Margaret Cox (Fianna Fail)
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I move:

That Seanad Éireann:

—notes the ongoing commitment of the parties in government to the National Pensions Reserve Fund which is helping to ensure future generations of the elderly will be properly provided for;

—congratulates the Government for maintaining the National Pensions Reserve Fund and the payment of 1% of GNP per annum into the fund;

—welcomes the fact that in the first quarter of this year the fund earned €830 million or some 5.4% bringing its total value to €16.6 billion; and

—welcomes the fact that in the first quarter of this year the fund earned €830 million or some 5.4% bringing its total value to €16.6 billion; and

—acknowledges the overall success of the fund, since its inception in difficult market conditions, and urges the Government to continue to support this innovative scheme which will assist in meeting our great responsibility to provide for those who will need pensions in future years.

I am pleased to be able to speak on this issue, although I do not count myself as an expert in finance or the National Pensions Reserve Fund. We must acknowledge the foresight of then Minister for Finance, Mr. Charlie McCreevy, in establishing the fund under the National Pension Reserves Act 2000, with effect from 2 April 2001. He thought about the rainy day, realised the serious challenge that faces us from a pension point of view and decided to do something different and smart. We have known for many years that the Celtic tiger would not have occurred without the successful baby boom of the 1970s, which created a large workforce, and through the management of the economy and the economic growth we have seen. We have a buoyant economy with many people at work but they will continue to work only for a period of time. At some point we will all have to look to our pensions and wonder how we will provide for ourselves when we get older and are not working as much as we used to or when we come to an age when we are not able to work. It makes great sense to make provision for these contingencies.

The Minister for Social and Family Affairs has been before the House here several times to speak on pensions and the challenges that face the Exchequer in terms of the future cost of social welfare and public service pensions. The National Pensions Reserve Fund was established to meet the cost to the Exchequer by providing for the payment into the fund of a minimum of 1% of GNP every year from 2001 to at least 2055. The fund is controlled by the National Pensions Reserve Fund Commission, which has absolute discretion to control, manage and invest the assets. It is managed by the NTMA for the first ten years and publishes annual reports, which is a statutory requirement, and quarterly statements. On 31 March the value of the fund was €16.6 billion.

The Minister will forgive me if I focus on the operational side of a pension, what it means and what I think we can do, because I am not a financial expert. The Pensions Board, with this treasury fund behind it, is doing a reasonable job in getting the message across and I acknowledge the new leaflet that is being distributed. I do not know how, but recently I received a box of them in the post. It focuses the responsibility of individuals to start making pension provision. It is well laid out and makes it clear that the State social welfare pension is €193.30 per week, or €10,051 per annum. We must get this message to young people aged 25 to 27 years and who are starting to work. They must understand that one should begin providing for a pension at that age. If one begins when one is 25 or 26, it will not cost a significant sum and one will not be reliant only on the State pension. People believe, as I did when I was 25, that they do not need to worry about a pension because they will get one from the State. The message must be got across that the State will not be in a position to provide the levels of earnings and lifestyle that we now enjoy. No matter how strong the National Pensions Reserve Fund and the PRSI and social welfare funds are, we cannot provide for all pensions.

The public do not realise that if one were to contribute €100 of one's salary into a pension, that sum would be invested tax free and in full whereas if one was to keep it as salary, the net benefit might be as little as €58 when tax and PRSI were deducted. The Government is backing savings. To consider SSIAs, which were to encourage people to begin saving, for every €4 invested, the State invested a further 25%, so the total investment was worth €5. We should point out the similar position with regard to pensions. It will not cost the State more as we are currently spending the money in any case, but how we present this position to the public is important. If the public realises that the net cost would be just €60 when the tax and PRSI benefit is included, whereas the total invested would be €100, it will make them more inclined to provide for their own future. We need to get that message across.

Higher earners are making sound financial use of pension funds. However, those on the 20% tax rate and the lower paid, who are more dependent on their pensions, do not fully understand or appreciate the benefit. The challenge for the Pensions Board and the Government is to get this message across so that they understand.

There is a responsibility on Government, which it is fulfilling, but there is also a responsibility on the individual to invest in his or her own pension fund and to provide for his or her own pension while in a position to do so. The responsibility is on individuals and on the organisations they work for in terms of promoting the various schemes, whether a contributory pension or PRSAs. Employers must get the information across and must encourage employees to undertake a PRSA and begin saving in that way. We are not getting the message across.

Some 76,000 employers have set up PRSA schemes but only 27,000 employees have taken them up. There is a fundamental problem with regard to the message, which is a challenge. As well as providing and managing the fund, and making sure we are getting the proper growth and treasury management, which we will leave to the experts, we must make sure that the public — me, you and everybody — provide properly for their pensions.

Another challenge which makes the National Pensions Reserve Fund more important as we move forward is the arrival of the new migrant workers who have come to Ireland since May 2004, when the EU expanded. These migrants are important to our economy. They are working and are entitled to the benefits of the State. This development has created a new group for whom we need to provide. We will not achieve this if we do not invest in the fund and manage it properly, and if the fund does not experience appropriate growth. The fund has outperformed its benchmark by 10% since its inception in 2001. There is good fiscal management of the fund but it is important that we continue to manage it and show a commitment to investing in it, particularly as we realise the challenges of the future, to some of which I referred.

While I understand it is not the Minister for Finance's brief, when the Minister for Social and Family Affairs, Deputy Brennan, goes to Cabinet, an issue arises in terms of pensions and the entitlements of women. I congratulate the Minister, Deputy Cowen, with regard to the tax breaks put in place for child care workers. The acknowledgement that they can pay their own PRSI contributions reflects the fact they are doing important work and providing for their own pensions, while constantly focusing on the importance of the role of women or the full-time carer in doing work which is not paid for by an organisation or company.

Perhaps we can expand that scheme to other sectors and to other individuals such as those being paid carer's allowance, who would not mind paying a contribution towards their pension. We are making a start with the child care payment and the disregard to €10,000 but allowing people to make a PRSI contribution is an important step and a clear reflection of the commitment of the Government, the Department of Finance and the Department of Social and Family Affairs to the recognition of the important role of women in the area of unpaid caring work in the home or in other people's homes. I compliment the Minister on this.

The real challenge is twofold. First, we must manage the resources we need to pay out in the future to cover State pensions of public servants. Second, we must ensure that we get the message across so that people understand pensions are their responsibility. We are continually examining the area of pensions with a view to deciding whether we should make them mandatory. In terms of managing our economic competitiveness, Ireland has a low rate of corporate tax and personal tax. If we are to introduce any mandatory measure that is a tax on employment, it will work against us in the global competitive market. So long as it is a matter of choice and organisations have the choice to invest money in a tax efficient manner, that is to be welcomed. However, the moment we make pensions mandatory and insist that every employer must pay X% into a pension scheme, we will have difficulties that affect our global competitiveness on a daily basis.

While I do not claim to be an expert, we are suffering from this challenge. We have a buoyant economy but much of the development is generated internally from the building industry, the turnover of land, stamp duty and other positive developments in the economy. However, the level of exports is falling daily. If we are to have sustainable development that will allow us to maintain the economy, we must be careful not to put increased tax on employment. We must ensure we continue to work in a system that provides for the future, reflects the good fiscal management of the Government in terms of managing its pension fund and also allows flexibility for organisations to introduce the type of solutions that work for them and their employees.

I am delighted to have the opportunity to speak on the motion and look forward to the contributions from all sides of the House.

John Gerard Hanafin (Fianna Fail)
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I second the motion and welcome the Minister to the House. The National Pensions Reserve Fund is not a particularly political issue. However, I remember the quotes from the year when the fund did not perform to standard. The Opposition spokesperson stated that the "discovery that €1 billion of the €8 billion invested in the National Pensions Reserve Fund over the past two years, has been wiped-out raises serious questions" and that "the Minister has preferred speculating on overseas stock markets to investing in our own economy". The spokesperson stated:

It is not enough for the Minister to wash his hands and say that he has left the management of these monies to independent fund managers. The Government must take responsibility for investing taxpayers' money in a beneficial way. Fund managers are acting within the narrow limitations that the Government has set. . .

If these are the criteria, we should be patting ourselves on the back and telling ourselves we have done a great job as a Government. However, this is not the time or place to do so because this is a national strategic fund which belongs to the whole nation. I take pride in knowing it was a Fianna Fáil-led Government which put the fund in place. I take pride in the fact it was the prudent use of money from the flotation of Eircom, €6.1 billion, which set up this fund that will ensure our futures.

The investments have performed extraordinarily well — over 5% in the first quarter and over 19% last year. With any strategically managed fund, the mandate has been to manage it on a commercial basis. That responsibility has been given to the National Treasury Management Agency by the Government and it deserves our commendation. However, as with any fund, we should be prepared to accept the ups and downs which will come. We have done extraordinarily well this year and last year, and long may that continue. There is a policy of looking at the possibility of changing and moving the fund, as necessary.

At present €11 billion is in the large capitalised markets with equities at 73%. The intention is to move that strategic allocation to 63% by the end of 2009. There is €540 million in the small capitalised markets — 3.5%, which will increase to 4% by 2009. There is 2% in the emerging markets, which is a prudent use of the moneys. We have 0.1% in private equity, which will increase to8%. Property will increase from 0.8% to 8%. That would seem to be strategic and prudent management, particularly as equities may not continue to perform as they have done in recent years. We could not, or should not, expect them to perform as they have because nothing has exponential growth. As one commentator said recently "no tree grows to the sky". We also have investment planned for commodities, forestry and for sovereign, government and corporate bonds, which is very prudent.

Having said that, we should also look at the general pension situation. One of the most important policy challenges facing this country and this generation is the urgent need to reform our pension system so that it lays the foundations for future retirement, in security and with dignity, for all the people. There are no quick fix, magic wand solutions to the fact that almost half the country's workforce of 2 million people do not have personal pensions. Ireland is not unique in having a looming pensions problem. Throughout the world, governments and societies are grappling with the impending crisis of a lopsided population structure in which older people far outnumber younger workers. Ireland's response to the challenges and opportunities posed by this rapid social, economic and demographic change will influence the future shape of our society for decades to come. In that context, I again commend the benefits our young immigrants are bringing to our economy.

At present 900,000 people — almost half the country's entire workforce — do not have any private pensions and, as of now, are facing into a retirement in which their main source of income will be the State welfare pension. At least half of these are women. While there have been substantial improvements in welfare pensions in recent years, the reality is that many of those relying exclusively on these pensions will continue to have a high risk of poverty. The number of people aged over 65 years will more than treble from the current level of approximately 464,000 to 1.5 million by 2056. At present in excess of four workers contribute to the support of each pensioner. This will fall to 2.7 in 2026 and to fewer than 1.5 workers per pensioner in 50 years time. The cost of our social welfare and State pension system will increase in the same period from over 4.3% of GNP to 13.8%. This forecast of spiralling costs is far ahead of any estimates to date and will come as a major surprise to those who have played down the challenges faced.

Just over 43% of self-employed people have a supplementary pension against 54% of employees. Indeed, when one takes out the public sector, it emerges that 43% of private sector workers have personal pensions. Only 33% of existing pensioners have income from an occupational or private pension. At present the pension system replaces 51% of pre-retirement income for couples and 43% for single pensioners. Some 40% of occupational pension schemes which reported to the Pensions Board last year failed to meet the funding standard required by legislation. These figures pose serious questions for our society.

The decisions we make at this time will impact on almost everyone, whether they are pensioners or starting work. Our choices are limited and at times stark. We can reduce benefits, increase taxation, work longer or increase the advance provisions we make through the National Pensions Reserve Fund or through personal savings. The National Pensions Reserve Fund has stood us very well in terms of the perception of where we will be, as a nation, in 30 or 40 years time and what we will have achieved through it and the security of having it as the demographics change.

We have opportunities ahead. The SSIAs will mature and I hope we will be able to present to the public an opportunity to use moneys normally expended on SSIAs to benefit from the changes introduced by this Government to allow those on the lower tax rate to benefit as well as those who already benefit at the higher tax rate. That will ensure we continue to thrive as we have done and look to the future comfortably and confidently.

Sheila Terry (Fine Gael)
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I move amendment No. 1:

To delete all words after "Seanad Éireann" and substitute the following:

—supports all efforts to ensure adequate provision for pension and social welfare entitlements in the future;

—welcomes the increase in the value of the National Pensions Reserve Fund;

—expresses concern that growth in the fund in the last full year was behind the average achieved by private sector fund managers in this country last year;

—condemns the Government on its failure to make the system of public private partnerships work, leaving the NPRF management unable to invest in vitally important infrastructure;

and

—calls on the Government to do more to improve private pension cover, which remains low.

I welcome the Minister. We welcome the National Pensions Reserve Fund and the fact it is doing well. We recognise that in 2000 and 2003, it did not do so well and serious questions were asked of Government at the time. I accept that is the nature of this fund and that it will have highs and lows but it is still behind in terms of what private fund managers have been able to achieve in the past year. I hope it will improve because it will be required in the future.

I welcome the fact the Government is addressing the future needs of pensioners. Those pensioners include retired civil servants and those on State pensions. With an increasing and an aging population and with civil servants in receipt of decent pensions, there will be a great need for funding to meet the requirements of future pensioners.

I wish to raise a number of issues in regard to the fund. Why are we investing so much of this money abroad when there is such a need for investment in infrastructural projects in this country? Many people would agree some of that money should be invested here. If we are to prepare for the future and meet the needs of future pensioners, the best legacy we can have is to leave the country in a good state. While we have the resources, we should put in all the necessary infrastructure to give the next generation the tools to enable the country meet the needs of the pensioners of the future. One of the best ways we can prepare for the future is to build up our country. It is the same as asking how best one can secure the future of a young child. One provides him or her with the best education possible and ensures the child is independent when that day comes. In the same way, we must ensure that this country will be able to provide for the future. Money from the fund should be used today.

The chairman of the National Pensions Reserve Fund Commission, Mr. Carty, has expressed a wish that we would invest some of the fund in public private partnerships. Some €200 million was designated for these, €20 million of which was to be spent on upgrading the M50. However, this did not go ahead for various reasons and the work has again been, or is about to be, put to tender. I ask that we reconsider this matter to see how best we can deal with it. Public private partnerships comprise a very good mechanism through which the fund could be used.

The fund is invested in some unethical companies, including tobacco and arms companies, with which I and many taxpayers have difficulties. There are many ethical companies that would yield very good returns. The National Pensions Reserve Fund Commission is obliged, by legislation, to get the best return it can from the fund but there should be certain restrictions on the types of companies in which the money can be invested. I ask the Minister to consider this.

The other part of my amendment deals with the future provision of pensions. Since this is National Pensions Awareness Week, there is much media commentary on future pension provision and much talk from the Pensions Board encouraging people to invest in pensions. We have debated this issue in the House on many occasions. However, I have not received an adequate answer as to why people are slow to contribute to pension schemes or why the take-up of PRSAs is so bad. Owing to the disappointment of pensioners and those who are about to become pensioners over the performance of pension schemes into which they have paid, their sons and daughters have learned that paying into a pension scheme does not deliver.

Our legislation is such that we have made it easy for companies to change from defined benefit schemes, which would guarantee a pension for people, to defined contribution schemes, which give no guarantee regarding what sum they will ultimately receive. People have no faith in the pensions industry and the Government is doing nothing to restore faith through ensuring people will a have a pension if they pay into a fund. Until we can tell people they will receive a certain amount by paying into a pension scheme, we will be wasting our time. People are voting with their feet and investing in property rather than pension schemes because they feel they will get a better return.

Paddy Burke (Fine Gael)
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I second the amendment and reserve my right to speak.

Feargal Quinn (Independent)
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I wish to share my time with Senator Ross.

Rory Kiely (Fianna Fail)
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Is that agreed? Agreed.

Feargal Quinn (Independent)
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I welcome the Minister and the opportunity to debate this issue. It is not very long since it was debated in the House. I have no problem congratulating the Government on its foresight in setting up the National Pensions Reserve Fund and congratulating those responsible for its good results. However, as we congratulate ourselves on this success, there is a real danger that we will lose sight of the wider picture. The National Pensions Reserve Fund cannot and will never provide a pension for everyone in the country who needs one.

Some months ago, the Minister for Social and Family Affairs, Deputy Brennan, had the courage to fly a kite in the House by suggesting the time may have come to make it compulsory for every employee to provide for his or her own pension. This kite was promptly shot down, which I was sorry to see. When I spoke on the conclusion of the Bill in question, I made an effort to determine whether we could patch up the kite so it would fly again, and today I would like to make another effort to keep it in the air.

Senator Cox referred to the difficulty of making pensions compulsory and to the dangers associated with our competitiveness. I understand her point but believe people will never obtain pension cover voluntarily. Young people will not provide for their pensions until they have to do so. The only way to solve the pension problem we face is to make it compulsory for everybody at work to contribute to his or her own pension. One could say we do so at present by paying PRSI, which may be correct, but if people are to have decent pensions to provide for themselves in their retirement, they must pay out more than they do at present. If they expect that some future Government will play fairy godmother for them on this question, they are incorrect. We have more than enough experience of the voluntary approach to know it simply will not work.

I know the difficulties the Minister will face and that addressing them will not be easy. If people put aside money for pensions throughout their working careers, they will make it possible to get a decent pension at a cost that is reasonable. This will not happen if they wait until they are in their 40s.

A recent survey, conducted by the Pensions Board since I last spoke on this matter, indicated that two thirds of respondents said it should be compulsory to provide for one's pension. Nearly half said they would be willing to pay PRSI at a higher rate to achieve this. What people are saying has not been heard before. The kite of mandatory pension contributions is still in the air. The next step is up to the Government and I hope it will listen to what the people are saying on this very important matter. While we usually dislike things that are compulsory, evidence now suggests that a majority of people want to be compelled in the case of pension provision.

Shane Ross (Independent)
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After the NTMA was set up, its chief executive, Mr. Michael Somers, and the Minister for Finance used to hold annual press conferences. The Minister used to sit and glory in the performance of the agency and he attracted a great deal of press publicity because there was nothing else to cover on 31 December. Every year he and the chief executive stated how wonderfully the agency had performed in reducing the national debt. It did a wonderful job because it set its own benchmark — it was unique in this regard. It always congratulated itself on reducing the national debt but never had any standard to set it against. The media, politicians and public believed it when it said it had done very well. Even when the national debt increased, it said it had surpassed its target, which was a very liberal benchmark set by itself every year.

When I see press releases such as that issued some weeks ago on the performance of the National Pensions Reserve Fund and when I read the Government motion today, I believe history is repeating itself. The National Pensions Reserve Fund says it has achieved a return of 5.4% in the first quarter and that this is very good. It is not very good at all — the truth is that it is abysmal. A return of 5.4% is nice in that if one multiplies it by four, one gets a return of between 21% and 22% in the year, but if one notes where the fund is invested, examines the performance of competitors and measures it against any other standard, one will conclude that its performance is dreadful. The fund underperforms in comparison with those of private sector fund managers — the Fine Gael amendment covers this fairly well. We find that the National Pensions Reserve Fund has been inexplicably bad in the past year and a quarter. In the three months referred to, it is very difficult to understand how it only increased by 5.4%. The majority of its investments are in the stock market. Stocks in the Pacific Basin increased by 5.7%; stocks in Japan increased by 6.8%; stocks in the rest of Europe increased by 8.5%; stocks in the eurozone increased by10.4%; stocks in North America increased by 4.5% — so the fund beat them by almost 1%; stocks in the UK increased by 7.6%; and stocks in Ireland increased by 10.2%. The fund is second from the bottom when measured against those geographic sections.

I apologise to the House for not having had time to investigate this. I do not understand how it has done so badly. If it is invested in an average of all those markets, its performance would be at least 2% or 3% better. While it has issued a report stating it has increased by 5.4%, it is measuring itself against absolute zero; it does not have a benchmark. When measured against a world index, it has done badly. When measured against bonds, it has probably done well. When measured against property, it has obviously done pretty disastrously. While I cannot remember, I presume that at the end of last year it congratulated itself on a magnificent performance in increasing by 19.6%.

When its performance is measured against that of other fund managers, including private pension fund managers, who made 21.6%, it was beaten by 2%. I wonder what these guys are up to and how they manage to do quite so badly. A blind donkey would have made money in the equity markets in the past two years. A monkey throwing darts at the equity market would have made huge amounts of money. However, this fund seems to have done very badly. As the Minister will know, in bad years it did badly and lost money. However, the problem is with underperformance. Underperforming against fund managers is quite serious as the National Pensions Reserve Fund is managed by fund managers who compete with the fund managers I quoted. I do not understand all the patting on the back. While the headline figure of 5.4% looks pretty good, it is not very good when compared with anybody else or any other markets in the world. It is good against cash and bonds. However, it is not very good against anything else against which it should measure itself.

There is a danger in politicians of all sides using this fund of €16.6 billion for other purposes and the Government is to be congratulated on not having done so. It would be easy to make a political decision to invest this fund in infrastructure and it certainly would be open to immense temptation and abuse. We could build, roads, hospitals, etc., which would not give a return for pensioners. Financial discipline requires that this money remains and is retained purely for pension purposes, otherwise it will be abused willy-nilly by politicians of all parties.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I welcome this motion, as it gives me an opportunity to reaffirm the Government's continuing support for the purpose for which the National Pensions Reserve Fund was established and to set out, without ambiguity, the Government's commitment to the future of the fund.

Population ageing, and the profound issues it gives rise to, is emerging in the developed world as one of the major public policy concerns of this century. Due to the twin effects of a lower birth rate and population ageing, the percentage of the population in the labour force is set to fall in developed economies with serious implications for the financial sustainability of pensions, health and long-term care systems. We, in Ireland, also face these issues although our population, which is younger than the European average, gives us some time to prepare for them. I note some comment in recent years that, due to increased immigration, the issues we face may have eased although such an analysis ignores that immigrants to the country now will be retiring at the same time and with the same pension entitlements as our own baby boom generation of the 1970s and 1980s.

Any complacency anybody might have harboured in this regard should have been rudely blown away by the projections contained in the national pensions review recently published by the pensions board. The board projects that annual social welfare pension costs will rise from their current level of 3% of GNP to 10.1% of GNP by mid-century with public service pension costs projected to climb from 1.3% of GNP to 3.7% over the same period. Even when the Pensions Board adjusts its projections and uses a higher immigration rate, the mid-century costs of social welfare pensions fall by only 1% to 9.1% of GNP. In other words, immigration in no way eliminates the effects of population ageing.

I recognise that projections are only as strong on the assumptions on which they are based and cannot accurately predict the future. Nobody knows for certain whether the public pension's bill in mid-century will be 12%, 14% or 16% of GNP. However, we it will be a great deal higher than it is now and that the only question is the severity of the issue. Sensible governments make prudent provision for the future based on the most likely scenario, which is exactly what the Government has done with the establishment of the National Pensions Reserve Fund.

Before coming to the fund itself, I would like to dwell briefly on the key role of the social welfare pension in our pension system. The national pensions review, to which I have already referred, has made a large number of recommendations regarding how our pension system might be improved. Many of these recommendations are concerned with occupational and private pensions and are beyond the scope of this debate. However, in its overview it makes a point crucial to any consideration of our pension system, which is that Ireland already has a good level of pensions provision and a sound pension base.

The social welfare pension is the bedrock of our pension system. For those with little or no supplementary provision, it provides the only source of regular income in their retirement. For those in a position to make their own supplementary pension arrangements, it provides a basic level of income on which they can build. It also means that not all of their retirement income is dependent on the performance of their pension investments, which is an increasingly important consideration as private and occupational pensions are increasingly provided on a defined contribution basis.

The Government is acutely conscious of the key role of the social welfare pension in ensuring that people can maintain an acceptable standard of living in their retirement and as a foundation on which occupational and private pensions can be built. Since coming into office, the Government has made significant improvements in the real level of benefits and is committed to increasing pensions to €200 per week by 2007. However, there is little point in increasing pension levels if such increases are not sustainable in the long term. Securing the State pension system in an environment where the burden on the taxpayer is rising dramatically is one of the central challenges we face as a society and the Government established the National Pensions Reserve Fund in order to meet that challenge.

The Government established the National Pensions Reserve Fund in 2001 to meet in part the increased costs of social welfare and public service pensions from 2025 onwards. The fund is essentially a demographic equalisation mechanism, involving the statutory investment by the Government of 1% of GNP annually — a sum equivalent to over €1.4 billion this year. The fund entails setting aside some of the revenues generated now while the bulk of our population is in the labour force and contributing to economic growth, investing in those funds and drawing them down in the future when growth rates are likely to be slower and the age dependency burden very much increased.

Establishment of the fund before the fiscal issues caused by population ageing begin to bite means that relatively modest contributions can have a significant effect. It is projected that the fund will be equivalent to €140 billion, 40% of GNP, in 2025 — the first year of drawdown.

The national pensions review projects, using conservative return assumptions, that payments from the fund could reduce the impact of pension payments on the Exchequer by 3.5% of GNP annually by mid-century, which is a quarter of the total cost. The fund smooths the Exchequer costs arising from Ireland's pension commitments over a lengthy period, thus contributing to the long-term sustainability of the pensions system. To the extent that the fund defrays future pension costs, the need for less palatable and indeed less equitable means of addressing the issue, such as reducing the real value of pensions, significantly increasing taxation or increasing the retirement age, can be allayed.

The establishment of the National Pensions Reserve Fund has placed Ireland at the forefront of countries preparing for the issues caused by population ageing, and France and New Zealand have since established very similar funds. It is a testament to the vision of my predecessor,Charlie McCreevy, that specific and innovative aspects of the National Pensions Reserve Fund Act 2000 have now come to be seen as international best practice in this area. In this regard, I refer particularly to the fact that the fund is managed by an expert commission, which is independent of Government in the exercise of its functions. Indeed, the commission is in a very similar position to the trustees of private pension funds, and it controls and manages the fund with discretionary authority to determine and implement its investment strategy. This has given the commission the freedom to develop, outside of the political process, a long-term investment strategy primarily based on a diversified portfolio of real assets, including quoted and private equity, property and commodities, outside of the political process. Indeed, a long-term State fund with no need for liquidity or to match liabilities on a yearly basis has some clear advantages in seeking to maximise long-term investment returns. The commission is to be congratulated on recognising those opportunities and on taking steps to profit from them.

The legislation also requires that the fund's investment strategy must be on commercial lines, subject to prudent risk management. This means that the commission cannot make investments for any purposes other than maximising the fund's contribution to Ireland's future pension costs. This represents a very clear-sighted approach and one which will bear rich dividends through a focused and disciplined investment strategy. From time to time, there are calls for the fund to be used for specific purposes, particularly in our infrastructural programme. Any decision in this regard is one for the commission, and the commission has stated that it is keen to make such investments, subject to its receiving a commercial rate of return. While I am on this subject, I also note that lack of capital is not an issue with Ireland's PPP programme, and the success or otherwise of the programme is not in any way dependent on investment by the fund.

A third noteworthy feature of the National Pensions Reserve Fund Act is the mandatory nature of the 1% of GNP contribution. The Government made the contribution mandatory because we recognised that if we left discretion in the level of the minimum contribution, future Administrations could come under pressure not to make the contribution when faced with other competing, more short-term priorities. It was this Government's opinion then, and it remains our opinion now, that any short-term difficulties that the payment may cause the Exchequer are more than offset by the long-term gain. We see the 1% of GNP contribution as a prudent and sustainable annual commitment. Indeed, it is worth noting that, in aggregate, the Government has not engaged in borrowing to make contributions to the National Pensions Reserve Fund since it began setting aside money for pensions prefunding after the Eircom flotation in 1999. In the seven years of contributions, the Government has run budget surpluses in five of those years, and the total budget surplus over the period is just under €4 billion. Moreover, payments into the fund do not count as Government expenditure for the purposes of calculating the general Government balance under the Maastricht rules.

It is no secret that the fund was established in very difficult market circumstances, with the bursting of the stock market bubble of the late 1990s and the subsequent bear market of 2000 to 2002. However, the commission coped with these circumstances extremely well through a phased market entry strategy which enabled it to invest at attractive valuations and to profit as the market recovery took hold from early 2003. In 2005, the fund earned a return of 19.6%, or €2.4 billion. In the first quarter of this year, it has earned a further 5.4% or €830 million, bringing its total value to €16.6 billion. Overall, since its inception to the end of March this year, the fund has earned €4.1 billion in excess of contributions from the Exchequer equivalent to a compound annual return of 6.2%. Compared with an alternative use of paying down the national debt, the State is better off by €2.1 billion from the establishment of the fund.

In its annual review in 2005, the commission pointed out that equity markets were volatile and returns of last year's magnitude should not be regarded as the norm. However, as a long-term investor, it is prepared to accept this volatility. It goes on to state that the biggest risk it could run would be to take an overly cautious investment approach and thus reduce the fund's potential contribution to Ireland's increasing pension costs. I believe that is a crucial point. I am aware, and I accept, that the appropriate investment strategy for a long-term fund with no drawdowns for 20 years can lead to short-term volatility. There were those who did not accept this point when the fund experienced negative returns in 2002 and criticised both the Government for establishing the fund and the commission for its investment strategy. I would hope that such critics would take a more long-term and rational perspective in future.

The commission has also been innovative and to the forefront of best practice in other areas. Last week, it joined a group of the world's largest institutional investment funds in signing the principles for responsible investment at their launch at the New York Stock Exchange by the UN Secretary General, Kofi Annan. The principles are based on the premise that environmental, social and governance factors can materially affect investment performance, but that large institutional investors have lacked a framework for the systematic integration of those environmental, social and governance issues into investment decision-making and ownership practices. The commission has said the launch of these principles is the beginning of a process which will see the fund taking account of environmental, social and governance factors in its investment strategies and becoming a more engaged shareholder in the companies in which it invests. As Minister for Finance, I fully endorse the principles and believe they represent a significant step towards bringing consideration of those issues into the investment mainstream. Their application should lead not only to better long-term financial returns but to a closer alignment between the objectives of institutional investors and those of society at large.

On Senator Ross's point about investment returns, I can only say that we did not set up the pensions reserve fund as some sort of investment competition to measure investment returns. Realistically, one must look at the performance over the medium to long term. It will always be possible to find some three-month period when some other fund performed better. I am happy that we will be able to look back, when the pensions crunch inevitably comes, and be satisfied that the modest contributions we are currently making to the pensions reserve fund will have been well worthwhile.

Senator Terry asked why we have not sought to invest to assist the Irish economy. The recent ESRI reports, and others, show that we have sufficient funds for investment, and capital investment particularly. We have to avoid issues that arose in the past, when we saw value-for-money issues come into play over the rising costs, particularly in the construction industry, where we saw what happened with inflation. We can spend more money, but we may not get the outputs that we need. With Transport 21 and the investment strategy we are proposing there, some economists would claim — Members can seek them out for different opinions — that we are trying to do too much too fast. Try to tell that to someone stuck in traffic gridlock. John Kenneth Galbraith unfortunately departed this world last week, but I read an acerbic comment he made once about economic forecasting. He said that the reason we had economic forecasting was to make astrology look good. Although that might have been an over-emphasis on his part, his stature allows us at least to repeat the comment, if not to stack it up.

Finally, the independence of the fund must be respected. We do not want to politicise the fund; we want to ensure that it has a commercial mandate. The development we saw in the New York Stock Exchange last week helps to assuage some adverse comment that I know has been raised in the finance committee, when people from the fund were before it, including the chairman and the chief executive.

It would be remiss of me not to pay tribute to the fund's first chairman, Mr. Donal Geaney, who unfortunately passed away last October. Working with his fellow commissioners and the NTMA, Donal did a superb job in developing what was effectively a €6.5 billion cash holding on its establishment five years ago and what has become the diversified internationally regarded fund we have today. I know from the commission and the NTMA how Donal continued to give of his time to the fund even as he fought his last illness. I know that also from personal knowledge. We are fortunate that people such as Donal are willing to give of their talents to the public service.

The establishment of the National Pensions Reserve Fund will not, on its own, solve the pensions issue or all of the problems posed by population ageing, as Senator Quinn pointed out. However, it considerably assists in putting our public pension system on a sustainable basis. It is a real and lasting achievement by this generation and represents an equitable sharing of the burden of future pension provision and the fruits of our current economic prosperity.

In that sense, it is an extraordinary responsible initiative and, politically, it demonstrates considerable foresight and maturity in our society and politics such that we were able to bring forward this proposal, enact it, and see it professionally managed to the extent that we have seen thus far, despite the volatility in the various markets. It was an important strategic decision, as Senator Hanafin said, and one that, if it is to have a strategic impact, must be allowed to continue with the integrity of the framework to protect and enhance it.

Sheila Terry (Fine Gael)
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Will the Minister comment on the use of the fund for investment purposes?

Paddy Burke (Fine Gael)
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I welcome the Minister for Finance to the House. He is a great person for coming into this House, often at short notice, to deal with various issues.

I wish to respond to a number of points he made. The independence of the fund must be respected by everybody. That is only right. The Minister said that the establishment of the National Pensions Reserve Fund will not, on its own, solve the pensions issue. Everybody will agree with that point. That is the reason I agree with the amendment to the motion put forward by my colleague, Senator Terry, outlining that the Government can and should do more to provide pension cover for everybody concerned.

I compliment the former Minister for Finance, Charlie McCreevy, who is now a Commissioner, on setting up this fund. He was far-sighted in doing so. As pointed out by the Minister, it is a model for other European countries.

The CSO came up with interesting figures in the not too distant past when it indicated that around half the workforce do not have a pension scheme. Figures from the Irish Association of Pension Funds show the average contribution to pension schemes is 10%, however, in order to maintain an adequate income in retirement the figure should be around 15% to 25%.

The CSO also estimates that the number of people aged over 65 will rise to 858,800 by 2031, which will represent almost one in five people in the State. The average age will also rise from 34 years to 42 years. The CSO also said that in the mid-east region, comprising Kildare, Meath and Wicklow, the number of people over the age of the 65 will rise by 211% and by 140% in the Dublin area. It is thought that by the 2050 there will be only two working people for every pensioner in the State. In light of those figures, the Government can do more to provide pension cover for our people.

Senator Ross presented interesting figures on how the National Pensions Reserve Fund has performed during the past three months. The growth rates in all the stock markets, which is where it has invested most of its funds, have beaten the growth rate of the fund. The growth rate of the UK market, the Irish market and the European zone have passed out the National Pensions Reserve Fund growth of 5.4% over the first three months of this year.

This brings me to Senator Terry's point, as to the reason moneys in the National Pensions Reserve Fund cannot be used to invest in infrastructural projects. Moneys from the fund could be invested in many areas including roads, water and sewerage schemes, the rail network and airports.

The new 40 k.m. motorway which opened recently bypassing Kinnegad, Enfield and other towns, did not require the investment of a significant amount of money, yet its growth in terms of a return is high. People would accept the tolling of roads more easily if they knew that the return on such investment in road projects was being used to provide a pension not only for themselves but for future generations. Moneys from the fund could be invested in hospitals, schools and road projects. The fund should examine investment in such projects. The Minister for Finance said there is no problem with capital funding for such projects, which I can understand. There is a queue to invest in such projects because there is a high return on such investment. I cannot understand the reason the National Pensions Reserve Fund has not got in on the act.

Several speakers alluded to the problem of the provision of pensions for future generations. Some former Telecom employees retired on what they thought was a good pension. They had paid into the pension fund but subsequently realised their pension was not much more than the old age pension. In many cases, there was no increase in their pension over the years. We must provide for pensions that increase in line with inflation. There is an onus on this and future Governments to index link all pensions, regardless of the individuals concerned and when they retire.

Sheila Terry (Fine Gael)
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Hear, hear.

Paddy Burke (Fine Gael)
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That has not happened in the past. Some people have paid into public or private pension funds, the expected value of which has not materialised. The pension they receive is not much more than the old age pension. It is terrible that some people have paid into pension funds throughout their working life yet there has been no increase in their pension benefit. I stress what happened in the case of former Telecom employees, some of whom advised me that their pension is not much more than the old age pension.

The Government has set the target in the provision of pensions. There is a greater awareness by employers of the need to provide pension cover and a greater onus on them to put in place pension plans for their employees.

Local authority members who pay PAYE are not entitled to a pension. I am not sure whether such provision would pose a problem for the Minister for Finance, the Minister for Social and Family Affairs or the Minister for the Environment, Heritage and Local Government. Surely somebody is responsible for local authority members. In some cases their council work constitutes their full-time employment. The Minister for the Environment, Heritage and Local Government said he does not intend to provide a pension for them. As an employer, I am required to put a pension plan in place for my employees. I have to put a plan in place, although there is no onus on me to pay into it. There is an onus on the Government or the local authorities to put in place a pension plan for local authority members. In some cases their council work constitutes their only means of income or wage packet. The Government and the local authorities are not doing anything to provide pensions for them. Somebody has made a mistake in this regard. The State is wide open to a legal challenge. There could be another scandal in the years to come, like the scandal involving retired people in nursing homes, this time involving members of local authorities who were not given pension plans. The Minister of State, Deputy Parlon, should raise this matter with the Ministers for Finance and Social and Family Affairs. The Government has raised the bar in respect of pensions, but no pension plans have been put in place to cater for the public servants to whom I refer. They cannot contribute to pension schemes. I hope the Minister of State will speak to the Minister for Finance about this issue.

Terry Leyden (Fianna Fail)
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I welcome the Minister of State, Deputy Parlon, to the House. I would like to pick up on the comments which were made by Senator Paddy Burke. The Fianna Fáil Senators are extremely concerned about the lack of pension opportunities for elected members of local authorities. It is absolutely wrong that such people are being deprived of the opportunity to avail of the provisions of the Local Government (Superannuation) Act 1980 and the 1998 local government superannuation consolidation scheme. All other employees of local authorities are availing of the systems which are in place, as they are entitled to do.

Although we are advocating pensions for all — one of the Government's policies is to encourage people to take out private pensions when State schemes are not available to them — councillors who are elected by the people to represent them are unable to participate in the schemes I have mentioned. Not all councillors would wish to avail of a pension scheme, but the option of contributing 5% of their representative allowance to a fund should be open to those who wish to do so. I know we will hear more about this because my colleagues on both sides of the House are very supportive of the case I am making. I know that Senator Burke——

Rory Kiely (Fianna Fail)
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I remind the Senator that he should speak about the motion before the House.

Terry Leyden (Fianna Fail)
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I appreciate that.

Rory Kiely (Fianna Fail)
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If he speaks about this issue, other Senators might be inclined to do the same.

Terry Leyden (Fianna Fail)
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I know this issue is close to the Cathaoirleach's heart.

Rory Kiely (Fianna Fail)
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I think we should stick to the matter under debate.

Terry Leyden (Fianna Fail)
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I was just responding to the comments of Senator Paddy Burke, who spoke well about this issue in Kilkenny.

Paul Coghlan (Fine Gael)
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Hear, hear.

Terry Leyden (Fianna Fail)
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He gave a clear commitment in this regard on behalf of the leader of the Fine Gael Party. I am not sure whether his commitment that pension schemes will be made available to all councillors if Fine Gael returns to power had been authorised.

I again welcome the Minister of State, Deputy Parlon, to the House. I am delighted that the Minister, Deputy Cowen, was in attendance earlier in this debate. The National Pensions Reserve Fund was established as part of the long-term strategy that is being pursued by the intelligent Government of Fianna Fáil and the Progressive Democrats.

Paul Coghlan (Fine Gael)
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The Minister of State is doing well in this speech.

Terry Leyden (Fianna Fail)
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The Government is planning for the future. It has made plans for 2025. I am sure the Minister of State will agree there needs to be a clear commitment to the fund on the part of all parties. The Government is committed to the retention of a fund that is independent of the Government. The annual allocation of 1% of GNP to the fund now comes to €1.4 billion per annum. All parties which are contesting the next general election will have to state clearly that they will not dip into the fund to offer some goodies to the electorate before the election. I call on the leaders of all the parties which are contesting the election to confirm that the fund cannot and will not be touched.

There is €16.6 billion in the fund at present. If I recall correctly, the Fine Gael Party stated during the last general election campaign that it was prepared to take funds from the National Pensions Reserve Fund to finance current and, in particular, capital expenditure. I am open to correction in that regard — perhaps that was never the policy of the Fine Gael Party. It is important that the fund should be retained and preserved. It had a return of 5.4% during the first quarter of 2006 and it has grown to €16.6 billion, which is very impressive.

I would like to express my appreciation of the efforts of Dr. Michael Somers in managing the National Pensions Reserve Fund on behalf of the State. I join the Minister for Finance, Deputy Cowen, in complimenting the work that was done by the late Mr. Donal Geaney, who was the first chairman of the National Pensions Reserve Fund. Mr. Geaney was also a former chief executive of Elan Corporation, which provides over 500 jobs at the Monksland industrial estate in south Roscommon. The company is emerging from its recession and has a bright future. I understand that the National Pensions Reserve Fund has made some investment in this regard.

The motion submitted by the Fianna Fáil Party proposes that this House "notes the ongoing commitment of the parties in government to the National Pensions Reserve Fund which is helping to ensure future generations of the elderly will be properly provided for", "congratulates the Government for maintaining the National Pensions Reserve Fund and the payment of 1% of GNP per annum into the fund" and "welcomes the fact that in the first quarter of this year the fund earned €830 million or some 5.4% bringing its total value to €16.6 billion". I do not see any reason this good motion should be amended during this debate. I recommend that the motion, as tabled, should be accepted by Members on all sides of the House.

The amendment to the motion "condemns the Government on its failure to make the system of public private partnerships work, leaving the NPRF management unable to invest in vitally important infrastructure". The Minister made it clear that the fund has had no effect on public private partnerships.

Sheila Terry (Fine Gael)
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The Government made a commitment to invest some of the fund's moneys in public private partnerships.

Rory Kiely (Fianna Fail)
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Senator Leyden, without interruption.

Terry Leyden (Fianna Fail)
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If the managers of this independent fund believe they will get a return from investing in public private partnerships, nothing will prevent them from making such investments. The Minister would not object to such investments. It is an independent fund. I strongly recommend that the fund should invest in Aer Lingus, for instance. If we are prepared to ask the public to invest its funds in a public-private company like Aer Lingus, we should not be surprised if the fund has the confidence to invest in Aer Lingus as well.

Sheila Terry (Fine Gael)
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That is all we are saying. I am glad the Senator agrees with us.

Terry Leyden (Fianna Fail)
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I accept Senator Paddy Burke's point about investing in toll roads if there is a good return on them.

Rory Kiely (Fianna Fail)
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We are not discussing toll roads now.

Terry Leyden (Fianna Fail)
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We are talking about the portfolio of investments being made by the National Pensions Reserve Fund. The fund's decision to invest in companies like Imperial Tobacco, Royal Dutch Shell and BP has been criticised. Given that the price of crude oil has increased to $78 a barrel, I think the fund made a wise decision when it decided to invest in Royal Dutch Shell, BP and ExxonMobil.

Rory Kiely (Fianna Fail)
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The Senator has just one minute remaining.

Terry Leyden (Fianna Fail)
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I am sorry that my time has almost come to an end because I had much more to say — a lot done, more to do.

Sheila Terry (Fine Gael)
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The Senator has to hand out some more congratulations.

Terry Leyden (Fianna Fail)
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When one reads the details of the investments made by the fund in companies like Coca-Cola; Fox Entertainment, which is a very good one; BSkyB, in which it has invested €8.2 million; and Microsoft, in which it has invested €47 million, it is clear that it has made some very good investments. There might be questions about the fund's decision to invest in certain companies, like Imperial Tobacco, but it should be borne in mind that the fund is independently managed. The fund has to make the right decisions. If one examines some of the investments made by the churches — I do not refer to the Roman Catholic Church — one will find they are also investing in some dodgy operations as they try to raise funds.

I compliment the Minister, Deputy Cowen, and the Government on their handling of this fund. I compliment the work of Dr. Michael Somers and everyone else involved in the organisation of this fund on doing their work so well. I hope the House will endorse the motion that has been placed before it by the Fianna Fáil Senators.

Joanna Tuffy (Labour)
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I want to support a couple of points which have already been made. The National Pensions Reserve Fund has indicated its willingness to invest moneys in infrastructure in Ireland. An amount of money has been suggested in that regard, but that offer has not been taken up by any Department to date. We know the fund has invested money in projects throughout the world, but it should invest money in the State, especially at a time when investment in infrastructure is needed.

Given that various proposals have been made for projects in which private sector investment is required, it seems ideal for the fund to invest its money in infrastructural projects in Ireland. Certain types of projects, including roads projects, have already been mentioned. There is no doubt that there are projects in this country which would benefit from investment by the fund.

Another issue raised by Senators is the need for ethical considerations to be taken into account when investment decisions are being taken by the fund. I support calls for something to be done in that regard.

Last week I also raised the issue of pensions for councillors. I was at the Local Authority Managers Association, LAMA, conference and the argument was made that councillors were being paid a representational payment, in effect a salary because tax and PRSI are deducted. I looked at the definition of employment recently, regardless of whether somebody is self-employed or working for somebody else. Going through the different criteria listed in a leaflet published by the Revenue Commissioners, I concluded that the courts would determine that councillors were actually employees.

For all those reasons, if councillors were to take a legal challenge they probably would be vindicated in asserting that they are employees and, as such, are entitled to pensions. It is not as if they are just expecting a pension. What is being proposed is that they should pay their contributions. The money involved would not be much more than the gratuity they receive at present. The argument that they are not employees is greatly undermined by the fact that if a councillor is involved in other employment he or she gets very little as regards the so-called representational payment, because so much of this is paid in tax. I thought this debate might provide a good opportunity to raise this issue and perhaps the Minister of State might relay these sentiments to the Government.

Camillus Glynn (Fianna Fail)
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I wish to share my time with Senator White.

Rory Kiely (Fianna Fail)
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The Senators will have four minutes each. Is that agreed? Agreed.

Camillus Glynn (Fianna Fail)
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Tá seanfhocal ann, agus séard a deireann sé ná: ní hé lá na gaoithe lá na scolb. Is fíor é sin a rá. The old adage is that the day of the wind is not the day of the scollops. Hence, this Government's measure as regards the National Pensions Reserve Fund was proactive and clearly took into account a number of factors, namely, family numbers are decreasing and people are living longer. At yesterday's meeting of the Joint Committee on Social and Family Affairs, some important statistics were presented pertaining to the number of people living beyond a certain age, in contrast to what the situation was some years ago.

Another development was that people should be allowed to work longer after the age of 65. I believe that one of the greatest causes of the brain drain was people leaving certain services. This argument does not pertain to all services. A person can be old at 45, while someone who is 70 can be young in terms of their respective mental and physical capabilities. We must take into account people who have had to leave the public sector workforce, especially women. I am speaking specifically about women who had to leave the public service because of the marriage bar. I am not sure that this particular situation has been addressed and I ask the Minister of State to do so.

I strongly support the comments made by Senators Leyden, Tuffy and others pertaining to the pension for councillors. I will give the Minister of State an example of, say, Joe and Pat, who were the same age on 1 July 1966. One became a member of Westmeath County Council and the other became a carpenter. On 30 June 2006 they will retire. The carpenter will leave with his pension and gratuity, and rightly so. The councillor will leave with a few bob from some time in May 2000 and not a cent of a pension.

I joined the local authority in 1979 and can assert that the activities and commitment that must be given today are greatly different to that which obtained then. It is a totally different ballgame, a full-time job. I am not specifically talking about county councillors. I am referring to city, borough, urban councillors and town commissioners as well, who should all be taken into the loop and the appropriate mechanism found to award them pensions. Senator Leyden is correct. I am not going to parrot what he said, but I support it, because it is the truth.

As regards the investment of the pensions reserve fund, it would be remiss of this or any Government in preparing for the future not to endeavour to make the money work for it. As the Minister of State said in his concluding remarks, it is not the entire panacea that will resolve this difficulty, but only part of it. He said the establishment of the reserve fund would not of itself solve the pensions issue or all the problems posed by population ageing. It assists considerably, however, he said, in putting the public pensions system onto a sustainable basis.

I agree with Senator Leyden that there should not be an amendment to this motion. Politics aside, this has been one of the most proactive measures taken by any Government in my lifetime in ensuring that the people who built this State and those who are building it, will have a future in terms of pension rights.

Mary White (Fianna Fail)
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I welcome the Minister of State. I saw him on "Prime Time" the other night and he batted brilliantly. He looked the part as well. Having seen him in his IFA days, he is playing a different role now, and is dressed for this one, as a politician. I am just being straight.

As Senator Glynn said, I do not want to parrot what other Members of the House have said for the last hour and a half. However, in a couple of weeks I shall be launching a document, A New Approach to Ageing and Ageism. One of its propositions is that mandatory retirement for all public service employees and obligatory retirement in the private sector should be abolished immediately. Continued employment should be subject to the same assessment criteria, competency, ability and good health, that are used by employers in the case of employees of all ages.

It is discrimination if a person has to retire at 65. In many cases women, including myself, had to retire when they got married in 1969. Many women of 65 have been discriminated against, twice. I have had many public meetings in developing my document, and people have been coming practically in tears who are having to retire this year although they do not wish to. For many people a job is not just about money. The social aspect is important as well. A quarter of those who retire every year would prefer to remain at work.

I am proposing there should be phased retirement. At the moment no measures are in place to aid the smooth transition between employment and retirement. People who choose to retire often find the abrupt transition from full-time employment difficult to cope with. Some 70% of people would prefer a process of phased retirement. This concept is supported by the Equality Authority in its 2002 document, Equality for Older People. I propose we introduce phased retirement options to allow workers to gradually retire and offset the impact of a sudden cessation of working life. The ability to phase retirement would begin at the employee's minimum retirement age, in agreement with the employer. Part-time work options should also be introduced to allow older people to supplement pension shortfalls — in order to delay the drawing down of pensions pending higher returns. That is putting it in a nutshell. I will launch an extensive document at the end of May on my new approach to ageing and ageism. I hope it will have the same impact as my document on a new approach to child care which was produced a year and a half ago.

Joe O'Toole (Independent)
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This is a timely motion. I welcome the Minister of State, Deputy Parlon, to the House. On a number of occasions I have supported fundamentally — as I did in another life — the establishment of the National Pensions Reserve Fund. It was probably the finest moment of the former Minister, Mr. McCreevy's, tenure. I supported it then against many odds and when many groups in society were opposed to it. It is the essence of good politics to take a decision that will not bear fruit for more than 20 years because it means there is nothing in it for the person taking the decision. I also believe that the Government since then has been right to ensure that nobody could get their fingers into the trough of the National Pensions Reserve Fund.

I fundamentally disagree with the view offered by Senator Ross earlier in which he referred to the fact that a blind donkey could do better in terms of earning more money. If he can find that blind donkey I will be a customer of it anytime. To subvert that often heard phrase, "Live donkey and you will get grass." I will feed that donkey with grass as long as it keeps producing these kind of results.

It is worthwhile reminding ourselves what exactly has emerged from the National Pensions Reserve Fund. During the first quarter of this year it showed a return of 5.4%. More importantly, it showed a return last year of 20%, which is great. It is also important to recognise that in 2002-03 when equities fared badly and the fund did not do well that politicians from all sides, including Senator Ross, were the first to say that this was not astute management. I welcome the opportunity of putting on the record that the kind of management that has taken place under the aegis of the National Pensions Reserve Fund has been very good in terms of its objective, which is to have 9% in small cap equities and in private equity over the next four or five years. This is most shrewd.

The National Pensions Reserve Fund must be complimented on the fact that it has resisted what the blind donkeys have done all over Europe, namely, put our money into hedge funds. I would not sleep soundly at night if I thought my pension fund manager was putting money into hedge funds. The Minister for Finance did not make the point that in comparing issues we must compare like with like.

Senator Ross referred to far higher returns than the National Pensions Reserve Fund has achieved but it would be helpful if he made the comparison with pension fund management as opposed to equity fund management and the kind of approach that must be taken. The fact that the National Pensions Reserve Fund people have managed to get a 6% compound increase over the past four or five years is something on which it should be complimented.

It is also a fact that in terms of the outlay, it is appropriate that almost 20% of the investment is in bonds and cash. The funds that were referenced by the blind donkey were funds that have no money in bonds or cash because these are parts of the safe investment that has to be done in any maturely invested and managed pension fund. I welcome that.

I do not know if the point was made earlier that the National Pensions Reserve Fund cannot be invested in Government bonds. It is precluded by law from doing so for very sound reasons. If we are looking after our future we do not need to invest in our future to secure it. That would be like chasing our own tail.

It is appropriate that instead of investing in hedge funds the National Pensions Reserve Fund has managed to put 2% or 3% of the total fund into emerging markets. Overall, we should say to people that this money is wisely, shrewdly and properly invested and that it does look to our future. That is something about which we can be proud.

Another point that has not been made is that when this fund was established in the first place there was a concern about the problem of paying for our pensions from the year 2020 onwards and that because there would be so few people working to support those people who would no longer be working this would cause a major problem for the future. One significant thing has happened since then, that is, thankfully, that there has been a huge influx of immigrants to this country in order to ensure the growth of our economy and to pay our pensions in the future. Every time we hear it said in debate that people are coming to this country and supposedly taking Irish people's jobs, even though they are jobs Irish people do not want to do, we should point out that this is how our pension will be paid. What is happening is that this is securing our future.

The other thing we need to say which is not something the Department of Finance is inclined to say, but it is worth saying, is that even in 2000 or 2001 when we established this fund and when we were worried about our exposure and liability in the future we had a lesser pro rata exposure than, for instance, Italy or Germany and they have not taken anything like these measures. We have been far more astute in dealing with that problem and at the same time our problem has eased so it is fair to say we have made significant progress.

The point the Minister made in his contribution is one which we need to examine and which is not understood by too many people — that people paying their stamps will have their basic social welfare pension and when we talk about having an obligatory pension — my colleague Senator Quinn and I have been saying this for many years — that it is building on top of that. We should say to people that by paying their PRSI, people will develop an entitlement to the social welfare fund but that will not be enough to look after them. If one wants the level of comfort to which one is used, one must also make a commitment to a private investment. That is the future.

One thing about which I worry — I heard somebody say it on the radio during the week — is that pension funds are not the best approach. They might not be the best approach but perhaps no one way is the best. The same man said one would be better off investing in property. I will say two things about that. First, over the past 30 years, property has not done as well as equities. We should keep reminding ourselves of that. Over the past ten or 12 years property prices have escalated in this country but over the past 30 or 40 years they would not even touch what equities have done. Second, properly invested pension funds will also include an investment of some kind in property. For instance, about 5% of the National Pensions Reserve Fund is invested in property.

We should put some simple facts to the public when we talk about this matter in future. First, our investment is a good idea and that it is properly and responsibly managed. Second, when we ask people to invest in pensions in future we should stress that it is to give them a level of comfort which they will not otherwise have. They are doing it for themselves. Third, it does not take from the social welfare pension which would still be available. Fourth, that putting all one's eggs in one basket is what one does if one invests in property instead of in a pension fund. That is exactly what is wrong with it. In the meantime we will keep an eye out for the mad donkey and if the Minister of State can find him, he and I will pay for its upkeep over the winter and see what it will do for us.

Margaret Cox (Fianna Fail)
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I thank all Senators who have spoken in this debate. It is interesting that there is a great communality between the views that have been expressed and a clear focus in regard to the problem that we are working towards solving in the future. I reiterate the point regularly made by Senator Terry when we debate the pensions issue in this House. It is appropriate for us to examine the National Pensions Reserve Fund, ask the questions and look for the answers. A significant amount is invested on an annual basis but the most important issue is how the money will be put to work and how important it is to the people who will be dependent on the fund for their statutory pension when they retire. We live in a changing world with people living longer, families becoming smaller, separation and divorce occurring more frequently and contract and part-time work becoming more prevalent. These issues must be put in context for future pension provision.

I refer to the difference between men and women. Women often earn less than men and have a broken career pattern. Reference was made to the importance of the social welfare system, which accepts PRSI payments from people looking after children and provides an income disregard for child care payments. Women also live longer than men, according to the recent Pensions Board report, which was issued as part of National Pensions Awareness Week. Men retiring at 65 years can expect to live until 81 while women who retire at the same age can expect to live to 84. There will be many sad widows throughout the State. However, we are all living longer and we must prepare for that. A total of 58.6% of the adult workforce is aged over 30 while less than 16% work in the agriculture, catering and tourism industries or are engaged in part-time or seasonal work. They do not have private pensions, which is a major problem.

The consensus is that the fund is a good concept and it is performing well. It needs to be scrutinised on an annual basis and it must have clear objectives, given the large amount involved but it represents the future of pensions. As Senator O'Toole stated, the fund is only one solution to the pensions problem and a range of solutions is needed. There must be choice and flexibility and, without the fund, we would not experience choice when we reach retirement age. I thank all those who contributed and I commend the motion to the House.