Ireland remains mired in a banking crisis, with its Government forced to raid the coffers at the National Pensions Reserve Fund (NPRF) to prop up its money lenders. What does that mean for the future of the Irish state pension?

Ireland's National Pensions Reserve Fund (NPRF), established to part-finance the cost of social welfare and public service pensions from 2025 onwards, saw €10bn of its assets drained away by the Government earlier this month, in order to support another recapitalisation of the banks.

The country's Department of Finance chose to invest the money as part of a short-term solution for the bank's €24bn refinancing, leaving the long-term option of providing for its country's ageing population in a precarious position.

€4.9bn is now left in the NPRF's discretionary portfolio that is supposed to ensure that Ireland's pensioners will be provided for.

The €10bn withdrawal is not the first to be made from the fund. In 2009, the decision was made to take out two instalments of €3.5bn for the recapitalisation of the Bank of Ireland and Allied Irish Bank. The fund is now left with less than a third of what it held at the beginning of last year.

Brian O'Neill, a press officer at the NPRF, reveals a somewhat required passive compliance at the fund; something the people of Ireland might not feel when they find out their pension pot has been drained.

"There is not much we can do," he says. "We just manage the fund to the best of our abilities, they are all political decisions made by the Department of Finance. We do the best we can."

Nor does he blame the government for their decision. "I can imagine I would have done the same, there is no money and we need a solution now."

For Eoin Dorgan, a press officer at Ireland's department of finance, the matter is straightforward. "Without the banks (there is) no future," he says. "When providing us with the help we needed, the IMF pointed out that we did have some assets of our own. This is very much a case of us using the assets we have available to save our economy."

The National Pensions Reserve Fund Bill was established in 2000. Its purpose was to build up resources which could finance the gap that would, and still will, eventually occur when the Irish state's pensions bill rises due to an increase in life expectancy.

Initially the government decided to pay 1% of GDP into the fund each year to part-fund pension liabilities. Together with the added receipts from the flotation of Eircom (Telecom Eireann) the fund started off with over €4bn.

When financial troubles came to a head in 2009, a view was taken that the reserve fund's money was just sitting there as an untouched goldmine, that could help the government pay off its huge debts. Whether the government will be able to repay this money has not been discussed in detail, and ministers' intentions remain unclear within the NPRF.

When asked what he expects to take place Dorgan's answer is one without little commitment: "We will need to look at it when we are back on track with the rest of the economy, it is too early now. We will make contributions and pay it back when we can, but for now this is the way it is."

But promises over the fund have already been broken, making assurances about its future sound a little hollow.

In the 2000 Bill. it is clearly stated that there is a "prohibition on drawdowns from the Fund before 2025". Unfortunately the Department of Finance saw the need to use the money sooner and changed the legislation. "We don't know if it will be repaid," admits O'Neill.

Break up

Following the order to invest in the two Irish banks in 2009, and the fact that the NPRF's legal investment policy does not apply to the directed banking investments, management decided to separate the NPRF into two parts for practical purposes.

One part is the 'discretionary portfolio', this is the investment for which the fund will remain responsible. The other portfolio is the 'directed investments' portfolio. This is from which investments are made at the direction of the Minister for Finance.

The fund's discretionary portfolio made an 11% return last year and has performed better than private pension schemes in Ireland over the last decade.

The latest reports now say that the NPRF is considering the sale of some of its private equity assets in a move to rebalance the funds' discretionary portfolio.

But O'Neill says nothing has been decided as yet. "We are trying to figure out what to do now. Until we know more we can not decide if we need to become more aggressive with our investment strategy. I doubt it. We have no target," he says.

"(The Government has) given us the mandate to 'get as much as possible'. We will continue to try this. As much as possible is just less than before."

azeevalkink@wilmington.co.uk

First published 07.04.2011