Joanna Tuffy (Dublin Mid West, Labour)
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Question 71: To ask the Minister for Finance if, in view of proposals to finance bank recapitalisation using assets held by the National Pension Reserve Fund, he proposes to introduce other measures to reinforce the fund in order to ensure that a large funding gap does not open with respect to the future cost of public sector and State pension costs after 2025; and if he will make a statement on the matter. [6359/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The National Pensions Reserve Fund (NPRF) was established on 2 April 2001 under the National Pensions Reserve Fund Act 2000 with the objective of meeting as much as possible of the cost to the Exchequer of social welfare and public service pensions to be paid from the year 2025 until at least 2055. The National Pensions Reserve Fund Commission controls, manages and invests the assets of the Fund, to which the Exchequer contributes an amount equivalent to 1% of GNP each year, in accordance with the Fund's investment policy.

On 11 February 2009, I announced details of a scheme designed to recapitalise the two main Irish banks, Allied Irish Bank and Bank of Ireland. The recapitalisation programme will be funded from the NPRF. €4 billion will come from the Fund's current resources while €3 billion will be provided by means of a frontloading of the Exchequer contributions for 2009 and 2010. The necessary amending legislation to the National Pensions Reserve Fund Act 2000 will be introduced shortly.

As part of this scheme, the NPRF will acquire a significant number of preference shares in the two institutions involved. The shares will pay a fixed dividend of 8% payable in cash or ordinary shares in lieu. These shares can be repurchased at par up to the fifth anniversary of issue and at 125% of face value thereafter. Warrants attached to the preference shares give an option to purchase up to 25% of the existing ordinary shares of each bank calculated on a post-dilution basis.

I expect that this participation by the NPRF in the recapitalisation exercise will yield a satisfactory return for the Fund over time and will assist the Fund in its purpose of meeting as much as possible of the cost to the Exchequer of social welfare pensions and public service pensions, to which the Fund will start to contribute in 2025.