There is a worrying absence of investment policy at the heart of the National Pensions Reserve Fund Bill, 2000. A seven-member Commission appointed by the Minister for Finance, Mr McCreevy, will be asked to oversee the management of the fund, inside or outside the State, so as to secure the optimal financial return for the Government. At the same time, the National Treasury Management Agency (NTMA) will manage the fund and advise the Commission, for at least the first ten years. While the Minister spoke of the proposed structure as "the nearest he could get to an independent pension fund", it is clear the influence of his Department and advice from the NTMA will be crucial in setting investment policy.
By the end of this year, an estimated £5 billion will have been transferred by the Coalition Government to the Fund to meet the future costs of social welfare and public service pensions. The initial capital, amounting to £3.6 billion raised through the privatisation of Eircom, will be added to at the rate of 1 per cent of GNP until the year 2055. And there will be a prohibition on any government accessing the fund before the year 2025, when the first pensions are drawn down. The initiative is designed to minimise future financial strains on the Exchequer which will arise from the cost of supporting an ageing population.
When the Minister for Finance, Mr McCreevy, first revealed his plans for this pension fund last July, the idea received a general welcome from the social partners and from various financial institutions. It was regarded as a prudent measure in forward planning while, at the same time, abstracting a very large sum of money from an overheating economy. The latter consideration is even more pressing now that the inflation rate has reached 5.2 per cent. And it is no surprise that the Cabinet should fast-track the measure in order to deflect public anger over the erosion of living standards.
In a press briefing yesterday, Mr McCreevy spoke in general terms about the uses to which the fund might be put. Similar funds held by foreign governments were largely, if not wholly, invested abroad, he said. But it was being left open to the Commission to balance its investment strategy between foreign and domestic investment. The only prohibition related to investment in Government bonds. But long-term investments in infrastructural projects could emerge at a later date. A spread of investment fund managers - representing as many as 20 Irish and foreign companies - might be appointed by the Commission, through the NTMA, to direct the assets.
The lack of clarity on investment policy is balanced by a requirement of transparency in other areas. Annual reports from the Commission will provide details of the investment returns achieved, along with a valuation and detailed list of the assets at year end, information about investment management and custodianship arrangements and details of fees, commissions and other expenses. The Dail will be given a watchdog role through the Committee of Public Accounts and the chairman of the Commission will be required to attend and answer questions about policy and performance. Huge amounts of money are involved. and there is likely to be intensive lobbying for the lucrative fund management business. So far, the only obvious winner in the lobbying stakes has been the NTMA, which was nominated to advise the Commission and manage the Fund during its formative years.