The Pensions Board last night welcomed the Government's move, describing it as "real forward planning". The agency, set up in 1990 to monitor and supervise pension provision in the State, said the decision was in line with recommendations it made last year.

"It is great that the Government is willing to address what is a long-term problem," said the board's chief executive, Ms Anne Maher. "The demographics in Ireland are quite favourable for the next 10 years, so this is real forward planning - putting money aside today to save tomorrow."

Ms Maher said the money paid by today's taxpayers was being spent on today's pensions, and that the average age of the population was rising.

"It is clear that one generation could be really stung badly on this - that's why we very much welcome the Government's decision," she added.

She said she was also happy with the commitment that the fund would be separate, preventing future governments from raiding it in the event of an economic downturn.

There were "all sorts of variants" in how the fund should be managed, she added, but those in charge should have professional experience of managing such sums.

Without mentioning the National Treasury Management Agency, she added: "There could be one body managing the fund, hiring several people to run it."

In its submission to Government, the Pensions Board said such a fund would smooth the effect of increasing liability on the Exchequer, improve the long-term cost on the economy, maximise the long-term returns, and underpin a greater degree of trust among individuals and social partners.

The move was also welcomed by the Irish Association of Pension Funds.

The group's director, Mr Des Crowther, was delighted the State's social liabilities were being provided for.

"Our only concern would be that the fund should be managed in a commercial fashion, to maximise returns," Mr Crowther added.

The trade union movement has welcomed the initiative by the Minister for Finance, writes Padraig Yeates, Industry and Employment Correspondent.

SIPTU's national equality officer, Ms Rosheen Callender, said her union had sought the measure for more than a year.

She is a member of the Pensions Board and had been one of the authors of the National Pensions Policy Initiative which recommended last May that the Government create such a fund.

Ms Callender called yesterday for the early implementation of Mr McCreevy's initiative. SIPTU was "very pleased the Government is also going to use the proceeds of the Telecom sale to start the fund. It is a very good use of the money".

She said it was necessary to begin funding pensions now. "We cannot expect our children and our grandchildren to pick up the tab for us."

The research and information officer of the Irish Congress of Trade Unions, Mr Ollie Donohue, said ICTU welcomed Mr McCreevy's initiative, but with two qualifications.

The allocation of extra resources for future pensions should be accompanied by provision for substantial increases in existing, old-age pensions in the next budget.

"It should also be used as the first stage in establishing an occupational pension scheme for all workers," he said.