Pension Reserve Fund losses ease to €332m

THE massive losses of the National Pension Reserve Fund (NPRF) were substantially reduced in the first half of this year, according to the latest figures.

Reflecting stock market improvements the total loss incurred by the Fund has eased from €737m to €332m in the six months to end June, 2003.

NPRF chairman Donal Geaney ruled out any curtailment of the build-up of the fund to boost capital spending in the coming years in order to divert cash to capital projects.

Several economists including the Economic and Social Research Institute recently suggested a suspension of the fund until healthier economic times re-emerged. Monies could be used instead to build more infrastructure given the huge pressure on government finances as the economy continued to slow down.

Brid Horan, director NPRF, said: “That was like telling people not to bother with their own pension funds until they felt better able to afford the money.

“That was a nonsense”, she said.

Dr Michael Somers, chief executive, National Treasury Management Agency, who is also on the board, said the difficulty for the Government was not lack of capital funding but the restriction placed on the national debt by the Maastricht Treaty.

It emerged yesterday there is no restriction on the Fund investing in Public Private Partnerships (PPPs) in Ireland but “not one PPP proposition has been put to the Fund.” It appears that the private sector is not interested in them, said Mr Somers.

The fund had an added difficulty in trying to justify capital investment prospects due inadequate investment returns, he said.

Suggestions that the Government ought to abandon the funding of future pension in favour of capital spending was wide of the mark. As a result of the government’s decision to set up a reserve fund into which 1% of GNP would be invested annually, the current value of the fund is €8.392 billion and the plan is to build to a reserve capable of meeting 30% of the Government’s pension obligations from 2025.

Two-thirds of the fund will be used to service the old age pension demands from 2025 onwards and the remainder will be used to fund the public sector (defined benefit) plans.

Phil Hogan, Fine Gael spokesman on finance accused the fund of losing 1,690 for each of the State’s 436,000 pensioners last year as a result of the €737m shortfall in 2002.

Nearly three quarters of a billion “was gambled and lost on our behalf on the global equity markets by the National Pensions Reserve Fund”, he said.

Asked about ethical issues, the NPRF said no guidelines were given to the 15 international fund mangers.

The view of the fund directors was summed up by Dr Somers: “You really can’t win. Governments buy arms so does that rule out bonds.”

Over the year to end December 2002, the fund return was 6.1%, against 18.9% archived by the average Irish pension fund.

Since its inception, the annualised return to end December, 2002, was 7.9%, against 1.6% per annum for Irish pension funds.