New State €100bn wealth fund scheme sets out strict withdrawal limits

The outline of planned legislation to set up a planned €100 billion Irish sovereign wealth fund to pay for additional healthcare and pension costs associated with a growing and ageing population from 2041 has laid out strict conditions under which funds can be tapped.

The general scheme of the so-called Future Ireland Fund, Infrastructure, Climate and Nature Fund Bill, published on Thursday, said that future governments will only be able to make basic withdrawals from the Future Ireland Fund (FIF) from 2041 if they do not cause the value of the fund to fall below prior State contributions into the fund or its capital.

Accumulated contributions into the FIF, which will be run by the National Treasury Management Agency (NTMA), are set to total €70 billion-€75 billion by 2035, though investment returns are seen lifting the fund to €100 billion, according to the Department of Finance.

Withdrawals would require a Dáil resolution, following a proposal made by the Minister for Finance and subject to Government approval, it said.

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“The intention of the ‘multigenerational benefits’ is that there will be similar amounts of money available as far as possible to be drawn down every year into the future,” according to an explanatory note on the general scheme. “Even if a decision is made in 2035 to cease contributions to the Future Ireland Fund it can continue to grow throughout the 2030s through investment performance.”

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The minister of the day can only direct the NTMA to actually transfer capital from the FIF – following government and Dáil approval – to the exchequer if the agency has advised that the average return from the fund over 10 years would be less than interest costs if the State borrowed the money. “This is intended to preserve as much as possible the capital of the fund but not to the extent that the State is borrowing at higher rates than the investment return on the fund,” according to an explanatory note.

The NTMA will be responsible for establishing and constantly reviewing an investment strategy for the fund, which will be invested on a commercial basis but required to take on board environmental, social and governance (ESG) considerations.

For each year from 2024 to 2035 the government will be mandated by law to invest 0.8 per cent of nominal gross domestic product (GDP), currently equivalent to €4.3 billion, into the FIF. A Finance Minister can may amend or halt payments for a period, subject to government and Dáil approval, if there has been a “significant deterioration” in the public finances.

The Minister for Finance in position in June 2035 should also prepare a report for the then government on whether State contributions to the FIF should continue or be amended.

A separate, planned infrastructural fund – the Infrastructure, Climate and Nature Fund (ICND) – designed to ensure that capital spending is maintained in the event of a future economic shock, will also have tight controls attached to it, according to the general scheme.

An investment of €2 billion will be added to this fund each year from 2024 to 2030, building to a total of €14 billion by 2030. As much as a quarter of the fund can be used to protect infrastructure spending in a year where there is deemed to be a significant deterioration in the public finances.

In normal times up to 22.5 per cent of the fund can be spent in a given year on climate-focused projects that cut emissions, up to a cumulative value of €3.15 billion by 2030.

“The Future Ireland Fund will provide multigenerational benefits and deliver the widest benefits to the public. It will also prevent the reliance of current expenditure on temporary or ‘windfall’ sources of income,” said Minister for Finance Michael McGrath. “The Infrastructure Climate & Nature Fund will help smooth the investment cycle and avoid a ‘stop-start’ approach and help provide support for the economy in times of exceptional need and capital spending in periods of economic dislocation.”