Pension Reserve Fund dips in value to €19.4bn

THE National Pension Reserve Fund – worth €25 billion at its peak – was valued at €19.4bn on June 30.

Set up in 2001, the fund, according to Government plans, is to be built up to €140bn by 2025, when it will be used to pay for public pensions.

Recent estimates suggest the figure of €140bn will fund about 30% of the State’s public sector pension costs by that date.

Stock market turmoil has undermined the fund’s performance, pushing its annualised return down to 0.6%.

The National Treasury Management Agency has reported that over the first six months of 2009 the fund had secured a return of 1.3%, well above the current average rate.

NTMA chief executive Michael Somers said at €19.4bn the fund has just about maintained its capital value. In the current climate that was a good outcome compared “with performances of pension funds elsewhere”, he said.

Commenting on the funding of the national debt, Mr Somers said securing a €6bn bond over 10 years in June 2009 was “a turning point” for Ireland. It contrasted sharply with the attitude in the markets in the early part of the year, when funding for periods of no longer than three years were on offer.

The change is good for Ireland but is contingent on the country continuing to deal with its huge structural problem: a falling tax base coupled with a sharp rise in the national debt.

Mr Somers said while attitudes from international lenders to Ireland have improved in recent weeks, the country still faced uncertain times ahead.

The agency’s annual report shows that in four years, €2 of every €10 collected in tax will go to pay the interest bill on our national debt. The current rate is €1 in €10.

Despite the pressures and concerns about Ireland being able to continue to fund its debt, the agency said it had so far raised €21.7 billion on the bond markets, while its target for the year is €25bn.

Ireland’s national debt is forecast to rise to 73% of economic output by 2013, without taking into account debt issued in connection with NAMA, the proposed bad bank.

The agency also said it is possible that NAMA’s debt may be classified as outside the Government sector by the EU.

The size of that debt will be determined by the valuation put on these toxic assets being appropriated from the Irish banks who are so highly reliant on the state to stay in business.

It’s now expected the new bank will take control of the assets of Ireland’s top 50 property developers involving loans of €30bn before Christmas.