The National Pension Reserve Fund (NPRF), which was set up to provide for public sector pensions, lost 5.3 per cent of its value, about €1 billion, in the first five months of the year due to the global market turmoil. A fund of €140 billion in 2025 will only fund 25% to 30% of Irish public pension costs.
Paul Carty, chairman of the NPRF Commission, on Thursday told the Dáil Committee of Public Accounts (PAC) that the fund was down 10.5 per cent in the first quarter but recovered in April when equity markets rebounded.
The NPRF has produced positive returns every year since an annual loss in 2002, in the aftermath of the dotcom collapse.
Carty said the fund had grown from €6.5 billion to €20.5 billion since its inception in 2001 and had earned annualised returns of 4.9 per cent, excluding contributions from the Exchequer.
He said that, despite the "increased volatility" in the world's capital markets, the NPRF finished 2007 in positive territory, earning a return of 3.3 per cent, mainly due to the performance of its equity portfolio.
He said the fund was withdrawing €24 million invested in six or seven companies which are listed as being involved in the production of cluster munitions.
The NPRF would continue investing in tobacco companies, Carty said while acknowledging that the NPRF was investing in companies that were "killing people", because the return from tobacco companies was "very attractive".
The PAC heard how a committee in Norway had been set up to screen pension investments, but no similar model existed in Ireland.
The NPRF had made an investment return that was 18.1 percentage points higher than the return from a global stock index.
He said the NPRF's mandate was to make the biggest return and that investment decisions were taken by 20 external fund managers employed by the fund.
The NPRF has investments worth €50.9 million in nine tobacco companies.
Carty detailed how the fund would only be able to supply between 25% and 30% of public pension costs by 2025.
This is despite the fact the fund is expected to grow to €140 billion.
The capability of meeting just this part of the pensions demand, added Carty, all depended on life expectancy, births and the age profile of those living.
The NPRF invests 1 per cent of GNP into the fund each year. No disbursements will be made from the NPRF until 2025.
The chairman said the NPRF would complete a review later this year to assess total liabilities facing the State by 2025.
There are currently four people working for every one individual in retirement. This is expected to fall by 2025 to three people working for every retired person.
Dr Michael Somers, chief executive of the National Treasury Management Agency, which manages the NPRF, told the committee that it had saved €378 million by raising €7 billion through a Government bond issue in April. He pointed out that the yield was 4.51 per cent at the time the money was raised and this had since risen to 5.05 per cent.
