agency to manage such a large amount of money, which I believe would be a waste of public money.

The NTMA has a unique track record. It is a centre of excellence in fund management and in financial and fiscal policies in this country.

Rubbish.

I will not interrupt Senator Ross and I would ask him not to interrupt me. I read what he wrote last Sunday and I would not like to ask him for a reference as a result. All I can say is that the record is there. The ingenuity of the former Minister for Finance and former Taoiseach, Deputy Albert Reynolds, in creating this structure has saved the State billions of pounds in managing our national debt. We have a reservoir of talent and expertise within the NTMA.

As regards Senator Doyle's question, when the Bill is enacted, the commissioners will make the decisions. There cannot and will not be a conflict of interest. The NTMA will make recommendations and the commissioners will take the decisions. Irrespective of whatever view the chief executive of the NTMA or any of his staff or agents hold, the commissioners will take the final, legally binding decisions which will become operable.

Going back to Senator Costello's question, the NTMA may choose to manage this fund wholly itself, but we are giving it the flexibility to see where the opportunities are in international financial management and to decide what is prudent, positive and practical at a particular time. If the NTMA requires assistance from other people to act as agents for part of the fund or otherwise, it will have to make recommendations to the commissioners who will take the final decision based on their personal knowledge and expertise, the information available to them and what they believe is in the best interests of the fund.

I thank the Minister for his contribution on this section, although I disagree with virtually every word of it. It has been fashionable among Ministers to parrot out this line about the NTMA being extremely successful at what it does. I have never seen a coherent argument or evidence to justify that, but I know that successive Governments, particularly Ministers for Finance, always say it. Who are the NTMA's competitors? With whom are we comparing this staggering performance, as the Minister makes it out to be? The reality is that there is none. For the Minister to come into this House and say that the NTMA has saved the nation billions of pounds is absolute nonsense, because he cannot prove it. The only people who say that are those in the NTMA.

Although he has not been privileged to be there, the Minister should know that every 31 December we have to put up with an NTMA statement that it saved so much money for the nation. The NTMA people usually have some tame Minister for Finance sitting beside them who is nodding, grinning and agreeing with this very complicated business because he does not understand what they are talking about. At the end of the day, they pat each other on the back and say, "We've saved billions of the national debt," which is absolutely unprovable. One cannot prove what would have happened if the NTMA had done something else. I do not know whether the NTMA has been successful or unsuccessful, and neither does anybody else. Quite obviously, the NTMA could have saved a great deal more money, or lost it, if it had done other things.

There is a benchmark, but the way in which it is selected is not properly independent. What happened to that benchmark when devaluation occurred in 1993? At that time the benchmark was suspended because the NTMA had the national debt in all the wrong currencies. What is the point in having benchmarks if, when one does not like the result of what one has done, one suddenly says, "We are suspending the benchmark because of devaluation"? The NTMA got it wrong. It should have wiped 10% off the benchmark and operated at 10% below it, but it was suspended instead. In the case of the NTMA, benchmarks are fictional. They are set by the agency but suspended when it does not want them. Yet Ministers come to the Seanad and say these guys are doing a great job. It is nonsense. Let us see the NTMA being compared to independent agencies which run national debts overseas.

Excuse me Senator, but I see no reference whatsoever to the NTMA in this section. Perhaps you could enlighten me.

The manager referred to in section 6 is the NTMA.

Acting Chairman

I assumed the section relates to the functions of the commission.

There is still a relationship between them and the manager is referred to in subsection (6). Let me continue in the same vein. The Minister of State also said that it was very strong on the liability side. That may or may not be true – we have already discussed the issue – but what we are dealing with is the assets side, not the liability side. The NTMA may or may not have been good at managing debt – the jury is still out on that issue – but what experience does it have of managing equities? There is no doubt that a large portion of the fund will be invested in equities, not bonds. It will be invested in ordinary stocks and shares – ordinary assets. This is not stated in the Bill, but that is my understanding of the principal target of these massive funds.

What experience does the NTMA have of managing assets such as these? The Minister of State did not reply to my question. Why is this not being put out to tender internationally? It will be one of the biggest funds in the world. By 2055 God knows what size it will be – it will amount to billions of pounds.

I want answers to these questions. The House should not have to put up with assertions about the NTMA which we are expected to believe without evidence.

I disagree totally with Senator Ross that the Minister, Deputy McCreevy, is tame when sitting beside the NTMA and does not understand what it is all about. Nobody in the country would accept that statement. The Minister is anything but tame and is very well equipped to deal with financial matters. That point should be put to bed straight away.

Everyone is entitled to a view on the merits of the NTMA or other international agency, but the Minister has decided that the body in question has a track record. It is generally accepted that it has done an excellent job, although Senator Ross is entitled to his view that it cannot be compared with other agencies. The Minister and the nation generally can see that the national debt has been very well managed with the result that the debt ratio is now the second lowest in Europe. Surely the agency must be doing something right.

That has nothing to do with the NTMA.

The Minister is correct to place his confidence in it. It will have the option of availing of the expertise of other managers and agencies in dealing with parts of the funds. He has been very prudent in his approach to the matter.

I acknowledge that the NTMA has done a good job in managing the national debt.

How does the Senator know?

From the available figures. I agree with the Senator that investing funds is a different kettle of fish from managing the national debt. Investing in equities requires different skills and abilities. Last week on Second Stage I referred to a survey conducted by Chase de Vere, independent advisers, which showed that of the 474 fund managers surveyed very few had beaten the index. That is the real issue. The commission and manager will have to secure the highest rate of interest on the funds invested in what is a very difficult climate. I was very pleased that the survey was referred to in the money supplement to theSunday Times of 26 November 2000. It went further stating:

Investors are being warned to ignore the spurious past performance statistics and marketing hype commonly used to promote funds. Every year fund managers heavily push fad funds which have typically offered very high returns, but only in a very short time when investors are lured in at the peak.

It cited the technology market as an example. That is the difficulty we face. We have to be certain that the people concerned will have the necessary expertise to get the best return on the funds invested. That is the point we are making.

I seek clarification on the definitions of "manager" and "agency". It is stated in section 21 that on the establishment day the National Treasury Management Agency will be appointed as manager of the fund. "Manager" is defined to mean the person appointed as manager of the fund, while "agency" is defined to mean the National Treasury Management Agency. Are we to take it that a person will be disembodied and turned into a body corporate? I seek clarification on the terminology used.

As Senators Ross and Joe Doyle said, there is a huge difference between the management of the national debt and the management of an investment fund. In the management of the national debt one is looking for the lowest interest rates available. In the management of an investment fund one is looking for the highest rates available.

While I accept the propaganda that the NTMA has been successful and done a fantastic job – I have admired the results achieved each year when the national debt has been reduced by between £100 million and £200 million because of the excellent choices made by the agency – how has this been benchmarked? Where are the comparisons? As there has been no comparison, this cannot be determined. Clearly, it all up in the air. Are there any international comparisons which can be used in benchmarking the alleged success of the NTMA in reducing the national debt by securing preferential interest rates? Why, therefore, on the establishment day will it be appointed as manager for a period of ten years? That is a lengthy period during which there will, probably, be three or four Ministers for Finance—

No, there will probably be about two this time.

The next Government, which will not be the current one, will be in office for the full five year period.

The Senator may be part of it.

While it would be reasonable to start with a body with a track record in the general area such as the NTMA, given the enormous sums involved, it would not be appropriate to tie it down to one particular management agency for an entire decade. That is not to say that it will not do a wonderful job, but it seems that in not looking abroad we are almost buying a pig in a poke. Investment is anything but a science. As Senator Doyle said, investment fund managers seem to be securing much lower rates of return than if one placed one's money in the post office.

Correct.

I would not like to talk about what might happen if one invested in some of the new stocks and shares, which may well become the fad. Can one imagine what would have happened if the fund had been established two years ago when Eircom was floated? I will bet that massive amounts would have been invested in the company straight away. Would the Government have had no confidence in its own flotation? Given all the hype, the Minister for Public Enterprise, Deputy O'Rourke, would have been highly annoyed if the NTMA had not invested a considerable sum in Eircom. It would by now have gone down the tubes.

What concerns me is that there is very little information available. There are few competitive standards to be examined and little benchmarking. We really do not know where we are going in this regard. I am more concerned about the duration of the appointment rather than the initial appointment of the NTMA.

Acting Chairman

This will be dealt with in section 7. Most of Senator Costello's contribution related to that section rather than section 6. I mention that in case the Senator repeats himself on section 7.

This is an important section of the Bill, dealing with the appointment of the commission and its responsibility to appoint fund managers. Fund management is not a simple matter. If the return we receive on the investment of this pension fund is not greater than the rate of interest we pay on the national debt, it would be simpler to pay off the national debt.

Hear, hear.

The Minister might tell the House the average rate of interest on the national debt. Whatever it is, the return on the pension fund must be at least one or two percentage points more or we will lose money. That is common sense.

I thought I had answered some of the Senators' questions earlier. With regard to the national debt, the average rate of interest is approximately 5.5%. Senator Costello queried the manager being a personvis-à-vis a corporate body. That refers to the legal person and under the interpretation Acts it can be a human person or a corporate body. There must be a human to manage the body.

Senator Ross referred to the NTMA as being judge and jury in relation to the determination of the debt management benchmark and the measurement of the agency's performance against that benchmark. This is grossly unfair to the agency and wide of the mark. The debt management benchmark is approved by the Department of Finance on advice from an independent firm of investment bankers and from the advisory committee of the NTMA. The agency has outstanding members who have remarkable track records in financial management, treasury management and so forth. Senator Ross will be aware of that. The members of the agency are appointed by the Minister for Finance.

Furthermore, the measurement process against the debt management benchmark is independently audited by a major firm of commercial auditors. The agency has done an outstanding job in managing the national debt and the basis on which its performance is evaluated is a matter of independent determination. There is a tendency to denigrate our operations. The agency has an outstanding track record of success. The model of the National Treasury Management Agency has been put into operation in Austria and Australia. Germany, the industrial power in the European Union, is currently examining it with a view to replicating it. We are equal to the best and better than most. We can be proud of the centre of excellence we have in the National Treasury Management Agency. Why should we spend large amounts of money handing the fund over to international firms when the State already has the capacity to manage it?

Our level of indebtedness has fallen dramatically in recent years. The debt GDP ratio has fallen from 94% in 1990 to a projected 41.5% by the end of this year. Furthermore, the substantial budget surpluses run in 1999 and 2000 of £1.2 billion and approximately £2 billion respectively have been used to repay debt. The Minister for Finance is committed to reducing the debt. Given projected growth rates and continued budgetary surpluses, the current downward trend in both the debt GDP ratio and the absolute level of indebtedness is likely to accelerate over the next few years.

The requirements placed on Ireland as partici pants in EMU to avoid excessive deficits and to achieve a medium-term budgetary position close to balance or in surplus over the course of a normal economic cycle will effectively prevent the debt increasing over the longer term. Ireland is in position to commence pre-funding while also reducing the national debt and the consequent interest costs at a rapid rate. There is no conflict between the two strategies. Equities have historically outperformed bonds over most historic periods. Over the long-term holding period envisaged for this fund, equity type investments can be expected to give a higher return than the cost of debt.

The appropriate equity bond mix will be a matter for the commissioners to determine in light of the likely pattern of drawdowns from the fund, in the same manner as the trustees of a pension fund will determine the appropriate mix in respect of their funds. This is a responsible task and it will be given to a responsible agency under the auspices of an outstanding commission. While it is a matter for the commissioners, the National Treasury Management Agency is unlikely to become active in management of equities initially. It is likely that such investment will be put out to tender, as Senator Ross suggests. It is expected that the agency will be more directly involved in both management and bond investment.

It is important, given the track record and expertise of the agency, that it be allowed to move into this area of operations on behalf of Ireland to ensure the opportunities that exist and the liquidity in the economy can be maximised by Irish management in the best interests of our people. The Government and the Minister for Finance have the utmost confidence in the NTMA to do the job as well as the best and better than the rest.

I wish to comment on the NTMA in passing. It is not difficult at a time of historically low interest rates to reduce the cost of debt servicing. It would be extraordinary if it did not happen. The agency is involved with reducing debt servicing, not reducing the net national debt. We should not confuse this.

The NTMA has not reduced the national debt. It was set up to manage that debt and to reduce the cost of servicing it. The Minister is confusing the cost of servicing with the actual reduction of the debt as a percentage of GNP. He is correct that the national debt is being reduced as a percentage of GNP. He is also correct that Ireland is a star in the European firmament in that regard. Our percentage has continuously reduced. However, that is due to Government surplus, a matter for which this and the last Governments can claim enormous credit. It is due to sound economic and fiscal policy; it has nothing to do with the NTMA. The surplus goes to pay off the national debt but the NTMA's job is to reduce the cost of servicing that debt and, in that regard, it has benefited from low interest rates. There is a huge distinction there. The Minister was being a little modest about that—

My party is modest by nature.

Correct.

Acting Chairman

I am sure this trawl through the debt servicing process is interesting but it is not adding further—

I will explain what it is doing and I am serious about it—

Acting Chairman

I appreciate that you are.

I am questioning the logic of appointing the NTMA, which has no experience in managing assets of this nature, to this position for ten years. It is a serious point.

Acting Chairman

That relates to sections 21 and 7. It has nothing to do with section 6. In fairness to the Minister, I must point out that he did respond to the matter the Senator is now addressing. He said it would be put to tender—

After ten years.

Acting Chairman

—so the issue has already been addressed. I am trying to move the debate along. The matter has been explored in intricate detail. Has the Senator something fresh to add?

I have several fresh comments to add. The Minister introduced another element which is so dangerous and flawed that it must attract comment. He said that historically equities can be expected to give a better return than the 5.4% it costs to service the national debt. If the Minister of State can point to any equity market in the world where the yield is more than 5.4% on average, I will take a punt at it. On average, equities in the Irish, British or American markets do not yield more than 5.4%.

If his argument is correct, the Minister of State is saying that we should not pay off the national debt but should use the money to invest in equities in order to garner big profits. Why does he not proceed to borrow many billions of pounds at a rate of 5.4% and give it to the NTMA to manage?

I will provide a simple answer to the Senator's question and that will be my final contribution on this issue. The Senator is stating that he wants Ireland to compete in the market with the private sector by borrowing funds to invest elsewhere. That is a matter for the market.

That is what you are doing already.

The market rules. We are doing it already in terms of the national debt which we have a legal and political responsibility to man age. The agency responsible for managing that debt is doing an excellent job. We have removed the impediments and barriers and created a level playing field. In the past the State consistently borrowed money, interfered with the private sector, drove interest rates up and added to inflation. That is no longer the case. The playing field is now level and the market responds to the opportunities that arise. The State must exist in such a financial environment.

We are asking the NTMA to do a particular job; we are giving it cash to manage in co-operation with a management team of commissioners who will act as trustees of a fund on behalf of the people of Ireland. That fund will meet liabilities we will incur after 2025 and, surely, one could not make a more forward-looking or positive decision on behalf of the people.

That is pure and undiluted waffle. I want the Minister of State to indicate why he will not borrow billions of pounds more and give it to the people to whom he refers so that they can make more money than is required to service the national debt.

Question put and agreed to.
NEW SECTION.

I move amendment No. 2:

In page 8, before section 7, to insert the following new section:

7.–The Freedom of Information Act, 1997 shall apply to the Commission.".

In light of the previous discussion, this amendment assumes greater importance and resonance. The Freedom of Information Act should apply to the commission because people will want to know how it makes decisions and enunciates policy, how investment managers will be chosen and how it will operate its brief under section 6.

The current mechanism used to extend the ambit of the Freedom of Information Act, 1997, is incredibly bureaucratic, unwieldy and unnecessary. It would seem far more appropriate that when each new item of legislation is debated it should be decided whether it should come within the ambit of the Freedom of Information Act. At present, ministerial orders are all that is needed to decide whether a new body will be subject to the provision of the Act. Under the current procedure, a Bill comes before the Houses and is referred to the relevant committee which considers and returns it. There is no discussion on whether it should be subject to the provisions to which I refer. The process is terribly cumbersome and I do not know why matters are dealt with in that way.

I would have thought that, since 1997, each item of legislation should have been considered in terms of which of its provisions were appropriate to be covered by the Freedom of Information Act, rather than allowing a Minister to make an order to bring certain provisions under the ambit of that Act. The Houses of the Oireachtas should be responsible for making such decisions.

The Bill before us is extremely important because it involves a massive amount of taxpayers' money which will be salted away, in one form or another, from now until at least 2055 when it will be used to pay people's pensions. That money will be invested in various ways and citizens have a major interest in knowing how it will be invested. Those who will be pensioners when the moneys in the fund become payable will anticipate that it will make them comfortable in retirement. That is the intention behind the fund. Those of us who hope to live to pensionable age will be interested in how the fund will operate and the Freedom of Act should apply from the outset.

Senator Ross unkindly reminded me recently that I will probably not live to benefit from this pension fund in 2025.

Acting Chairman

Neither will Senator Ross.

However, as Senator Costello stated there are many who will benefit and who will be interested in the progress of the fund. It is only proper that the commission should come under the auspices of the Freedom of Information Act because people will then be able to obtain the information they require. This matter is particularly relevant in terms of the issues raised during the debate on section 6. It is important that members of the public should be aware of how the funds will be invested.

I assure Senator Joe Doyle that he will live a long time. Given the quantity of sustainable and resilient east Galway blood flowing through his veins, he could be around to see the fund grow and develop and, perhaps, benefit from it.

The Freedom of Information Act, 1997, commenced for central Government and related public bodies on 21 April 1998. It was extended to health boards and local authorities six months later and to voluntary hospitals and certain publicly funded voluntary bodies providing services to people with an intellectual disability in October 1999. In December 1999 the Government decided to extend the Act incrementally, between May 2000 and no later than July 2001, to a range of other bodies in the enterprise, electricity, telecommunications regulation, cultural and broadcasting, universities, health services, environment and social services sectors.

The Freedom of Information Act will be extended incrementally across the wider public service as experience is gained in its application. Its application to this commission will be decided in the context of the extension of the Act generally. When drafting the Bill, room was made for the possible application of the Freedom of Information Act at a later date. I refer specifically to section 13 which prohibits the disclosure of confidential information on the fund by a commissioner, a member of the staff or the manager, a member of a committee, an investment manager or a custodian, consultant or adviser engaged by the commission, except where such disclosure is authorised by the commission and otherwise provided for by law. The latter exception caters,inter alia, for the requirement to disclose information in a court of law or where disclosure is required under some other statute, including the Freedom of Information Act.

In any event, the Bill contains significant provisions to ensure transparency and accountability. These include section 25 which requires the chairperson of the commission to appear before the Committee of Public Accounts, section 26(3) which provides for the preparation of annual accounts to be audited by the Comptroller and Auditor General and for the laying of such audited accounts by the Minister before the Houses of the Oireachtas, section 26(4) which requires the chief executive of the agency, as accounting officer for the fund, to appear before the Committee of Public Accounts to give evidence on matters relating to the accounts; section 27(1) which requires the commission to make an annual report to the Minister for Finance of its activities, after which the report will again be laid before each House of the Oireachtas and section 27(4) which enables the Minister for Finance, from time to time, to have an examination carried out into various aspects of the operation of the fund.

These provisions will ensure that detailed information regarding the management of the fund will be constantly in the public arena. As already stated, the question of making the commission subject to the provisions of the Freedom of Information Act will be considered at a later date in the context of the general extension of that Act. It would, therefore, be unwise to proceed with the amendment at this point and, consequently, I do not propose to accept it.

The Minister of State made a cogent argument in terms of the accountability of the commission, under the provisions of the Bill, to the Committee of Public Accounts and the Oireachtas. However, freedom of information involves making information accessible to the citizenry and deciding whether it is appropriate that information regarding the management of the fund should be available on a wider basis. The Minister said that material should not be dis closed except where provided for by law. However, no such disclosure is currently provided for other than to the Oireachtas.

I was making a different point. Formulating legislation provides the best opportunity to explore the purpose of the legislation, the parameters within which we see it operating, the matters we regard as confidential or not confidential and the degree of accountability and disclosure. The time to do so is when the totality of the legislation is being debated rather than leaving it to the possibility of a ministerial order being introduced at some stage in the future. We will forget about the citizen's right to know once the legislation is passed.

In addition, there is no guarantee that a ministerial order will be introduced. Even if it is, the Bill is creating a cumbersome procedure whereby a separate order will have to be introduced in both Houses every time something is to be disclosed to the public. Such orders have to be sent to a committee and then must go back to both Houses to be agreed. This is not the way to do business. The correct approach is to deal with this matter in the legislation. The Freedom of Information Act has been in place since 1997 and surely the best approach would be to state whether and where the Act will apply in terms of the disclosure of information. The Minister of State's reply was praiseworthy but does not answer my question.

We are introducing a new Bill and creating a new structure under which funds will be managed for Ireland and the people of Ireland. The structure will evolve and grow. We must allow for the fact that the Government has decided to incrementally introduce the Freedom of Information Act to various sectors of the public service and this will happen in this case in due course. In the interim there is absolute accountability for every section of the structure, whether the commissioners, the chairperson, the NTMA or its chief executive, all of whom must appear before the Committee of Public Accounts. In addition, the Minister for Finance can obtain a report at any time and take appropriate decisions and Members of the Oireachtas, acting on behalf of the people, can raise matters under the instruments available to the Oireachtas.

These procedures provide ample opportunity to obtain necessary information at any time. We must not put the cart before the horse. The structure must be allowed to go forward. Only then will we be able to examine its performance to see if it can be included in a gamut of services to come under the remit of the Freedom of Information Act in line with the Government's incremental decisions on that legislation.

Amendment, by leave, withdrawn.
SECTION 7.

Acting Chairman

Amendment No. 4 is an alternative to amendment No. 3 and these amendments may be taken together.

I move amendment No. 3:

In page 8, subsection (3), line 44, after "Minister" to insert "following consultation with such committee of either or both Houses of the Oireachtas as may be appointed in that behalf by resolution of either or both such Houses".

This amendment proposes that we do not leave the appointment of the commissioners to the discretion of the Minister for Finance but that such appointments be made following consultation with such committee of either or both Houses of the Oireachtas as may be appointed in that behalf by resolution of either or both Houses. Senator Ross tabled a similar amendment.

This Bill deals with a very important matter, both in terms of the amount of moneys involved and the future use of those moneys to pay pensions. We could benefit enormously from having a committee which would assist the Minister. The Bill stipulates certain sectors from which the appointments will be made, such as law, finance, investment, actuarial services, accountancy and so on. However, the recent proposed nomination to the European Investment Bank showed how big a mess the Minister for Finance can make of an appointment. In that case the Minister, Deputy McCreevy, who will make the appointments under this legislation, chose someone over whom he was not able to stand in the final analysis and who had to withdraw from the nomination. In light of this, I am not sure the correct approach is to leave the Minister to his own devices when making appointments. It seems more appropriate that some assistance be given to the Minister so he can obtain the advice and support of a wider body of people. My amendment proposes that this body should be a committee of the Oireachtas. This would be a desirable, holistic approach to this matter considering what we are proposing to do in the interests of senior citizens.

My amendment is almost an exact copy of Senator Costello's amendment, for which I apologise. I assure the Senator this is a coincidence as I was not aware of his amendment.

Great minds.

It is nice to be on the same lines as the intellectual element of the House.

The Senator is a true socialist.

I tabled my amendment for different reasons than Senator Costello even though we seem to have come to the same conclusion. I tabled a similar, later amendment which I intend to withdraw. I find it difficult to reconcile appointments to boards and agencies of this sort with the independence of those appointed. There are serious questions to be raised about political appointments, which these are, to State boards and agencies.

I accept there are difficulties with asking Ministers of any Government to appoint people who are independent as, almost by definition, such appointees lose their independence once appointed by a Minister of a certain political hue. This may not apply in all cases but it does in some.

My amendment seeks to protect this agency from abuse by Ministers of any political hue when making appointments. The Minister has protested innocence in this regard but there is overwhelming evidence of abuse by Ministers in appointing cronies to State agencies who do not have the necessary qualifications, or a veneer of such qualifications. The public is entitled to be protected from this sort of abuse.

I will not go into specific cases, although I am not sure why I should not do so. However, every Member knows what I am talking about, namely, that people who serve political parties well are inevitably appointed to the boards of State bodies. This body will undoubtedly be another case in point if we do not do something about it.

I accept that my second amendment is unfair and overly restrictive in that it bars a whole category of people. However, we have to embrace procedures which end this particular kind of political skulduggery. I do not know whether this body will be a semi-State body or agency but I presume it will be an agency. We must not allow this kind of abuse to continue without it being absolutely apparent who is being appointed and why they are being appointed and without such appointees being subjected to public questioning by an all-party committee. A large number of the people appointed to semi-State boards do not have the requisite qualifications and their first qualification is to the party and the Minister who appointed them. That is the danger.

There is already £5 billion in this fund. I do not know what our GNP will be in years to come, but that fund will grow to be one of the largest funds in the world. It will have immense financial clout globally. This fund will be 1% of our GNP – it is not just a bit of old tax, it is a serious amount of money. If we do not appoint people to manage this fund who are responsible and immune from political pressure, it will be abused.

The principal reason I do not believe in this fund is that it is so large and in the years to come, perhaps 10 years' time – under the legislation it cannot be touched until 2025 – Ministers in times of hardship, which will arise, will be tempted and will probably put pressure—

They are already looking at it.

I agree. The Minister will put pressure on the commissioners whom they appointed to put some of this fund into their favourite projects. That is the danger in this fund. This will not be a semi-State body in decay, rather it will be a really powerful fund that will have influence all over the world through its financial clout. I would worry even more that the commissioners would agree to put some of this money into local projects that would affect constituencies. That has happened previously and it is not a particularly attractive part of our political culture or other political cultures throughout the world.

Given the size of this fund, it is inevitable that in times of hardship Ministers will want to loot it and will want to direct the funds. The protection exists to stop them looting it, although legislation can be changed. There is no protection to stop them putting pressure on politically appointed cronies to put the money into certain areas. This appears to be a case where exactly that would happen. There is no need for it at the moment, as we are not a poor country, but there will be a need between now and 2025, the first day money can be taken out of the fund.

I tabled this minimalist amendment to ensure that the public is aware there is all-party agreement and approval for these appointments and that the public is privy to them. This is not a semi-State plaything for various Governments. This is a serious fund and where it puts its money will have global implications.

The statement of Senator Ross that a Minister can loot this fund is incorrect. The factual position is that neither a Minister for Finance nor a Government can touch this fund for 25 years.

That is true, but legislation can be passed.

There is not a possibility of a Minister looting this fund, as the provisions in the legislation are strict. In case a Minister would consider it appropriate in times that are not as good as these times to remove some of the funds in the interests of public finances, that opportunity is not available to whatever Minister for Finance would be in office. The statement that this fund could be looted by a Minister for Finance is incorrect, as a Minister cannot touch it for the next 25 years.

That is true, but legislation can be passed to allow a Minister to do that. One political party indicated that it would take 0.5% out of the fund to fund its pension policy in the next Government.

It will not be in Government.

Only in times of hardship.

It is important that high calibre people are appointed as commissioners.

Who will not run away with the family silver.

They must have substantial experience at senior level in their fields. If those people cannot be found in Ireland, the Minister should look abroad. Given that the amount of money in this fund will be very large, I agree with Senator Ross that we must get the best people with the greatest experience to invest this money.

The Senator would find many of them in Kildare.

To be fair to the Minster of State, he has made it clear that he will make a distinction between the type of person who will be appointed as a commissioner and people who have been appointed to semi-State bodies. He is committed to this fund. It is difficult to get people with the necessary experience who have a high reputation in society to serve on State boards, thereby ensuring they would not become political pawns, as we witnessed in recent times. I support these amendments, as it would be to the appointees' advantage to have their names put before a committee. When those names are passed by a committee, those individuals would not be seen as the Minister's nominees but as people who have been appointed by both Houses of the Oireachtas. There is merit in that.

I support this amendment. This is the most important section of the Bill. The success or otherwise of this new fund will depend on the quality of the people appointed commissioners, especially in the early stages. It goes without saying that the best possible people must be appointed.

Matters have changed greatly here in recent years. I accept the Minister will want to appoint the best people, but he may end up being told who the best people are by his Civil Service advisers, acting in the best interests of the public and so forth, but perhaps not seeing all of the angles or the wider picture. From some recent committee hearings it emerged that Civil Service thinking can be blinkered, can omit points of view that might otherwise have been considered. The culture of our committee system is changing. Our committees are fair and their objectives are to get the best possible results in the public interest.

While I am not sure which of these amend ments will be pressed, I support the proposal that the people to be appointed should appear before a committee to explain their views on how they would do the job. Such a committee could vet their qualifications. The commissioners, when appointed, would need to be very well remunerated. That is part of the new openness that exists. As Senator Doyle said, it is important that they would not be seen as the Minister's people or anybody's people, rather as people who were appointed after a full and open public process.

I am glad Senator Ross will not push his other amendment proposing to bar a member of a political party from being a commissioner.

Senator Ross would make an excellent commissioner.

He would be at the top of my list, although it might overlap with his writing. I am glad he is withdrawing that amendment. It is wrong of him to keep making that point. There is nothing wrong with a member of a political party being a member of a commission. We all try to attract the best possible people into political parties. We try to get people of expertise and eminence to join parties, rub shoulders with ordinary party members and to be proud to be members of political parties. If we are saying to them that public service will require them to resign from a political party, that is not desirable.

Senator Ross is a little unfair at times in his views of people who are appointed to State boards. Often a Minister will have a good insight into a person and a good view on his or her capabilities, having served with that person in politics. Many people who were political appointees will quickly turn on their Ministers if they consider they are doing something wrong. Because they are people of independence and achievement in their own walks of life, they join boards to serve not the Minister but the board and the State to the best of their ability.

Of course people Senator Ross might describe as hacks and cronies have been appointed, but a Minister today would be very careful to appoint someone who is suitable, qualified and independent. The last area where the Government seems to be shirking this is in appointing judges, which is still a very closed process. The new judicial appointments commission does not seem to have made a great difference. I support the amendment because it would benefit the legislation and ultimately strengthen the position of those who are appointed as commissioners.

The main functions of the National Pensions Reserve Fund Commission are to control, manage and invest the assets of the fund. By vesting control and management of the fund in the commission, the Bill gives the commission full independence and responsibility in the management and operational decisions in connection with the fund. In view of the considerable discretionary authority and responsibility to be given to the commission, it is important to ensure that the persons selected to serve as commissions have the capability, judgment and stature to make a constructive contribution to the work of the commission.

Accordingly, section 7(4) of the Bill requires the Minister for Finance to appoint persons on the basis of their experience and expertise at senior level in specified areas such as investment management, actuarial practice, the pensions industry, accountancy and auditing, trade union representation and other areas such as consumer protection and the Civil Service.

As it stands, the Bill contains measures which will go a long way towards ensuring that only persons of the highest calibre may be appointed as commissioners. These amendments contain wider issues which would need to be considered in the context of ministerial appointments generally. To accept the principle that a Minister for Finance should consult an Oireachtas committee regarding the appointment of this commission raises the issue of whether Ministers should consult the Oireachtas before making appointments to boards, committees, bodies and councils generally.

That is not a bad idea.

It is a great idea.

This issue must be considered on its own merits. If the Oireachtas were to decide that Ministers should consult it before making appointments generally, I would have no problem with such a requirement applying to appointments to this commission. However, I have difficulty with such a requirement being applied to the appointment of the commission as that could be interpreted as setting a precedent regarding other ministerial appointments.

To strengthen this section the Minister for Finance brought forward an amendment on Report Stage in the Dáil accepting a suggestion by Deputy Noonan to remove a provision leaving the decision as to what constitutes substantial expertise in the Minister's opinion. Deputy Noonan suggested that deleting the provision would remove the possibility of the Minister for Finance appointing a patently unsuitable person, arguing that it was his or her opinion that the person possessed suitable qualifications. Therefore, as the Bill now stands the Minister will have to show objectively, on the basis of the curriculum vitae of the person he or she is appointing to the commission, that the person has the relevant qualifications to perform the functions of a commissioner.

The Bill also contains substantial measures to insulate the commissioners from political press ure and to ensure that, short of amending legislation, the fund cannot be raided by future Governments. First, there is the statutory minimum annual contribution of 1% of GNP and, second, there is a complete prohibition on drawdowns prior to 2025, as Senator Finneran said. Drawdowns after that date will be determined according to ministerial rules, which must provide that payments from the fund are calculated by reference to the projected increase in the numbers of persons over the age of 65 with a view to avoiding undue variations from year to year in the net Exchequer position. Furthermore, section 19 gives the commission an unambiguous commercial mandate when investing fund moneys. In the Dáil debate on the Bill the Minister rejected amendments which would qualify this commercial mandate and enable the fund to invest in other projects. He also rejected amendments which would allow him to give directions to the commission in certain circumstances, as this would disrupt the clear arm's length relationship between the Minister and the commission.

The Bill also contains detailed accountability and reporting arrangements with regard to the fund. Section 27 provides for a detailed annual report by the commission to the Minister for Finance and for the laying of this report before the Houses of the Oireachtas. Sections 25 and 26 provide for the appearance of the chairman of the commission and the chief executive of the manager, respectively, to come before the Committee of Public Accounts.

I agree with Senator Manning. Many Ministers have made appointments over the years. I have been involved with many appointments in nine Departments and 99.9% of those people served the State, often at great expense and inconvenience. They sacrificed their jobs and families to give professional advice to the State and for very little remuneration.

The Constitution and our freedom as a nation have always given people the right to make decisions about joining a political movement, and that should not be a crime. People are allowed freedom of expression in whatever way they see fit within the law of the land. Why should it be a crime for people to be members of a political party if, by virtue of membership of that party, they are known to the Minister or Government as having the expertise for a job? Senators will know that when Governments change new Ministers have no option but to work with those appointed by the previous Government. That has worked well. Those of all political views – and some with no political views – have been appointed to boards, commissions and other bodies and have done an outstanding job, working well with the Ministers and Government of the day to serve the people. I pay tribute to those people who are prepared to come forward. We must be careful as politicians that our utterances do not discourage people from coming forward to serve the country. That is vital for future interaction between the people and the political system.

Senators can be certain of the judgment, commitment and integrity of the Minister for Finance – similar to his predecessors – in taking into account the full qualifications, international or national, necessary for the senior management appointments he will make to the commission. These people will work for the commission for five years while holding down full-time jobs elsewhere. They will be giving of their time and expertise to serve the management of this fund in a proper manner. I am satisfied the Bill contains sufficient measures to ensure that the commission will be independent of the Government, will be seen as such and will be accountable to the Oireachtas. On that basis it is not possible to accept the amendments.

What the Minister said is a load of waffle if one listens to it carefully. If one looks at any prison visiting committee, there is not a single person from Dublin appointed for one of the city's prisons among the appointments made by the Government.

What prisons?

The prisons in this city.

Is the Senator saying there is no person from Dublin on a prison visiting committee in Dublin?

I am not aware of one.

I am shocked to hear that. It is not my area so I do not know.

The prison visiting committee members coming to Dublin come from Kerry, Cork and Galway. They bypass Limerick Prison and Cork Prison, yet they have the expertise to sit on prison visiting committees for the capital, which holds 50% of the prison population. Is the Minister of State saying those are proper appointments?

If one wants neutrality, independence and objectivity, people from a distant location may give a broad view.

What about the real reason?

I do not doubt that the rural expertise in Kerry is good for those from inner city Dublin who are incarcerated in Mountjoy.

I did not know that all those in the Dublin prisons were from Dublin.

The majority are now. In the past everyone who came before the courts had to come through Mountjoy but that is no longer the case. They go to Limerick, Cork, Portlaoise, Castlerea or other prisons, so the vast majority of prisoners in Dublin are from Dublin. Yet the expertise of people from Kerry and other parts of the country is deemed to be appropriate for visiting committees. I do not want to go down that road because my point is the opposite.

I am not suggesting that the current Minister for Finance will not try to choose the best people. I have no doubt he will, but under this criterion it is entirely at the discretion of the Minister. He is not under obligation to consult anybody in relation to the appointment of the commission members other than determining that the members have substantial expertise in these nine different areas. The Minister has expertise in accountancy, but what does he know about the law, trade union representation or a variety of other areas?

The Minister for Finance is known for not being too worried about the advice he is given, as we know from his recent budgets. We had the credit union debacle, the individualisation issue in the last budget, which embarrassed so many backbenchers, and the European Investment Bank issue. That top financial position was in the gift of the Minister for Finance and the Government, yet the Minister ploughed ahead willy-nilly with the person he determined to be the best person for the job. His judgment may well be suspect and it is important, when we have so many people to select for such an important position, that there is somebody in the Oireachtas who would be more representative, with more ability and expertise across the board, to advise the Minister in his own interests and in the interests of the fund and the people.

I do not understand the reason this amendment cannot be accepted and I would be concerned about what will happen in relation to the appointments. There is no compulsion on the Minister to refer to a single adviser in the Civil Service. There is nothing in the legislation to say that he has to do that. All he has to do is consider appointing people who, in his view, have acquired substantial expertise and experience at a senior level. How can any Minister for Finance know, in the broad range of expertise that is required under the terms of this section, that he has got the best person? That is my concern. I am not happy that the commission will be selected in this manner and it would seem appropriate that some thought would be given to these two amendments for Report Stage.

Is the amendment being pressed?

Yes. On a point of clarification, if we have a division now which does not end until 1.10 p.m., do we adjourn until 2.10 p.m. or 2 o'clock?

Acting Chairman

We will adjourn until 2 p.m.

Amendment put.

Burke, Paddy.Caffrey, Ernie.Coghlan, Paul.Connor, John.Coogan, Fintan.Costello, Joe.Doyle, Joe.

Hayes, Tom.Jackman, Mary.Keogh, Helen.Manning, Maurice.Norris, David.Ross, Shane.Taylor-Quinn, Madeleine.

Níl

Bohan, Eddie.Bonner, Enda.Callanan, Peter.Cassidy, Donie.Cox, Margaret.Cregan, JohnDardis, John.Farrell, Willie.Finneran, Michael.Fitzgerald, Liam.Fitzgerald, Tom.Fitzpatrick, Dermot.Gibbons, Jim.Glennon, Jim.

Glynn, Camillus.Kett, Tony.Kiely, Daniel.Kiely, Rory.Lanigan, Mick.Leonard, Ann.Lydon, Don.Mooney, Paschal.Moylan, Pat.O'Brien, Francis.Ó Fearghail, Seán.Ormonde, Ann.Quill, Máirín.Walsh, Jim.

Tellers: Tá, Senators Costello and Ross; Níl, Senators T. Fitzgerald and Gibbons.
Amendment declared lost.

In accordance with the order of the House this morning the House will suspend until 2 p.m. Amendment No. 4 will be disposed of at 2 p.m.

Sitting suspended at 1.10 p.m. and resumed at 2 p.m.Amendments Nos. 4 and 5 not moved.

I move amendment No. 6:

In page 9, subsection (10), line 33, to delete the words "2 consecutive terms" and substitute "one term".

This is a minor amendment which is related to previous amendments. It should be a principle that if people are to be appointed to the commission in the fashion outlined in the Bill, they should serve only one term. Otherwise, it might become the natural course of events for Ministers to reappoint commissioners as it does for them to reappoint politically appointed people to State boards. I do not understand why two consecutive terms of office are chosen as the limit and not three, four or five. We should set a principle in these appointments that people are appointed for one term only. We would not then have the invidious situation of political appointees of one party not being reappointed by politicians and Ministers of another party. They should be appointed once and that should be that. Will the Minister of State explain why it is necessary to appoint them twice?

That is a very good point. During the debate on the previous amendment I emphasised the considerable discretionary authority and responsibility being given to the commission and the importance of ensuring that persons selected to serve as commissioners have the capability, judgment and stature to make a constructive contribution to the work of the commission. That is what governs all appointments. The provision enabling commissioners to serve two terms strikes an appropriate balance between, on the one hand, continuity and ensuring the commission gains the maximum benefit from the experience of persons who make useful contributions to its work and, on the other, that the commission remains fresh and benefits from new thinking and ideas through the regular appointment of new commissioners.

This is an evolving situation. The NTMA and the commissioners are in place and the new fund will be in place. We ask people to give the best of their expertise and experience, be it international or national, to serve at this high level in advising on the management of these funds. When they have completed their terms, they will have brought together a reservoir of information and expertise which should be of major benefit to them in the second period. Why would we then dissipate that reservoir of experience and expertise rather than having it as an invaluable tool of advice for the manager in the management and execution of the funds? When we go for fresh thinking, the expertise will exist, the fund will grow and there will be reassurance and comfort for the future pensioners of Ireland.

I was deliberately brief in my opening remarks because I wanted to hear what the Minister of State had to say before I stated the main point of the amendment. The Minister of State has not answered the question. There is a logic, which I accept, to his saying that they will gain necessary experience. However, the logic, if followed through, is that they should be given a third term.

If the Senator feels like it—

No, the Minister of State will not do that. He will only give them two. There is an inconsistency and flaw in that. My principal objection is to the reappointment of people who are politically appointed. It is bad enough that they are politically appointed in the first place but once they are politically appointed for five years and they know they are subject to a review after five years, how will they behave during that period? The temptation and danger exists that to get themselves appointed a second time, they will behave and make decisions in a way acceptable to the Minister. That is the point.

If the Minister of State is right in what he said, and I imagine he knows he is not, every rule of logic points to the fact that they should be appointed for a third and fourth term because they gain more experience and increase their fund of knowledge, as the Minister of State called it in that flowery language he used so beautifully. If they are not in their dotage, why not reappoint them every time because they will gain this vast experience and expertise?

Some will probably be in their dotage.

Correct. Some of them probably will, and it may be an advantage for them to be so in this case. The principle should exist that once people are politically appointed, they should not be subject to reappointment.

One of the great strengths of judges is that they do not have to seek reappointment by Ministers and that is the characteristic which guarantees them the independence necessary for a position of this type. The flaw is that once a person is reappointed by a Minister for a job such as this, he or she will have to do the Minister's bidding. It is not reviewed by anyone else other than the Minister.

I do not understand Senator Ross's motivation. He is a politician, as is the Minister for Finance whose function is to discharge his obligations under the Constitution of managing the fiscal and financial policies of this country and taking the decisions required to fulfil those commitments under the Constitution. He will appoint people to manage the fund on behalf of the people as a result of which investments will be made carefully over the next 25 years. He has specified in the legislation the background of the people he will appoint. Surely the fact that Senator Ross and the Minister are politicians does not reduce that decision, regardless of whether it is his or the Minister's appointment.

Once commissioners are appointed under this legislation, they are in control. They only report to the Minister. They do not do anyone's bidding and make their own decisions based on their capacity, ability, expertise and professionalism and the experience they have gained in life. What is wrong with that? They must be given a reasonable amount of time to put together a reservoir of information and expertise. Once that is available, why should we dispose of it? Let the thing evolve and manage the fund, but if the Senator tabled an amendment providing for a third term—

Would the Minister accept it? I want to give notice that I will do that on Report Stage.

I am not saying I would accept such an amendment.

Thank you.

But I believe he is embracing the opportunity very quickly.

I knew the Minister was a man of his word and consistent as well. I withdraw everything I said about him.

Senator Ross must allow the Minister of State to reply.

The Senator is forgetting the key word "maybe" which I used. Please do not disregard the totality of the sentence. The Senator cannot segment a piece of it and say that the Minister is meandering and he will take advantage.

Senator Ross can trust the judgment of successive Ministers for Finance and be assured that the commissioners will be at arm's length from the Minister. They will do no one's bidding. They will have a fundamental responsibility to manage the fund in co-operation with the manager within the policies and parameters laid down. The manager will be responsive to them. They will both be responsive to the Oireachtas through the Committee of Public Accounts. Both of them will have to produce annual reports and report to the Minister for Finance as he requires on behalf of Government at any particular time. If democracy is not sustained and transparency is not operable through those arrangements then I do not know what more we can do.

Is the amendment being pressed?

Amendment put and declared lost.
Question proposed: "That section 7 stand part of the Bill."

I want to ask the Minister of State a few questions about the qualifications of commissioners. To me these qualifications are merely a fig leaf. They are, undoubtedly, an honest attempt by the Minister to put in criteria which will qualify people for the position of commissioner.

Before I go any further I have two specific questions for the Minister of State. Will the lawyers, people who have acquired substantial expertise and experience, and people who will have substantial expertise and experience in accountancy and auditing need to be qualified in those professions?

What does the Senator think? If Senator Ross was the Minister would he appoint unqualified people to fill those positions?

I want to know whether they must be qualified. It is a simple question.

It is quite simple. As I said earlier in response to an amendment, the Minister for Finance will take serious cognisance of what he reads on the curriculum vitae of each individual being recommended. This is not a simple mechanism. There will be a screening process within Government whereby the Minister for Finance and his advisers, along with the Cabinet, will make the final decision on all of the CVs available to them of people wishing to be appointed.

The Senator can take it for certain that we are talking about highly qualified senior people who have international or national experience, whether it is in investment or international business management, finance or economics, lawyers, corporate lawyers, financial lawyers and actuarial people. There are many fine actuaries about. We have fine actuaries internationally, Irish people who have done very well, particularly in London and elsewhere. Of course there will be people qualified in accountancy and auditing. They will have a track record of being partners in firms or otherwise. They will be chairmen, managing directors, principals etc.

People will come from the Civil Service and the wider public service. They will be civil and public servants of high repute who have made a major contribution in particular sectors of the public service. Trade union representatives, people from ICTU and other organisations and people in the pensions industry sector will also be considered. The consumer protection sector is another area that will be considered. People with a track record as consumers will be considered. We are all consumers but these people will have a track record in a profession. At the end of the day we will get a mix of high quality professionals who have left a mark on the business that they are in and on the areas of activity that they pursue. This means we will get a totality of objectivity when it comes to a conclusive decision being taken by the commissioners at any time on any issue.

Even members of the Labour Party will qualify.

It is a bit like the panel for the Seanad.

I asked the Minister of State a question. Can he answer yes or no? Will people from the categories of the law and accountancy and auditing need to be, by necessity, qualified lawyers and accountants?

Yes. They must be qualified people.

They will need qualifications as lawyers. In other words, they must be practising, have practised or be entitled to practise as lawyers. Is that correct?

Yes. I explained that to the Senator.

Does the same apply to auditors and accountants?

That is a very important point. I hope the Minister of State has not given the House an assurance which will not be kept. I believe that he does not intend that. With regard to lawyers, what about academics?

They are qualified people and very fine people.

Not all of them are qualified to practise as lawyers. That is my point.

The Senator said academics.

No, I did not.

It is a very broad word.

No, I did not say academics at all. What about those who have shown a great knowledge of one area of the law and who are not qualified to practise as lawyers? Will they qualify?

It depends what segment of activity one is apportioning people.

The Minister of State's assurance is worth nothing.

That is not true.

His assurance is already worth nothing. He is saying that anyone who knows a bit about the law will be included.

We do not do that.

It depends what area. No, you do not do it because you do not normally specify any criteria. This is new. The Minister of State does not know. If this is so new then let it be spelt out so there is no high watermark in the case of accountants, auditors and lawyers. Joe Soap from somewhere in the west will be asking people if they have studied law. People will respond by saying they know a bit about the traffic lights down the road and the legislation related to them. Joe Soap will put them forward. He will consider anyone who was arrested once and in front of the District Court in Galway to know a lot about law. We will have this type of situation. It is important that we know what qualifications these people have. We do not know them.

It seems to me that the Minister of State is underlining the point that I am making, that these nine qualifications which are spelt out in the Bill are worth nothing. These are a pure and utter fig leaf. I hate to say this. My guess is that certain Members of this House could qualify under six or seven of these categories.

They are a very fine group of professionals.

Yes, but some of them are not. They qualify very loosely. What is expertise or experience in finance or economics? I do not know. I presume that anyone who has made a speech on the Finance Bill qualifies. They would not make it unless they were an expert. Does the Minister of State agree?

What about people who write for the Sunday newspapers?

Exactly. I qualify under all nine categories. The Minister of State would also qualify because he preached the gospel of every one of these subjects here today. He does it all of the time and he is doing very well. He does it very articulately. The Fianna Fáil press office writes his speeches and it is a double credit to him.

I do not have a scriptwriter.

These particular qualifications are beginning to look meaningless to me. There will not be a problem for any politician, particularly this Minister. This Minister is the best and he has the greatest intentions, but we are not legislating for this Minister.

We may not have to for much longer.

We may not have to. We are not legislating for this Minister. The Minister has said that he will be appointing people for the next 25 years. He will not. That is my point. We are legislating for bad Ministers, not good ones. We should always legislate for bad Ministers. We should legislate for Ministers who make mistakes, bend the law and do not carry out the good intentions in documents of this sort but abuse them.

I was not being frivolous when I said this provision is too broad. It mentions those who have qualifications at senior level in investment or international business management, finance or economics and the Civil Service. Does that mean anyone who has ever been a civil servant? It does. It says anyone who has experience and substantial expertise at a senior level of the Civil Service of the Government or the State. That is 200,000 people to start with and to pick from – tame civil servants. They cannot all have that sort of expertise and be qualified. That would include any civil servant who had studied law or accountancy. What do we get back to? Anybody who has been involved in trade union representation? Why on earth does one need a trade union representative on this body as a commissioner? Why would they qualify?

They are as good as anyone.

No. The same applies to the employers' groups because that is a political demand these days. Every damn quango that is set up by the Government has to have some members from IBEC and the ICTU. Why? It is because they are putting the maximum amount of political pressure on the Government to be represented on these bodies, which is where the power lies. They have a great deal of clout. One of the most extraordinary aspects of this Bill is that whereas one will have, willy-nilly, representatives of IBEC, the ICTU and the social partners on the board, we are not allowed to have a Member of Oireachtas. Why is that? The Minister can appoint people who are members of political parties – I do not think they should be barred, I was wrong about that – as commissioners, but Members of the Oireachtas cannot be so appointed. One can have representatives of IBEC, the ICTU and farmers but one cannot have a Senator or a Deputy. Why is that? It seems totally inconsistent.

Surely some Members of the Oireachtas are qualified to make judgments on an issue as important as this one. Some of them are highly qualified. What about former Ministers for Finance who sit in the Lower House? Is the Minister telling me that if the Minister for Finance, Deputy McCreevy, retires or, God forbid, leaves office and is still a Member of the House, he should be barred from sitting as a commissioner on this body? The Minster of State said that the Minister, Deputy McCreevy, is a man of great integrity and expertise in this area. Given the flamboyance and knowledge of the Bill he has demonstrated today, the Minister of State would be qualified to sit on this body.

I am very pleased with the Senator's confirmation.

I mean that, absolutely. It is ridiculous that people like that should be barred when representatives of the social partners are included almost by definition. Why is that?

I have listened with great interest to what Senator Ross has had to say. I am afraid, however, he has skipped the most important lines in that section. Section 7(4) states:

. . . the Minister shall only appoint persons to be commissioners who have acquired substantial expertise and experience at a senior level in any of the following areas–

(a)investment or international business management,

(b)finance or economics,

(c)the law,

(d)actuarial practice,

(e)accountancy and auditing,

(f)the Civil Service of the Government or the Civil Service of the State,

(g)trade union representation,

(h)the pensions industry,

(i)consumer protection.

It is unusual in a Bill to specify the areas of qualification which are required. While we have excellent civil servants, only Secretaries General, Assistant Secretaries General and former ones could be considered.

That is the level?

No, the Minister said "only".

We are talking about senior people at that management level of Departments.

Where is the cut-off point?

The Senator asked why Members of the Oireachtas are not on this list. That is very simple. There is a tradition in this country that law makers do not benefit from the law they create. Members of the Legislature are not appointed to boards or bodies which they have created by law. That, however, does not debar them from becoming candidates for appointment on a professional basis when they leave political life. Of course, in a future life Deputy McCreevy, as a qualified accountant and a former Minister for Finance, would be eminently suitable for this position. Whether he would be interested at that time is another story, but we are talking about a long time in the future because I am sure he will be serving the people for many years in his present capacity, and we would not like to have that interrupted. We are talking about highly qualified people with a track record at senior level.

The Senator asked why we should have representatives from IBEC or the ICTU included. The Government believes in partnership. We were the people who initiated social partnership. No Government worth its salt can run a nation for the people without having partnership with the people. Why should those with whom we are in partnership not have representatives on these boards and bodies if they are qualified to do the job? Let us continue with partnership in the interests of the people by bringing the required expertise to the highest levels. Collectively, we will make decisions that are in the best interests of the country and that can be sustained in the future.

What happened to IBEC? Why did it not get on to this?

It qualified on all the other counts.

That is outrageous.

It is not in it, but the honourable Senator raised it.

Can we have an amendment for IBEC?

When the Bill was initially published, section 7(4), which is very important, read: "the Minister shall only appoint persons to be commissioners who, in his or her opinion, have acquired substantial expertise and experience at a senior level". He later accepted an Opposition amendment which deleted the words "in his or her opinion".

Generously accepted, that is right.

I know the Minister wants the best people to be appointed as commissioners, but they should be independent of the Minister when appointed, That is the only problem I have. Section 7(4)(f) refers to “the Civil Service of the Government or the Civil Service of the State”. If the Minister appointed one of his senior civil servants as a commissioner – there are people in the Department of Finance who would easily qualify, such as Assistant Secretaries General or the Secretary General – would he or she be independent or be seen to be independent of the Minister? There could be a conflict in that category.

I agree with what Senator Doyle said. Perhaps I have exhausted that particular area because I am not getting any replies to my questions. I have been worn down by the Minister and I want to congratulate him on stonewalling.

In replying to Senator Doyle's question, I would point out that subsection (5) states: "The Minister shall not appoint a person, who holds a position in the Civil Service of the Government or the Civil Service of the State, as a commissioner." In other words, he cannot appoint a person who is permanently employed in the Civil Service at any level – they must be at arm's length from Government – but he can appoint people who had senior positions in the Civil Service or public service in the past, once they are not holding those senior positions now.

How much remuneration will the commissioners receive? That is an important point arising from subsection (11). I have a general question concerning something that amazes me, although it may be unfashionable to pose it nowadays. Under subsection (13)(a) why is someone disqualified from being a member of the commission because he is adjudged bankrupt?

That is a normal provision.

I know, but why?

Because if one is adjudged bankrupt, one is not fit to manage finances, and obviously one is not fit to manage these finances or give advice on them.

That does not follow.

The Senator asked what remuneration the commissioners would receive. The Minister gave a commitment in the Dáil that he would pay them more than £4,000 per annum, which is the figure paid to directors at present. No decision has been taken on the figure they will receive. That is a matter concerning the availability of people and the recommendations made to the Minister as to what figure would be relevant. That has not been decided.

I do not see why we should not be told now what they will be paid. This is ridiculous. The idea that we should givecarte blanche to the Minister to decide later on what they are paid is absurd. We would have some idea of the status of these people as non-executive directors if we were told they will be paid £20,000, £25,000 or £30,000. I do not know whether they will get £4,000 or £40,000. I cannot understand this extraordinary matter which the Minister says is normal. Things are often very wrong, and just because something is normal does not mean it should be in the Bill, such as bankruptcy which I have also queried. It is absurd not to tell us what the commissioners will be paid just because it is normal not to do so. Perhaps the Minister will give us some indication of what they will receive. Will it be £4,000, £10,000 or £20,000? What status will these people have and what amount of work will they do? I do not understand this coyness about how much they will be paid.

There is no coyness involved whatsoever. No decision has been taken. As the Minister for Finance said in the Dáil, they will be paid more than £4,000. They will have plenty of work to do and most particularly in the first three years of this activity they will be very busy people. They will have to devote much time to this situation as it evolves and progresses. I do not know what the figure will be. No decision has been made so I cannot tell the Senator about something that has not been decided.

Why has it not been decided?

Because it is normal practice to put legislation through and then see the cadre of the people one requires before focusing on their remuneration. That is normal.

This is an important point. The Minister keeps referring to the fact that it is normal, but it is a bad practice. We are perfectly entitled to know the status of these jobs. Presumably, whoever drafted this legislation, and whoever's crackpot idea this was, decided how much work these people will do and what status they will have. Presumably, also, they know how much they will be paid. These people will have a job to do. It is specified in the Bill. They will need to know how much work will be involved and what responsibilities they will have. To be in charge of and managing such enormous funds will be an immense responsibility, far greater than people imagine. It is absurd to state that they will be paid more than £4,000. As no one is being paid less than £4,000, the Minister of State is not telling us anything. In dealing with future legislation we should at least be told on Committee Stage what the level of remuneration will be.

There are two abuses of remuneration, the first of which is paying people far too little. I agree with the Minister of State that many people in semi-State bodies are paid £4,000. This is a pittance for which they do far too much work. I am not certain but I think members of the RTE authority are only paid £4,000 – it might be £6,000 – and they have 12 meetings a year. They also do work behind the scenes. They are grossly underpaid.

There is also gross abuse of directorships or, in this case, commissionerships where people are paid far too much for doing far too little. They happen to be members not just of State boards, but also of the boards of public companies because they may be the friends of someone else. They are not appointed on merit. My criticism is not restricted to appointments to State boards; it is not just politicians who are involved in this racket, those at the top of industry in PLCs are appointing people to boards of companies who are patently not qualified and know nothing about the board in question. There is hardly a sinner on the board of Eircom who knows anything about telecoms. That is one of the realities. In drawing £30,000 a year they are grossly overpaid.

Where will this rank in the order of things? Will this be a £30,000 a year non-executive job, which is quite common at the top of banking, or will it be a £6,000 or £10,000 a year job? Many people at the top are paid far too much and do very little work. There will be a temptation to appoint people to positions above their abilities to give them a very pleasant income. At what level will they be paid? This fund will be far bigger than any other fund. Members of the boards of banks are paid £30,000 plus, but within a very short time this will be much bigger than the funds managed by banks. Will people be paidpro rata or will they be paid normal semi-State fees? The Minister of State does not know what the exact amount will be, but where will they be in the pecking order? Will they be at the top, the bottom or in the middle?

Based on what the Minister for Finance said in the Dáil, I am quite certain that they will be in the middle. They will not be at the top or the bottom. They will be highly qualified professional people who will have a very important job to do. They will not be appointed to permanent positions or to public companies. It will be a State appointment for which certain parameters are being laid down. We hope to attract the best and brightest, those with great expertise. I am certain that they will be reasonably remunerated for the job they will do in keeping with the position and the time they will have to give to it.

Subsection (7) states that the chief executive officer of the manager – the National Treasury Management Agency – shall be an ordinary member of the commission. Does this mean that a person from the categories listed will be chosen as chief executive officer of the National Treasury Management Agency? How will the appointment be made? It would be highly unusual for a chief executive officer to be a voting member of a board. They are not normally regarded as full voting members.

Subsection (18) reads, "The Minister shall, in so far is practicable and having regard to relevant experience, ensure an equitable balance between men and women in the composition of the Commission". How will this be achieved? Equitable normally means 50:50. A previous coalition Government introduced a target figure of 40% for gender equity on State boards.

Subsection (7) is very clear. It reads, "The chief executive officer of the Manager shall be an ordinary member of the Com mission". What this means is that the chief executive officer of the National Treasury Management Agency will be an ordinary member of the commission. That is very explicit.

Will he or she be chosen from the categories listed?

No, thede facto chief executive officer of the NTMA, Dr. Michael Somers, will be a member of the commission.

Ex officio.

He will be an ordinary full member.

What will be the total number of commissioners?

The total number will be seven, of whom the chief executive officer of the NTMA will be one.

If he is still in office at the time.

If he does not resign in the meantime.

One never knows. One cannot name people in the House.

I apologise for doing so. Senator Costello asked an explicit question to which I gave an explicit answer. Whenever the appointment is made, thede facto chief executive officer of the manager – the National Treasury Management Agency – will be an ordinary member of the commission. The Government is very committed to achieving equitable representation of both sexes in State appointments.

I will leave on that point.

We will reach the figure in the best way we can. The usual figure is 40%. It does not matter what gender they are. If the Minister is satisfied that they have the required qualifications, they will be appointed. With seven people, the gender balance should, so far as possible, be four and three.

Will the Minister of State confirm that the chief executive officer will be a voting member of the commission? That is not the norm.

The situation in this case is different. As a commissioner, the chief executive officer will be a full voting member. He is not a member of the board of the NTMA. As a commissioner, he will manage the fund and decide on policy within the criteria laid down by the policymakers, that is, the commissioners who will delegate responsibility to him and the board and staff of the NTMA for management of the fund.

The chief executive officer of the NTMA will be one of seven commissioners with equal voting rights on top of which he will have enormous additional duties and responsibilities. For the next ten years the manager – the NTMA – will be responsible for managing the fund, although it may subcontract. Itsde facto chief executive officer, therefore, will manage the fund. Surely he or she should be at arm's length from the commission in voting on policies which he or she will have to implement and execute. That is akin to riding two horses at the same time. It means having a huge amount of additional information and responsibility while at the same time being in an equal position to participate in and influence a vote. The Minister is giving too much power to one commissioner.

This morning, when we dealt with the section which provides that the commission shall perform all functions through the manager, I asked if there could be a conflict between the manager and the commissioners. Now that we are teasing this issue out, it appears there is such a possibility. The chief executive or the manager will also be a commissioner. He will manage the fund on behalf of NTMA for the commission and will also be a commissioner. I do not see how that can work. If a conflict arises between the manager of the fund and the commissioners, how will it be resolved?

I do not see a problem with this. Most companies' managing directors sit on the boards as full directors. The managing director presents his reports, advises on policies and issues, responds to queries and questions and is part of the consensus that reaches decisions. That is the case in normal private companies.

In this case we are asking the chief executive of the National Treasury Management Agency, on the basis of his qualifications, expertise and unique record of having held the post of Secretary General in two Government Departments, to apply this expertise as a commissioner. As commissioner, he will have responsibility for policy matters. In such situations one is unlikely to find a vote arising. These are highly qualified people who will achieve a consensus as to the best way to deal with funds in terms of their investment and management.

His other responsibility will be the normal, professional, day to day management of the National Treasury Management Agency. This will be in addition to his responsibility for managing these funds through his agency. While there is a major link between both, we believe the expertise in that linkage will be of major assistance to the commissioners. It is normal that the managing director of a body sits on the board. In this case, he will sit on the board as a policy adviser and decision maker in his capacity as commissioner. That is normal, sensible and practical. It is also good business. The linkages are important. At the end of the day we will say, "They have done a great job and we made the right decision".

I will not labour the point but it is just as well Senator Ross is absent for this. He would be horrified because this appears to be a Michael Somers benefit agency. It seems—

The Senator should not name individuals.

I mean the chief executive officer of the NTMA. He may do an excellent job – I have no doubt that he will – but this appears to have been dovetailed to fit into the NTMA. I am not happy that the chief executive officer, who will have so much power in the management of the fund, should have voting rights on the board in that respect. It is not good policy. In most organisations it is not normal that the chief executive officer is a voting member of the board.

Question put and agreed to.
Sections 8 to 17, inclusive, agreed to.
SECTION 18.

I move amendment No. 7:

In page 15, subsection (2), to delete line 25 and substitute the following:

"between 0.5 per cent. and 1 per cent. of Gross National Product as the Minister may determine each year.".

This section deals with the core funding of the pension fund. It empowers the Minister to set aside 1% of gross national product each year for the fund. That is a substantial amount of money. At present, it amounts to between £600 million and £700 million to be invested each year. That is fine when there is a surplus in the budget account.

Acting as devil's advocate, I am long enough in the Oireachtas to remember budget days when the Minister for Finance had to tell the House that after servicing the national debt and providing for health, education and social welfare, it was necessary to borrow to pay for all other State services. That was the position in the early 1980s when the country's finances were in a mess. Thank God, we have moved away from that to a position where there is a surplus in the current account. That has been the case for a number of years.

It is fine to put aside 1% of GNP each year when the country can afford it but that might not always be the case. The Irish economy is strong at present but a number of factors account for that. The weak euro makes Irish products competitive in England and the United States and makes our tourism industry attractive, among other benefits. We are also dependent on a number of industries, particularly in the telecommunications sector. I listened to a radio programme this morning which was broadcast from the site of a major industry in Kildare. Approximately 4,500 people are employed there. There are many such industries located throughout the country. I hope they all succeed and continue to grow.

However, I must act as devil's advocate and point out that this position might not apply in years to come. The country might have a deficit again and have to borrow to meet it. The Minister said this morning that somebody had suggested we should borrow money to invest in the pension fund. The day might come when there is a deficit and we will have to do that to meet the 1% requirement. The amendment provides that a variation should be available to the Minister for Finance of the day. If there are insufficient funds to transfer to the fund, a lower amount than 1% should be considered and the amendment suggests 0.5%. It is only common sense.

We are committing ourselves to make this substantial contribution to the fund each year over the next 50 years. A contribution of between £600 million and £700 million is a lot of money for future generations to pay. They are committed to it if the Bill is passed without this amendment. I propose to include some leeway whereby if the country's finances are not as good as they are now, the Minister for Finance would not have to make provision for 1%.

We should revert to the Minister's intent. He is putting a nest egg in place for pensions in the future. Under the Bill that nest egg cannot be touched for the next 25 years. The Minister set the annual amount for the fund at 1% of GNP, which translates to approximately £600 million at present.

While Senator Doyle has put down the amendment in good faith, he is attempting to leave open the option of reducing the amount for the fund by 50%. That is raiding the piggybank. The Minister's intent is that there will be sufficient funding available to meet the pension and superannuation needs of future generations. Under no circumstances should we be diverted from that goal or change the provision from 1% of GNP. The 25 year period will remain. Even if circumstances change – I accept that economies run in cycles – the last thing we should do is raid the pension fund we are creating to make superannuation payments to retired people. It would not be in the best interests of the fund and it would send out the wrong message if we deviated from the Minister's intended course, namely, the investment of 1% of GNP per year into the fund for the next 25 years.

I support the amendment. As Senator Doyle stated, it is common sense that a minimum and maximum amount to be invested in the fund should be stipulated in the legislation. At present, the amount to be invested would be of the order of £600 million to £700 million while in a couple of years it will be £1 billion. We know the Minister intends to keep this matter at arm's length by ensuring that the legislation indicates the exact amount to be invested. However, we must consider that a "rainy day" may arise in the future. For example, one, two or five years from now the economy might get into difficulty. It is not that long since we were in dire economic straits. The concept of social partnership is under major pressure at present and there could be a free for all at any stage.

I do not believe the point made by Senator Finneran stands up to scrutiny. We are investing money to provide a nest egg for future pensioners, but none of that money can be touched until 2025. In the next 25 years, there will be many pensioners who will need sufficient funds to allow them to be comfortable in their retirement. Are we going to subtract money from their pensions if the economy cannot meet both commitments? In other words, will the amount paid into their pensions over the next quarter of a century be reduced in order that the pensioners in the following quarter of a century should have access to a larger pension fund? I do not believe that is fair. We must take into consideration those who will become pensioners during the next 25 years in addition to those who will become pensioners between 2026 and 2055.

I do not understand why we should be obliged to introduce new legislation in respect of this matter. We should put in place now a mechanism to offset the economic pressures which may arise. Everybody accepts in principle what the Minister is doing. However, in practice we may find it difficult at some stage during the next 55 years to invest 1% of gross national product in the fund. We are legislating for the next half century and discussing enormous amounts of money. The Minister should accept the amendment.

Senator Costello has let the cat out of the bag. As he correctly stated – with a realism which is not characteristic of the Minister of State – God knows what will happen when we encounter hard times and we have all this money salted away. The Labour Party has been honest and stated that there will be too much money invested in the fund and that it will take some back. That is what will happen—

Not quite.

—because there will be a huge pot of money which politicians will want to use for purposes for which it was not originally intended.

Although I do not agree with the specifics of the amendment, I will be supporting it. I agree with Senator Doyle's assertion that the level of investment in the fund should be reduced to at least 0.5% or perhaps it ought to be flexible. The Bill is making use of a crude measure, namely, that 1% of GNP will be invested for 55 years. That is an extraordinarily crude piece of work on the part of any Minister.

Perhaps provision for the future should be made, but I am doubtful about that. I am not sure that today's taxpayers should pay for the pensions of tomorrow. I seem to be the only Member of the House who doubts that principle. Why should I, the Minister of State or anyone else be taxed to pay the pensions of our children or grandchildren, if we have any? If we do not have children or grandchildren it is even worse.

What about the common good?

We should consider using Senator Doyle's figure of 0.5% and try to estimate the amount of money the fund will accumulate by 2055. The reason we have not been provided with estimates is because we do not know how much money will accumulate. However, there is no doubt that the final figure will be absolutely enormous. I would have thought that if an independent body is going to monitor this fund, a flexibility should be attached in terms of the amount to be invested and that a crude figure should not be stipulated. The amount of money yielded by 1% of GNP will be enormous. In a period of recession, 1% of GNP will represent an even bigger commitment because it will be money that was hard earned. That is the difficulty with this provision.

I support the amendment because it reduces the compulsory confiscation of people's money by a certain amount. There is no doubt that 1% is too crude. It is too much and I do not believe the provision will work.

I understand Senator Doyle wishes to add to his earlier contribution.

Senator Finneran stated that I intended to raid the fund. That is not the case. Let us consider a situation where I approached my bank manager when times were good and stated that I wanted to transfer £1,000 each month from my current account to my savings account until further notice. If things went wrong, I would want to be able to reduce the amount from £1,000 to £500 or else stop the transfer of funds altogether. I must measure what I am in a position to save against what I earn.

We are committing ourselves as a nation, for the next 50 years, irrespective of whether we are running a surplus or a deficit, to putting aside this amount of money. That is the point I am making and I believe there should be a mechanism put in place to allow the Minister to reduce the 1% commitment in times of recession.

We are trying to assist the Minister of State.

I very much appreciate the assistance. It is important that we plan for the future and take full account of the demographics which obtain and the fact that we have an ageing population.

The budget strategy for ageing group which was established by the Department of Finance to consider the budgetary issues posed by ageing estimated that approximately 3.5% of gross national product would have to be set aside annually to equalise the Exchequer burden of health and pension costs during the next 50 years. However, given the magnitude of the prospective costs involved and the many other competing demands on the State's finances, the group concluded that a more feasible sum to set aside would be 1% of GNP, which it was estimated would meet approximately 30% of these costs. In making this recommendation, the group acknowledged that it was making no provision for the post-2056 situation.

The Bill gives discretion to future Governments to extend the life of the fund beyond 2055. While our demographic projections do not go beyond 2056, when we estimate there will be one retired person for every two persons of working age, it would be quite unrealistic to expect a quick decline in the ratio. The ageing problem will continue for some years at least and perhaps some decades after mid-century.

In establishing a single reserve fund which is not designed to meet a defined liability but to part fund social welfare and public service pension costs to a year potentially beyond 2055, it was decided to adhere to the recommendation of a contribution of 1% of GNP. This is at a level which will make a significant contribution to future pension costs and it is a sustainable commitment. Once built into the multi-annual budgetary structure, it should not cause undue difficulty.

The contribution is slightly less than our annual contribution to the EU budget and less than one third of the interest payment on the national debt in 1999. If our economic circumstances make contributions over and above the 1% of GNP feasible, the Bill allows additional contributions to be made to the fund by way of resolution of Dáil Éireann. In effect, the 1% of GNP is a minimum annual contribution to the fund and it is open to future Governments to make an increased contribution in any particular year.

Given the size of the pensions liability that is awaiting us and a projected increase of 7.7% of GNP on current levels by 2055 and in light of the fact that the fund will only meet part of this liability, I would be firmly opposed to any measure which lessened the 1% contribution to the fund. I do not accept that in earmarking 1% of gross national product for the fund the Government is in any way neglecting the current needs of our society. Contributions to the fund are not being made at the expense of other goals and commitments.

As a result of our economic success, we are in the happy position of being able to pre-fund, within a sustainable budgetary strategy, which will also allow for substantial infrastructural and other capital investment under the national development plan, continuing implementation of the Programme for Prosperity and Fairness, further improvements in public services and ongoing reduction in the national debt. In short, the economic success we have all worked so hard to achieve and the demographic bonus we are enjoying, allow us to make provision for future pension liabilities without compromising our more immediate economic and societal goals.

I appreciate that Senators may have concerns about a 1% annual contribution when economic circumstances may not be as favourable as at present. However, the Government takes the view that it is prudent to budget for a known liability. To allow discretion in the making of a 1% contribution in the manner proposed by the amendment would significantly reduce the capacity of the fund to meet future pension liabilities, leading to major problems for future Governments and generations.

I do not have to remind the House of the straits in which we found ourselves in the past due to the prioritising of short-term interests over the long-term sustainability of the public finances. A contribution of 1% of GNP is a prudent and sustainable commitment and the Government is being fair, practical and positive in this decision. I regret that I cannot accept the amendment.

Question put: "That the words proposed to be deleted stand."

Bohan, Eddie.Bonner, Enda.Callanan, Peter.Cox, Margaret.Cregan, JohnDardis, John.Farrell, Willie.Finneran, Michael.Fitzgerald, Liam.Fitzgerald, Tom.Fitzpatrick, Dermot.Gibbons, Jim.Glennon, Jim.Glynn, Camillus.

Kett, Tony.Kiely, Daniel.Kiely, Rory.Lanigan, Mick.Leonard, Ann.Lydon, Don.Mooney, Paschal.Moylan, Pat.O'Brien, Francis.O'Donovan, Denis.Ó Fearghail, Seán.Ormonde, Ann.Quill, Máirín.Walsh, Jim.

Níl

Burke, Paddy.Caffrey, Ernie.Connor, John.Coogan, Fintan.Costello, Joe.Doyle, Joe.Hayes, Tom.Jackman, Mary.

Keogh, Helen.McDonagh, Jarlath.Manning, Maurice.Norris, David.O'Dowd, Fergus.Ross, Shane.Taylor-Quinn, Madeleine.

Tellers: Tá, Senators T. Fitzgerald and Gibbons; Níl, Senators Burke and J. Doyle.
Question declared carried.
Amendment declared lost.

Amendment No. 8 has been ruled out of order as it involves a potential charge on the Exchequer.

Amendment No. 8 not moved.
Section 18 agreed to.
NEW SECTION.

I move amendment No. 9:

In page 15, before section 19, to insert the following new section:

"19.–The Commission shall with the consent of the Minister prepare and publish an ethical investment policy which the Commission shall apply in holding or investing monies standing to the credit of the Fund and which shallinter alia prohibit investment in enterprises involved in the armaments industry and the tobacco industry.”.

This is an important amendment. No guidance, good bad or indifferent, is given as to how the commission will exercise its responsibility in relation to investment. In the absence of guidance on where the money might be invested, we should set a good example by ensuring an ethical investment policy is incorporated in the legislation. This is the first time we have had an opportunity to invest such a level of surplus funds and we should have an ethical investment policy. Our elderly, who expect to benefit from this fund, and our young people would like an idealistic approach adopted to the investment of moneys in this fund. We should not invest in the armaments industry or the tobacco industry and I am sure we could identify other areas that are not ethical for investment. We are talking about the nation's money and providing a model, a good example. We are concerned to ensure we get the optimum return on our investment, but as has been said, investment funds are poorly managed in terms of securing an optimum return and such returns are little better than the going rate one would get in a bank, post office, building society or any other standard financial institution where one gets the going rate. We should show an example here and establish an investment policy that prohibits investment in certain enterprises that destroy people.

The thrust of the Bill is to give people enough money to enjoy a happy retirement. If we start investing in something that is destructive towards humanity, whether that is armaments, tobacco or some other substance that abuses the human body, we are giving a bad example. If we give a good example it does not mean we cannot get a good return. I am sure there are large numbers of investment areas that would be beneficial rather than detrimental for humanity. Can we draw the line here and incorporate a specific provision that Ireland has an ethical policy regarding investment?

I support the amendment. We should have an ethical investment policy and we should not invest in armaments. I do not think the commission will invest in the tobacco industry, as it is going through the floor as a result of people in America taking lawsuits against it. I would add the drinks industry to that list. We must show our young people an example, and the abuse of alcohol is one of our great social problems. If I had put down this amendment I would have added the drinks industry. We must be brave and face up to this.

I would love to be able to support this amendment but I cannot, mainly because of the inclusion of inter alia in it. This is a difficult problem because of where one draws the line and Senator Doyle has highlighted this by suggesting we add the drinks industry, which is a legitimate point of view. There are certain ethical funds which are very broad in terms of limitations and narrow in terms of funds in which they allow investment. Some ethical funds do not allow investment in banks, as they feel banks are immoral usurers, they play very little part in the productive side of the economy and they are an oppressive force for evil. That is another point of view. It is not one I share but it is one people hold.

This is very unspecific. Banks lend to tobacco companies and keep them going. Banks provide huge amounts of money for armaments and lend to Governments which export arms and which should not be supported for that reason. We have a difficult problem with ethical investment. It sounds worthy but I challenge anyone to produce a credible list of investments where one company is connected to another which is doing something most of us would find indefensible, and I do not mean in terms of just arms and tobacco. It is not a problem we will resolve today. Senator Costello wisely included the term inter alia because it gives a let-out to everyone who is in favour of an ethical policy. He has highlighted the fact that this fund will be launched without any policy. We are giving this fund a blank cheque for £5 billion to start with and it can do what it likes. I am not sure that is a good idea and I am not referring to ethical investment; I am talking about giving the fund certain instructions and parameters, which we are refusing to do. Will the fund invest in infrastructure in Ireland, which gives no obvious return unless toll roads are concerned? Attempting to pin the Minister of State down as to what type of investment will be made is a worthy objective but we cannot do it.

I am not in favour of tying people into ethical investment because that area is incredibly subjective, though I approve of the fact that we should not invest in certain regimes of which we disapprove. I would also have great difficulty with investing in the tobacco industry. However, if the Minister of State is a believer in fund management – I am not but he obviously is as it is part of the Bill – one must start by letting everyone compete on a level playing field. Unfortunately, plenty of pension funds invest in tobacco companies, in armaments or in Governments which produce or use armaments or which are tyrannical regimes we do not find acceptable for political reasons. If we go down that road we are taking a journey that has no end. The Minister of State's defence on this should be the level playing field, that he cannot tie the hands of the supposedly talented people by telling them they cannot invest in certain areas while others, with whom they are competing, can. That does not make sense, even if it is a worthy objective.

I do not think it matters in investment terms whether one ties the investment manager's hands. It would be better to do so, as most studies have proved that a blind monkey normally gives a better performance than these fund managers. Restricting investment to ethical areas will probably not affect performance but might even improve it. If one invested everything in ethical investments some years ago one would do better than in non-ethical investments. It is all a matter of luck. I do not believe the argument that the Minster of State is about to make regarding performance holds water, as the performance of these people is deplorable and they would be better off being restricted in some way.

In determining the investment policy of the fund, consideration was given to whether this policy should be strictly commercial or qualified by ethical, environmental and other public policy criteria. A major difficulty with an ethical investment policy is deciding where to draw the line. I agree with Senator Ross on this issue, as there will inevitably be different opinions and intense debate on what constitutes ethical and socially responsible investments. In short, there is unlikely to be broad consensus on any ethical investment policy. Furthermore, the list of what might be considered unacceptable investments is likely to change continually in light of developments in the political, social and scientific spheres. If one attempts to delineate appropriate investments for the fund there is a danger of dragging the commissioners into a quagmire of public controversy and paralysing the investment procedures of the fund. Notwithstanding these considerations, a number of approaches which might be taken to implement an ethical investment policy have been examined.

One could copy the UK precedent. From July the annual report of pension funds in the UK will have to contain a statement of the approach to ethical investment adopted by a fund. There will be no requirement for funds to invest in this manner; they will merely be required to state their policies. In other words, in the UK one can put one's money where one likes but one has to give a report on how ethically one is doing so. A fund can use its voting rights to put pressure on companies to pursue ethical policies and it appears that this approach can be accommodated within a commercial mandate, though its effectiveness is somewhat debatable, particularly if the shareholding of a fund in any one company is relatively small. Some funds put a small portion of their assets into a separate fund which is then invested according to ethical criteria. The drawback with this approach is that it is largely tokenism, with the vast majority of the fund being invested in the normal manner in the commercial markets.

Screening is another approach which has been used by some funds. It involves hiring analysts who will examine all companies on an index. The analysts will identify those companies with assets of the class to which the investor objects or, alternatively, companies adopting best practice will be identified. When they have done that, the investment managers of the fund in question are given a target of beating the adjusted index, that is the index excluding the forbidden sectors or companies by a set percentage. In other words, they are told they can only play here and they have to reach that target. It is a bit like powerful corporations telling their sales managers that they did well last month but they have to achieve another target this month, and either the man dies of a heart attack or his target for the whole year is increased again.

There are, however, a number of drawbacks to this approach. For instance, there would be major costs involved in hiring the analysts and tracking the performance of the adjusted index. These costs would be multiplied for a large fund where a number of indexes would be tracked. There would be increased risk as the list of forbidden investments lengthens and the portfolio consequently becomes less diversified, in other words, the persons are exposed because they are in a narrower portfolio or group of portfolios.

There would be operational difficulties. For example, with a customised portfolio it would not be possible to use equity futures to hedge against market exposure as such futures contracts are linked to broad market indexes. There would be less opportunity to undertake crossing transactions where equities are traded directly with other funds, thereby cutting out brokers, reducing fees and increasing performance. Clearly there would be significant difficulties in incorporating an ethical policy into the investment mandate, no matter what approach is taken in pursuing such a policy. Accordingly, the investment mandate included in the legislation is modelled on the standard commercial mandate for private pension funds, that is, maximised returns subject to prudent risk management. Any explicit reference to ethical investment would politicise the investment mandate and would give rise to significant difficulties both in its interpretation and its implementation. Consequently, we must trust the markets, the performance of the managers and the judgment of the commissioners. We are optimistic about the future and I regret, therefore, I cannot accept the amendment.

That sounds like a "no". My starting point was that the Minister has given no guidelines to the commission; it iscarte blanche. He is not indicating one way or other where this money might go. I am not drawing up a proposal, although it is desirable that should be done, but I am trying to indicate one area which is not that big a problem, as has been suggested. We can point to all the difficulties but we can still pursue an ethical policy, and we should do that. I will not pursue the matter further now but I will eliminate the aspect that is causing the Minister and Senator Ross a problem, namely, that the amendment is perceived to be too broad. I will withdraw the amendment and re-enter it for Report Stage with the deletion of the words “inter alia”. I will identify the two areas about which there can be no confusion, the armaments industry and the tobacco industry, and it should not be beyond the comprehension of the investment fund managers to keep within those bounds.

Amendment, by leave, withdrawn.
Section 19 agreed to.
SECTION 20.
Question proposed: "That section 20 stand part of the Bill."

The Minister may have a note on this section. After 2025, the Minister can draw down from the fund but we will continue to contribute to the fund up to 2055. Will the Minister explain the effect that will have on the fund?

Under section 20(5), the rules governing drawdowns from the fund must be calculated by reference to the projected increase in the number of persons over 65 years of age in the population between the relevant period, that is, 2025 to 2055, or later, subject to avoiding undue variations in the net Exchequer cash flow from year to year. This will link withdrawals from the fund to increases in the over 65 population cohort. As far as social welfare pensions are concerned, this will provide a reliable indicator for increases in Exchequer outlays, in other words, it will give a balance in Exchequer management, the interflow of cash and the withdrawal of same from the system. While increases in public service pension expenditure are not directly linked to the number of over 65s in the overall population, the pattern of withdrawals produced by the formula should be broadly consistent with increases in total Exchequer pension outlays due to ageing.

Consideration was given to including a detailed actuarial formula in the Bill which would set a precise method for calculating withdrawals from the fund based on demography. It was decided, however, that it would be more appropriate to leave this issue to the ministerial rules. Although projections beyond 2055 are inevitably highly speculative at this stage, the indications are that the rise in the State's pension bill due to the ageing population will plateau out from mid-century when the dependency ratio reaches 2:1. In other words, for every two people employed there will be one dependent pensioner.

The demographic problem will not go away quickly after 2055 and current indications are that it may be desirable to keep the fund going for some time after mid-century. In order to derive a formula which properly smoothes the pension burden on the Exchequer, one needs to set an appropriate end year when the worst of the demographic problem has receded. Given the number of variables involved, there is little point in trying to derive such a formula at this early stage. The whole purpose is to maintain a balance in the fund. We could not have a situation where we would be putting in a lot of money and withdrawing a lot of money. That would have a staid effect on the fund. We have to have consistent investment and, I hope, commensurate with that investment would be growth in the fund due to the professionalism of the fund managers on the advice of the commissioners. With that, we would draw down a ratio based on the demographics at that time and on the population at age 65 and onwards. That should help to maintain the balance so that the fund can grow and continue to service the requirement for which it is intended.

Question put and agreed to.
SECTION 21.

I move amendment No. 10:

In page 16, subsection (2), line 47, to delete "10" and substitute "5".

This amendment relates to the setting up of the NTMA as the manager of the fund. We discussed this matter in its initial stages and whereas I seem to be alone in my reservations about the NTMA, we have had no explanation from the Minister, which I hope he will give us now, about the reason this process did not go out to tender. It would have been logical and fair that in the initial stages of this process it would have gone to international tender, not to the NTMA, and for the Minister to say we have these services available to us here is not correct. As the Minister rightly said, nobody in the Government services is experienced in asset investment. Those people are very experienced in managing debt, whether they are good at it is a different matter, but nobody, certainly not the NTMA, is experienced in managing investments of this sort or equities.

I do not know the reason the NTMA is being given this job but I suspect it is that most Ministers for Finance, for some reason, have been entranced by the personnel layer and have been convinced that they are so good at managing the debt they will immediately be able to transform this into a completely different art, if it is such, which is managing assets of this sort. There is no evidence for that but there is evidence that the NTMA currently may not have enough to do, particularly since Government stocks have become such a minor part of our economy and since we no longer sell Government stocks in a meaningful way because we do not need to borrow the money.

The NTMA probably has slack capacity, but this is not a good reason for giving the fund to it. This is the same as giving it to a banker who is good at lending money but who knows nothing about investment. The NMTA knows nothing about investment in stocks and shares, which is where this money will go. It is strange and wrong that this fund is not going out to tender internationally as it will be one of the biggest funds in the world.

It is bad enough to hand the NTMA, which knows nothing about the business, a blank cheque, but to say it can have the fund for ten years is absolutely extraordinary. Why is the period not five years? In the case of the com missioners the period is five years, with a renewable option for another five years. Why are the provisions not consistent? To give the NTMA ten years is to give it an extraordinary security of tenure. If these people perform badly at any time during the first nine years there is absolutely nothing we can do about it because the legislation provides for a period of ten years.

Why is the Minister providing in legislation for a period of ten years? Why can the period not be reviewed after five years or every year? The normal procedure is that the fund is reviewed annually and if it does not compare favourable with other funds the fund managers are fired. However, the NTMA will get the fund for ten years. Even if it is a disaster and the people selected as fund managers do not perform well the NTMA will still be there. People who know nothing about equities and have no experience in this area will be given the job, without competition, for ten years, presumably because there is spare capacity. The very least that should be done is reduce the period to five years. This period is still not satisfactory, but I am trying to meet the Minister half way. Nobody in any sector gets a ten year term when the performance can be so bad for nine years.

I support the comments made by Senator Ross. It is extraordinary that on the day of the establishment of the commission the agency will be appointed manager of the fund for ten years. A number of Ministers for Finance will have come and gone during that period. We have no idea whether the NTMA will be able to do its job adequately. The ten year period is being set in statute, yet there will be no benchmarking or standards. What will happen if there is a series of disastrous investments? The NTMA will still be the fund manager, while the chief executive officer will be a member of the commission. The agency will have the lion's share in terms of decision-making and the implementation of decisions. It is not good enough to give the NTMA this very important job without setting parameters.

I am not saying that the agency will not operate well. I do not share Senator's Ross's view of the NTMA, but he may be right as he knows more about these matters than I do. I would prefer a shorter period of time, which would be renewable on delivery so that there would be a good return during the initial five years on the enormous investment fund which we will put at the disposal of the agency. At the end of five years we should review the fund to see whether the agency has earned the right to be reappointed to the job.

We touched on this point this morning. The commission and chairman will be appointed for five years, while the agency will be appointed for ten years. Senator Ross does not agree with me, but the NTMA has a good record in debt management. However, the crucial point is that it has no real known experience in relation to fund management. I have already outlined the record of fund managers European and world-wide and it is not very impressive. I hope the fund managers who operate for the NTMA will be more successful. Nevertheless, there should be a trial period of five years. I support the amendment.

The Bill provides for the appointment of the National Treasury Management Agency to act as the agent of the commission in managing the fund for an initial period of ten years. After this, there will be the option at five yearly intervals for the commissioners to extend this arrangement further or to appoint an alternative manager.

In deciding to give this initial role to the NTMA the Minister for Finance was strongly influenced by the fact that £5 billion would be entrusted to the commissioners once the fund is established. They will, therefore, need to have access to a fully functioning executive which is operational and resourced, with the necessary systems and expertise to manage such a large sum from day one.

The NTMA has been managing the liabilities side of the State's balance sheet for more than a decade. While asset management will require the agency to acquire some additional skills, it was considered much more sensible to have the NTMA manage the funds than to expect the commissioners to start from scratch and to establish a second specialised agency to manage such a large amount of money.

It is likely to take some time for the commission to fully invest the £5 billion held in the temporary holding fund. Teething issues will inevitably arise during the first year or so as the commission develops its investment strategy, defines its relationship with the manager, gains familiarity with its functions and refines its operating procedures. In view of these facts, the Minister for Finance took the view that setting a five year or one full commission term for the NTMA as manager was too short a period to properly assess its performance. Accordingly, he decided to make the NTMA the manager of the fund for the first two commission terms, that is, a ten year period.

He expects to be back in Government in ten years.

He is confident he will continue to serve in a ministerial capacity for most of the next ten years.

Then he does not need to make the appointment for ten years.

The Minister is futuristic and realistic in his thinking. He looked at the decade of success of the NTMA. Senators Doyle and Finneran also referred to this. Given this success, our capacity as a nation and the intellectual talent bank, structures and systems, particularly the public service which has served us so well, why should we not develop the expertise within the NTMA not alone as debt managers but also as investment managers? I am confident it will do an outstanding job and be the recipient of many more accolades in the future. I am sure similar models will be adopted by many other countries.

It is all very well for the Minister to ask why we should not develop the expertise within the NTMA. However, there is already £5 billion in the fund, so on day one it will have this amount without the expertise. This means that people who know nothing about investing in equities will decide what to do with this money. This is a shambles. It is absurd to expect people with no knowledge of this area to manage a fund of this size. The Minister of State's reply is totally unsatisfactory. I cannot accept it.

Acting Chairman

Is the amendment being pressed?

Question put: "That the figure proposed to be deleted stand."

Bohan, Eddie.Bonner, Enda.Callanan, Peter.Cox, Margaret.Cregan, JohnDardis, John.Farrell, Willie.Finneran, Michael.Fitzgerald, Liam.Fitzgerald, Tom.Fitzpatrick, Dermot.Gibbons, Jim.Glennon, Jim.Glynn, Camillus.

Hayes, Maurice.Kett, Tony.Kiely, Daniel.Kiely, Rory.Lanigan, Mick.Leonard, Ann.Mooney, Paschal.Moylan, Pat.O'Brien, Francis.O'Donovan, Denis.Ó Fearghail, Seán.Ormonde, Ann.Quill, Máirín.Walsh, Jim.

Níl

Burke, Paddy.Caffrey, Ernie.Coghlan, Paul.Connor, John.Coogan, Fintan.Costello, Joe.Doyle, Joe.

Hayes, Tom.Jackman, Mary.McDonagh, Jarlath.Norris, David.O'Dowd, Fergus.Ross, Shane.Taylor-Quinn, Madeleine.

Tellers: Tá, Senators T. Fitzgerald and Gibbons; Níl, Senators Norris and Ross.
Question declared carried.
Amendment declared lost.
Section 21 agreed to.
SECTION 22.

I move amendment No. 11:

In page 17, subsection (1), lines 39 and 40, to delete paragraph (d).

I have severe doubts about this section and about the virtues of fund managers. I note it refers to internal ethical and compliance guidelines. Ethics is not a concept unknown to the Government in the Bill, but it is unknown in the presentation and in the specific investments made and rejected in that way. I have a specific problem of principle with the exercise of voting rights by investment managers on behalf of the fund. The purpose of the amendment is to address that.

The Minister of State may be aware that there was a very controversial vote recently at the annual general meeting of Eircom. The wishes of shareholders were defeated by the block votes of fund managers. This was most apparent in the case of the largest block. Bank of Ireland Asset Management, which manages the largest number of funds in the country, cast over 100 million votes in favour of the board of Eircom. That was a vote decided upon and cast by an investment manager. In almost all these cases, one investment manager makes a decision. That is patently ridiculous for several reasons, the most obvious of which is the following good example.

There were between 3,000 and 4,000 small shareholders in that hall and, as far as I could see, not one of them voted the same way as the board on the more controversial motions, yet they were defeated. That happened because individual fund managers, as will happen in this case, were given hundreds of millions of votes to cast at their discretion. That is bad enough because it gives far too much power to one person.

The real crime against democracy is that the people who cast those votes were quite patently voting against the wishes of the underlying shareholders and pensioners they represented. That is apparent from the fact that popular opinion, popular shareholding opinion and small shareholders were patently against the board on that issue, as could be seen by the small shareholders' votes and their expressions.

The fund managers voted the other way, but they were voting for the same people that were in the hall. I was one of them. I only take myself as an example because it is so obvious to me. I was in the hall with a few thousand votes and voted against the board. My pension fund was in the back pocket of the chairman, voting for the board totally against my wishes. The biggest number of pensions in the country was also voting for the board against the wishes of the pension holders.

It is very simple. This provision is patently anti-democratic. Pension fund managers should not have the right to have absolute and total discretion to vote enormous amounts of power to people who tend to be their friends, colleagues or people they meet at their golf and sailing clubs and in other places. This is what is happening.

At the top of the Irish financial world there is a layer of people and bodies who vote for each other and look after each other at annual general meetings, and this is directly appropriate for this particular clause. The Bank of Ireland always votes for the AIB at its AGM andvice versa. That does not make an awful lot of sense. The directors of the Bank of Ireland are always re-elected by 99.999% because every fund manager in town votes for them. The AIB shares, votes cast on your behalf and mine, vote for the re-election of the directors and in favour of their old controversial motions and options. The Bank of Ireland then goes to its AGM and votes for the AIB. It is terribly cosy and works a dream, but the pensioners are never consulted. We have the ridiculous position that the fund managers are voting in a way that is patently against the wishes of those they represent but patently in the interests of themselves, the system and the oligarchy which exists at the top of the Irish financial world.

This provision is a complete duplication of that patent injustice. I am surprised to see a Fianna Fáil Minister supporting such an anti-populist stance. I am surprised because I understood that there were moves afoot within the Government to change this unjust weighting of shareholders votes. Perhaps the Minister of State will comment on this.

At the Eircom meeting everyone saw the absurdity of the chairman, Mr. Ray MacSharry, saying that 30 million votes went one way while several hundred million votes went the other. That is what happened – the big battalions came in and cast a vast number of proxies against the wishes of the underlying shareholders.

Perhaps I should have tabled another amendment and I will think about tabling one on Report Stage as I spell it out. I suggest to the Minister of State that no pension fund manager should ever be allowed to cast votes of this magnitude without consultation with at least the trustees of the fund, who could instruct him on which way to vote. I am not sure that is enough because I do not have total faith in the trustees of pension funds either, but it would be a start. In this particular case the individual fund manager who holds the shares on behalf of the fund should have to consult with someone who represents the shareholders. In this case it is either the commissioners, the NTMA or the Government.

The pensions fund is the biggest one in Ireland. The Minister of State should remember that it could rock the Irish stock market in a matter of years. The stock market is only worth about £8 billion and this fund is worth £5 billion. It could buy the AIB and the Bank of Ireland. Its size is enormous.

Nationalise the banks.

I think the Senator is talking about 1973. This fund is so enormous that its voting power, to which this provision applies, will be disproportionate to any company it invests in. It will be massive. That voting power is apparently going to rest in the hands of one fund manager, one individual who will decide whether so and so stays on the board or gets options, whether controversial matters are voted through, whether to put so and so on the remuneration committee or whether to consult with anybody. This when he is managing funds on behalf of people who pretty obviously disagree with him or at least he does not know it.

This provision should be deleted. The principle of handing so much voting power, and I am not talking about money, to an individual whose motives are totally different from those whom he represents is wrong and should not be enshrined in this legislation.

I listened with interest to Senator Ross. It is difficult to follow the logic of what he said. If we deleted section 22(d) we would leave open the voting rights on behalf of the fund. It would be incongruous to have such a situation prevail.

With regard to the voting rights at an AGM, and I know how taken Senator Ross was at the recent Eircom AGM, it does not follow that indi vidual shareholders will have the knowledge and information to make an informed decision.

That is patronising.

That would apply to people who had canvassed for proxies and asked to represent people. They may not be best represented in a situation like that.

The power of a fund manager to invest is a far greater exercise of power. It would have a greater impact on the individual investor and member of a pension fund. All investment decisions will ultimately determine the return and quantum of pension that the individual might receive. The purpose of the investment will be geared towards that. Surely that is a far greater power. Senator Ross does not seem to have any difficulty with the idea.

Most of these funds have an element of collegiality. There is a team of people involved in making decisions. While the ultimate right might be with the investment fund manager, it is fair to say that the reputation of the fund and the manager will very much be determined by the results that the fund will achieve on an annual basis, and comparisons will be made. I do not disagree with Senator Ross when he said there is perhaps a cosy cartel prevailing within the whole financial circle. The Minister might examine that area, but its relevance is not focused on this amendment. The amendment would denude the fund manager and, as a consequence, the people who have invested in the fund, of a say at the annual general meeting. To have a system where each individual involved in the pension fund would have a vote prior to the AGM is impractical. In many instances, it is not something the investor would want.

Many people who invest in funds do so because they recognise that the professional manager of the fund has the time, expertise, knowledge and information available which enables them to make informed decisions on their behalf, which they could never hope to do. It is wrong to try to use this amendment as a way of paralleling the analogy with Eircom. If Senator Ross reflects upon it, I am sure he will agree that the investment decision of the fund manager is obviously of much greater significance to the investor. However, it would be totally unacceptable to remove the power of exercising a vote at the AGM at his discretion in the interests of the fund, which he is obliged to act upon.

May I have clarification on what we are discussing? It would seem that we are, in a way, putting the cart before the horse.

We are discussing Senator Ross's amendment.

Yes, I presume that is what we are discussing, the exercise of voting rights by the investment manager on behalf of the fund. Where it is deemed appropriate, the commission will appoint investment managers and grant them powers to, among other things, exercise voting rights at an AGM. It does not seem to do the same thing concerning the manager of the fund, the National Treasury Management Agency. The commission may very well ask the manager to invest and manage such portions of the fund, but it does not seem to grant voting rights to the NTMA. I would have thought that if one has an overall management agency, such as the NTMA, the commission would grant it the authority to decide how the AGM will be conducted and the voting rights that should accrue to the agency, rather than to the individual fund managers whom it may appoint from time to time, if we are to have coherence in terms of voting. I would like the Minister to address that point.

Am I correct in saying that the NTMA will farm out portions of the fund to fund managers who will have voting rights in the areas in which the funds are invested? Senator Ross was reasonable when he said that on Report Stage he would ask that at least they would discuss the matter with the trustees of the fund before making a decision on the matter. In this case, the trustees of the fund are the commissioners. It is only fair that these fund managers should consult the commissioners before they cast their votes. That is a reasonable approach to the matter. If Senator Ross tables such an amendment on Report Stage I would be happy to support it.

Section 22 deals with the appointment by the commission of investment managers and custodians. Investment managers will be engaged by contract and section 22(1) outlines some of the key issues which will be covered in such contracts. These key issues include the exercise of voting rights by investment mangers on behalf of a fund. Like any representative of a shareholder, investment mangers may be called upon to exercise voting rights from time to time on behalf of the fund in respect of shareholdings in particular companies. This does not always happen at AGMs – it is an exception. The commissioners will need to formulate a policy on the corporate governance issues which will be put to them, as shareholders, from time to time. This policy could, for example, require investment managers to refer back to the commission in particular circumstances before exercising voting rights, or it could set parameters within which investment managers are free to exercise voting rights as they see fit.

Section 22(1)(d) enables the commission to set terms and conditions which will ensure that investment managers exercise voting rights in a manner consistent with the objectives of the commissioners' policy on corporate governance issues. This amendment would remove this provision from the list of criteria which the commission should take account of in drawing up contracts with investment managers. Senators should note that removal of the provision from the list would not prevent the commission from setting terms and conditions in this area, as the list is not exhaustive. However, the provision deals with an important issue and it should be explicitly referred to on the list.

Senator Walsh put it well in his interpretation of the situation. In my book, the most important thing at AGMs is that there is democracy and that at least one has the right to vote on issues. At many AGMs ten or 20 people turn up and no more is heard about it. It is all over in 15 minutes, everybody nods their heads in assent and things seem to roll on and move forward. That happens consistently. However, in a certain number of AGMs, such as the Eircom one, we see a huge turnout of people. The shareholders exercised their views, as did the fund mangers, and there is a conclusion and a decision. I am confident that at the end of the day there will be a good return on the investments that have been made. We are confident that the same situation will prevail in this case. It would be draconian if we were to force absolute consultation at all times before a decision could be taken. If that were the case, I do not know how we would ever conclude an AGM.

Question, "That the words proposed to be deleted stand", put and declared carried.
Amendment declared lost.
Section 22 agreed to.
Sections 23 to 30, inclusive, agreed to.
Title agreed to.
Bill reported without amendment.

When is it proposed to take Report Stage?

Is that agreed?

No. This morning on the Order of Business there was an agreement that we would review the situation. In view of the fact that my colleagues have indicated that they wish to table amendments on Report Stage, I think Report Stage will have to be held on another day.

Question put: "That Report Stage be taken now."

Bohan, Eddie.Bonner, Enda.Callanan, Peter.Cassidy, Donie.Cox, Margaret.Cregan, JohnDardis, John.Farrell, Willie.Finneran, Michael.Fitzgerald, Liam.Fitzgerald, Tom.Fitzpatrick, Dermot.Gibbons, Jim.Glennon, Jim.

Glynn, Camillus.Kett, Tony.Kiely, Daniel.Kiely, Rory.Lanigan, Mick.Leonard, Ann.Mooney, Paschal.Moylan, Pat.O'Brien, Francis.O'Donovan, Denis.Ó Fearghail, Seán.Ormonde, Ann.Quill, Máirín.Walsh, Jim.

Níl

Burke, Paddy.Caffrey, Ernie.Coghlan, Paul.Connor, John.Coogan, Fintan.Costello, Joe.Doyle, Joe.

Hayes, Tom.Jackman, Mary.McDonagh, Jarlath.Norris, David.O'Dowd, Fergus.Ross, Shane.Taylor-Quinn, Madeleine.

Tellers: Tá, Senators T. Fitzgerald and Gibbons; Níl, Senators Burke and J. Doyle.
Question declared carried.