Markets turmoil costs pension reserve €1bn

THE NATIONAL Pension Reserve Fund (NPRF), which was set up by the Government to fund the State's future pension requirements, lost 5.3 per cent of its value, about €1 billion, in the first five months of the year due to the turmoil in the global markets.

Paul Carty, chairman of the NPRF Commission, told the Dáil Committee of Public Accounts that the fund was down 10.5 per cent during the first three months of this year but recovered in April when equity markets rallied. The NPRF has not recorded an annual loss since 2002 when stock values fell in the dotcom collapse.

Mr 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, Mr Carty said. He acknowledged that, though the NPRF was investing in companies that were "killing people", the return from tobacco companies was "very attractive".

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 stock worth €50.9 million in nine tobacco companies.

The Government set up the NPRF to help reduce the burden on State coffers as life expectancy increases. It invests 1 per cent of GNP into the fund each year. No disbursements will be made from the NPRF until 2025. Mr Carty said that the NPRF could be worth €140 billion by 2025 but that this might only amount to 25-30 per cent of the State's requirements at this time.

He 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.