National Pensions Reserve Fund Bill, 2000: Report and Final Stages.

Senators may speak only once on Report Stage and each amendment must be seconded. The proposer of the amendment has the right of reply.

I move amendment No. 1:

In page 9, line 33, to delete "2" and substitute "3".

This arose from a comment by the Minister on Committee Stage that commissioners could quite happily serve for three terms. We were disputing whether commissioners should sit for five, ten or 15 years. The Bill provides that a commissioner "shall not serve for more than 2 consecutive terms of office". Two is the least preferable of the choices. One term is perfectly acceptable if it must be set up in this way. Two terms is objectionable for the reasons I specified. The Minister said, correctly, the commissioner will get the experience – he said, "three terms". This amendment is put down to facilitate the Minister.

If one accepts the Minister's principle that the guy has to use his expertise and experience, he should have two terms for review, not just one. However, if my principle is accepted, that nobody should ever have to be reappointed if they are politically appointed, it would be a one term appointment. The danger is simple. If the commissioners must be reappointed and reviewed, they could be susceptible and vulnerable to political pressure. If one takes the Minister's perspective with regard to experience, why cut them off after two terms? They get more experienced and accumulate more expertise after two terms. The Minister suggested, as the record will show, that three was equally acceptable. If three is acceptable, let us opt for three terms. I agree with that proposition and that is why I put down the amendment.

I second the amendment. The logic of the Senator's argument is impeccable. In the first five year term, the commissioner is a mere novice and only getting to know the job. In the second term he gets to grips with it but in the third term the expertise has been built up to such a level that we will have a wonderful chief executive officer or commissioner. Three years is the obvious term.

There is a difference between the proposer and the seconder. The proposer wants three terms and the seconder wants three years. The Minister must make up his mind when there is such confusion in the House.

No, there is no difference.

My recollection is reasonably good and I believe that what I said was that if the Senator had said three, it might have been acceptable. I did not say I was accepting that. I appreciate the generous way the Senator responded to my suggestion but I believe in change. When people have given ten years of service, the Government would be of the belief – this would apply to all Governments – that change and fresh thinking is important. Regretfully, I cannot accommodate the Senator on this occasion.

If the Minister detects an element of mischief in this amendment, he is correct. There is an element of mischief in that I am accepting a suggestion made by the Minister. I did not suggest three terms, he did, and then qualified it.

The Senator refused it.

No. I am serious about this matter. Even though the suggestion was by the Minister, it has been rejected. What does that tell us? It tells us that this Bill is not being taken seriously today. The Minister was sent in with riding instructions: "Get this Bill through and accept no amendments." We know that, but the public does not know it. The people in the Public Gallery think we are debating this seriously. They might believe that some of these amendments will be accepted, that what is going on is constructive, but it is not. The people in the Public Gallery ought to know that the Minister came to this House with definite riding instructions to get the Bill through the House without accepting amendments.

The Senator is playing to the gallery.

It is not in order to refer to the people in the Public Gallery.

There is nobody in the Public Gallery. I did not recognise that and I apologise.

Senator Ross understands perfectly what I said.

The Senator is being mischievous.

I apologise, I did not realise there was nobody in the Public Gallery. Given that fact, I must state that nobody in the Public Gallery believes the Minister of State because there is no one there. However, people outside believe we are debating a serious matter and that there is some chance that the Bill might be amended. I tabled this amendment to emphasise the point that even a suggestion, which was acceptable to the Minister of State earlier – he made it himself – is not acceptable now because the Bill must be rammed through today at all costs.

The Senator is being unfair to me.

I intend no disrespect to the Minister of State but if the Minister for Finance had been present it is possible that amendments might have been accepted. When we see the Minister of State, Deputy Treacy, entering the Chamber we know that a Bill will be dealt with in an extremely efficient, polite and robust manner and with a great deal of good humour, but we also know that it will be passed unchanged. What is happening now is the proof of that.

Amendment, by leave, withdrawn.

I move amendment No. 2:

In page 15, between lines 42 and 43, to insert the following:

"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 shall prohibit investment in enterprises involved in the armaments industry and the tobacco industry.".

Like Senator Ross, I have been trying to facilitate the Minister of State. In light of his remarks on Committee Stage, it seemed that the Minister of State believed the amendment I tabled at that point was too general and that it would be difficult to provide accurate parameters in relation to investment policy. I have recast my amendment to require that the Minister prepare and publish an ethical investment policy which the commissioners will use as a guide in relation to investing the State's money and which will prohibit investment in enterprises involved in the armaments industry and the tobacco industry.

There is already £5 billion in the fund and we will be investing in the region of £750 million each year – this will quickly rise to £1 billion – for the next number of years. This large amount of taxpayers' money will be invested elsewhere and it is important that we lay down an ethical investment policy under which no money invested by the State will be used in destroying, mutilating or damaging people. In other words, it will not be invested in the armaments industry. Likewise, because of the inherent dangers posed by tobacco and in light of State policy, we will prohibit investment in the tobacco industry.

We should at least provide an example in this area to our citizens, particularly the young. The investment of this money will go towards building a pension fund for the future. It is, therefore, appropriate that citizens recognise that the money we are investing on their behalf was earned by them and taken from them in tax. That money, which is designed to help build a nest egg for the future, should be invested in areas outside the armaments and tobacco industries.

I second the amendment, which is reasonable, well thought out and sensible. I hope the Minister of State will accept it and disprove the argument put forward by Senator Ross.

I congratulate Senator Costello for tightening up his amendment. The Minister of State's objection on Committee Stage was legitimate because it is very difficult to know where to draw the line. However, Senator Costello has now drawn that line and I presume the Minister of State will accept the amendment.

I thank the Senator for tightening up his amendment because it gives us an oppor tunity to revisit this matter. However, we are splitting hairs somewhat. In which parts of the armaments or tobacco industries would we not invest?

All of them.

The modern armaments industry is high-tech in nature. One of the largest high-tech companies in the world, Intel, is situated in this country and may, indeed, be located in Senator Costello's constituency.

It is definitely situated in Senator Ross's constituency.

Intel manufactures computer chips which are used in the armaments industry. Aviation is a vital component of the armaments industry.

The Minister of State is the one splitting hairs.

The aviation industry is of major benefit to this country and to others throughout the world because of the opportunities for investment. Ireland is home to a number of leading edge technology companies which provide communications components for the aviation and computer industries. If we introduce a blanket ban on investment, the fund managers will not be able to invest in computers or in communications. We cannot allow such a situation to develop.

We must trust the normal commercial market where policy will be decided on by the commissioners and where operations management will be the responsibility of the fund managers. I am confident they will make decisions, in the most prudent way possible, which will be in the long-term interests of this country. We have £5 billion in pension funds to invest immediately which will cater for our pension needs after 2025 and, in particular, after 2055. As the fund grows in line with economic growth, we are confident that the fund managers will achieve their goals, consolidate our investment and ensure that it yields the return the people of Ireland would expect from it.

In my opinion it is the Minister of State who is splitting hairs. His reply is a smokescreen for a lack of willingness to tackle the area of investment policy, particularly in terms of developing a national ethical investment policy. I am referring to the production of arms by the armaments industry and the production of tobacco products by the tobacco industry, from the beginning to the end of the process. The Minister of State can refer in broad terms to the communications and microchip industries but that is totally different. His argument is not relevant to the armaments or tobacco industries.

The Senator is intent on tying the hands of the investment managers.

Senator Costello must be allowed to continue without interruption.

The Senator is being naive.

I am seeking to tie the hands of the investment managers, but only in a very limited fashion. It should not be beyond the ability of the Minister for Finance to draw up criteria that would establish parameters for an investment policy which would focus on the armaments and tobacco industries and fulfil the intention behind the amendment.

Section 22(4) is concerned with the evaluation of prospective investment managers who will be employed by the Government and sub-contracted out and one of its requirements is that these managers shall have due regard to their "internal ethical and compliance guidelines". The Government is, therefore, intent on demanding that the managers take an ethical approach. However, it will not impose any criteria in relation to where they invest funds on taxpayers' behalf. It is a cop-out to state that we cannot devise a policy to ensure that Irish funds are not invested in the armaments and tobacco industries.

Amendment put.

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

McDonagh, Jarlath.Norris, David.O'Dowd, Fergus.Ridge, Thérèse.Ross, Shane.Taylor-Quinn, Madeleine.


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.Leonard, Ann.Mooney, Paschal.Moylan, Pat.O'Brien, Francis.O'Donovan, Denis.Ó Fearghail, Seán.Ormonde, Ann.Quill, Máirín.Walsh, Jim.

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

I move amendment No. 3:

In page 17, line 40, after "Fund" to insert the following:

"only after seeking prior instructions from the Commission".

I tabled this amendment in direct response to a plea from Senator Doyle on Committee Stage who said that if I tabled an amendment to this effect, he and the Fine Gael Party would support it. I will not repeat what I said on Committee Stage, but it will also accommodate Senator Walsh and the Minister of State, who said that by deleting this paragraph, removing the voting power of the fund manager, the situation would be left in limbo. I do not agree with them that it would not matter, as it would leave the power in the hands of the commission.

Against my better instincts but in terms of political pragmatism, acceptance of this amendment would leave the power of voting with the fund manager but it would insist and ensure he exercises that vote only after seeking instructions from the commission. In other words, the beneficial owners or trustees of this fund would decide in controversial areas which way the fund manager should vote.

It is ridiculous that someone who is employed to make investments and who is supposed to have expertise in doing so should also be given a completely different skill, which is a doubtful one but one that is used in a political way by most fund managers, the privilege of exercising a vote, which has little to do with specific investments. These votes tend to be about re-election of board members and because of the position they hold, fund managers inevitably vote for the re-election of board members. To my knowledge, they never consult trustees of pension funds or unit holders, in the case of managed funds, to take instructions from them. They are left to cast tens of millions of votes to re-elect or reinstate people who should not be there. I do not wish to see that in the Bill. As a minimum, the Minister of State should make progress in this area. The Government is examining this area. That is why I am surprised at the lack of the Minister of State's response. A clause should be inserted in the Bill that those who exercise this vote, the delegated fund managers, who are temporary, should seek prior instructions from those who represent the beneficial holders of these shares.

I second the amendment. As Senator Ross outlined, this is an important amendment. Investment managers are employed from time to time to invest funds. It seems contradictory that they should exercise a vote without referring back to the people who put them there. They must refer to and represent the wishes of the commission in the voting process. The Minister of State might say that is already provided for in terms of section 22(1). It states that the commission may from time to time appoint such managers and their duties are set out, but it does not state specifically that for voting purposes they must refer back on a consistent basis to the commission for instructions in relation to the vote. It is important that it is written into the legislation that they should have voting rights only after seeking prior instructions from the commission.

Anything I say would be superfluous and repetitive, as the two previous speakers made the case expertly. I endorse what they said and I, too, support this amendment.

I listened with interest to what the speakers said. I find this amendment somewhat contradictory. Senator Ross has spoken all day about listening to small shareholders and acting according to their wishes. Now he wants the fund managers to be referred to the commission so that it will give them instructions as to how to vote in an AGM. It would not be unreasonable to assume that this fund would invest in over 1,000 companies, which would mean over 1,000 AGMs to attend.

Proxies. They do not have to attend.

No. The commissioners would have to consider AGM documentation and what advice and decisions they wanted. They would instruct the fund managers, who would be bound by this amendment to go to the AGM and vote accordingly. Irrespective of the fund managers' experience or expertise, they are to ignore the small shareholder and are not to listen to the consensus or the requirements of the AGM. They are to vote at the discretion and instruction of the commissioners. That is one interpretation of the amendment.

The other interpretation involves the need for full-time permanent commissioners who would be reading AGM documentation day and night, putting reports together, synopsising those reports and then making a recommendation after consultation with the fund managers. That is unwarranted, unwise and impractical and would be a waste of time, effort and energy. We have to trust the judgment of those managing the funds. They are experienced people and when reports come in the commissioners will deal with them in the normal way. They will have certain reports and information available to them.

This would be an unworkable amendment and I cannot accept it. We have to trust the judgment of the policy makers in the commission and that of the fund managers – NTMA and its fund managers – and we are confident that the best decisions will be taken in the interest of the investors, the pensioners and the State.

I take it from what the Minister of State says that he would have been happy in the case of Eircom for them all to go and vote for the board to receive their options, which is exactly what would have happened. The Minister of State is endorsing by implication those proxies and huge bonuses, as that is what every fund manager I know did.

I am not doing that.

There is one exception. How extraordinary and amazing. He is going to break the mould.

I am being—

These people are going to break the mould all of a sudden. They are not and the Minister of State knows they are not because he is going to choose from amongst them the very fund managers who went and voted. That is what happened. It was unanimous except for one Scottish company which abstained. That is what the Minister of State is saying; he knows it and I know it. For the Minister of State to say that the commissioners would then have to attend AGMs, or the fund managers—

The Minister of State did say that. He said the fund managers would have to attend.

The fund manager.

They would not have to attend every AGM.

Somebody would have to attend.

No, they would not. The Minister of State should let me finish without interruption. They send proxies. That is what this is all about.

Yes, after due consideration.

The Minister of State should withdraw the remark. They do not have to go. The Minister of State was wrong.

I have no problem with that.

Then the Minister of State should not interrupt me and should let me finish. The Minister of State should just say he is wrong. I do not need him to do that.

Senator Ross's interpretation—

The Minister of State should just withdraw the remark and I will be happy. I do not need this constant interruption. They do not have to go to the AGMs. All they have to do is fill in a form and send it off. How many companies did the Minister of State mention – 1,000? That 1,000 companies mean three letters every day. Is that impossible?

The Senator seems to be addressing the Minister of State.

I am addressing him through the Chair. He is a very imposing presence.

Acting Chairman

The Senator is provoking interruptions.

That is an extraordinary suggestion. If I am hitting the bone perhaps I am provoking interruptions. Now the Chair has interrupted me and I will have to start again.

The point I was making before I was so rudely interrupted is that they do not have to go to the AGMs. All they have to do is send off three letters a day once those letters have been ticked in a few places. The idea that it is logistically difficult is absurd, because I do not know what else these people are going to be doing. Some fund managers do not move funds around very much. They read the newspapers and make decisions, half of which are right and half wrong. The suggestion that it is too much for these people to fill in a form and send it off to the chairman of a meeting is absurd. They do not have to attend the meeting at all.

It is not even a matter of 1,000 companies, as there will be plenty of fund managers. We discussed having ten, so it is only one every three days. Will these people have too much to do to fill in one form every three days? The Minister of State should not be ridiculous. Logistically this is no difficulty whatsoever; it is absurd to maintain otherwise.

I do not share the Minister of State's faith in these people's experience as though this were some sort of rocket science and that some mystique surrounds fund managers or their great skill. Most studies show the opposite and that is the fallacy of this Bill. Most studies show that fund managers are a joke and do not outperform any index known to man. That is why the consensus fund was invented – because other funds were performing so badly and charging so much. The consensus fund allows one to invest in it and it then invests in all the other funds. One gets an average of the other funds and this is done by computer, not by man. Man was found to be faulty in this field – totally flawed. The consensus funds have proven on the whole to be as successful – more successful in some cases – than the other funds because they do not charge as much money, given there are not as many fees. It is a constant source of embarrassment to those fund managers in whom the Minister of State has so much faith that their performance is so appalling.

Today we are not only being asked to have faith in their investments but the Minister of State is telling us not to worry as they have done so well in the past. They have not done well at all. They have done well in the last ten to 12 years because anyone would have done well in that time, certainly in the last seven years. One could not go wrong. There were figures of 12% per annum but they did not beat the market. They invested in the market but they did not beat it. Everyone got 12% per annum if they invested in average stocks in that period. They did not do well at all. We are now saying we should have faith in these people's investment abilities which we should not have. On top of that we are to give these clowns who masquerade as having skills they do not have applause for being clever.

They do not have benchmarks. Pension funds measure themselves against guess what – themselves. They publish a table and that is all. They do not measure themselves against the ISEQ index, though others do. They do not measure themselves against the FTSE or the Dow or anything like that. They publish a table and say: "I was sixth in the table last year, I am fourth this year. Haven't I done better?" They may have done better than some of their peers but they have all done badly.

Let us not pretend these people are particularly skilful or have some mystique. They do not. To give them voting rights on top of that is absurd. Giving them that power is crazy. My amendment is minimalist, as mine tend to be; it is far too milk and watery but I put it down to accommodate other Senators. The least we can expect is to make them consult and take instructions on these particularly controversial issues from the beneficial owners. These decisions are not investment decisions at all.

Amendment put.

Burke, Paddy.Caffrey, Ernie.Coghlan, Paul.Coogan, Fintan.Cosgrave, Liam T.Costello, Joe.Jackman, Mary.

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


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.Mooney, Paschal.Moylan, Pat.O'Brien, Francis.O'Donovan, Denis.Ó Fearghail, Seán.Ormonde, Ann.Walsh, Jim.

Tellers: Tá, Senators Costello and Ross; Níl, Senators T. Fitzgerald and Gibbons.
Amendment declared lost.
Bill reported without amendment, received for final consideration and passed.