Decision to raid pension fund met with caution

THE Government’s decision to tap into part of the €18.7 billion National Pensions Reserve Fund (NPRF) to shore up the banking industry has received a guarded welcome.

The Irish Congress of Trade Unions’ economic adviser Paul Sweeney said its members represent 40,000 workers in the banking industry.

He said this means it holds a significant interest in the outcome of recapitalisation and he believes it’s preferable to reach into the National Pensions Reserve Fund and not channel cash from private equity firms.

“We are slightly worried by the prospect of private equity being a part of the deal. These guys are only there in the short term and they have a horrific history of bad management.

“The Government does seem to be at sea and it is not very comforting,” said Mr Sweeney.

He said the NPRF represents the best alternative for protecting the banks and public finances.

ICTU will meet Government representatives this morning but this will be to discuss the wider issues of social partnership and not the recovery package.

The NPRF was set up in 2001 as a long-term investment for expected demands on the state pension from 2025.

In the first nine months of this year the fund lost 17.3% of its value, falling by €3.8bn to €18.7bn. It performed better than private pension funds, however, as the bulk of its reserves are still invested in international equity markets.

It has €1.6bn in cash and foreign currency which could be freed up for investment in the banks.

However, the legislation which set it up stipulated it could not be touched until 2025.

New legislation will have to be brought before the Dáil to allow Finance Minister Brian Lenihan use the fund for recapitalisation.

In July, Mr Lenihan said he would not raid the NPRF to fill the budget deficit: “I don’t succumb to temptations like that.”

However, professor of international economics at Trinity College, Philip Lane, said the Government’s earlier guarantee of the Irish banking system had left it in a difficult position.

He said if the banks were allowed go to the wall the Government would be liable for €440bn in guarantees.

Prof Lane said injecting direct capital will give the Government the potential for a return on investment, protect the banks and help avoid more costly collapses.

“The Government should be a good long-term investment because the private sector is illiquid and does not have the cash to invest.

“If you have an investing entity with a long-term view, like the pension fund, it would be a good for the investor. If the Government negotiates a deal with the banks it can achieve a good return,” he said.