Professor Stephen Kinsella:

It depends. I will give two examples. There are several but I will give the example of two different sovereign wealth funds in Singapore. One is GIC, which is a large general fund, while the other is called Temasek. The GIC invests in everything while Temasek is essentially there to invest funds from previously nationalised or privatised industries like rail, road and air. The uses of these two funds are totally different. The resources are there, they come from different places and the uses are very different as well. It is fascinating to see the difference but regarding the withdrawal rule, which was the point I was making before, you set these things up with a specific objective. That might get bigger but it needs to be specific. Then there are transparency and rules around governance. The withdrawal issue is the major one around that. Then you align the incentives of the people managing those funds so that they deliver the outcome you set in the first place. For example, you could easily have a situation where the funds were managed internally, such as entirely within the NTMA, or the NTMA farms out the money to various providers and has them invest on behalf of the State for a fee and they remit the difference back in. With those two different scenarios, the State essentially acts as both custodian and investor if it is just the NTMA. If it farms it out to private businesses, that is fine too but, of course, one must then think carefully about what the appropriate benchmark is. You might think the benchmark is 2% so the cost of borrowing for the State is about 2% so whatever you make has to be above 2%. Alternatively, you could pick the Standard and Poor 500, which is normally the benchmark you might use. If the Standard and Poor 500 grew about 5% this year and you guys made 8% - happy days - but if you guys made 3%, not so much. There is then the question of the difference between the nominal amount, which does not correct for inflation, and the real one, which does, and so forth. You can get as complicated as you like about these things. The point is that at every stage, you must be extremely clear about what you want from it and then allow the system to accumulate as it goes. When you withdraw, and you withdraw under very specific circumstances, the reasons for which you withdraw it are clear.

To go back to the previous example, my criticism of this is that its narrow definition just for ageing costs. In a certain sense, that is a positive because you can only use it for ageing costs so in seven years' time, the Minister for Finance of the day may say he or she does not want to use this for ageing costs but would rather use it for climate change, roads, rail or houses. Actually if you build the rules within to say that you can only spend this on pensions, the Minister for Finance is bound by that rule and must then work backwards to change it.