Labour checking legality of raid on pension reserve fund

THE Government could face a legal challenge over its attempt to use €17.5 billion of the National Pension Reserve Fund (NPRF) to refinance the banking system.

Labour Finance spokeswoman Joan Burton said that her party’s legal advisers were checking the legalisation surrounding the NPRF to ensure that Fianna Fáil claims that a “government directive” was enough to divert the fund from its established use were actually true.

“Proportions of the fund have already been used to invest in preference shares in the banks, but whether the liquidation of the fund to be used to further shore up the banks is legal is highly questionable.

“The Labour party proposed introducing legalisation to allow €2 billion of the fund to be utilised by a strategic investment bank. We were quite clear that new legalisation would be needed to do this and to now hear that the fund can be liquidated by mere ministerial order is suspect.”

The NPRF is invested in share portfolios and property from Hong Kong to the US. When it was established by then Minister for Finance Charlie McCreevy in April 2001 strict rules were put in place to prevent its use by future governments for purposes other than public sector pension payments.

According to these the funds aim was to “meet as much as possible of the costs of Ireland’s social welfare and public service pensions from 2025 onwards” and no monies could be drawn down before 2025.

In February 2009 Brian Lenihan announced that the fund would finance a €7 billion bank recapitalisation programme.

According to the NPRF website: “Investments made in financial institutions by the fund under the programme are made under ministerial direction and the fund’s statutory investment policy is not applied to these investments.” However, this would seem to only be the case for non-nationalised institutions.

A Department of Finance spokesman said that new legalisation would be necessary if NPRF monies were to be invested in institutions not listed on the stock market, this would include the fully nationalised Anglo Irish Bank, but not for investment in a listed institution.

He added that legalisation would also be needed to allow the government to end the annual investment of 1% of GNP into the fund.

A spokeswoman for a PR agency retained by the National Treasury Management Agency to deal with issues relating to the NPRF said that it was her understanding that the fund could be utilised to shore up the banks by “government directive”.